DAMAGES CLAIMS IN THE COMPETITION APPEAL TRIBUNAL – WHERE HAVE WE COME FROM AND WHERE TO NEXT?

Introduction

Will 2022 be seen as the year in which the gates finally opened for damages claims in the Competition Appeal Tribunal (CAT)?

If so, some might say it has been some time in the making. The CAT originally was best known as the forum for appealing decisions of the U.K.’s primary competition authority (the Competition and Markets Authority (CMA)). However, changes brought about by the Consumer Rights Act 2015 (CRA) enabled the CAT to hear a wider range of private damages claims. In particular, the CRA introduced two new types of proceedings:

• Opt-out Collective Proceedings: These are in effect ‘class action’ proceedings where a class representative claims against the defendant(s) on behalf of a defined class of claimants (such that specific members of the class who do not wish to be bound by the claim must take positive steps to opt out of it). It has been possible to bring opt-in collective proceedings in the CAT since 2002. But the requirement for each member of the class to be identified at the outset and expressly authorise the claim is generally thought to make claims economically unviable, and therefore they have not found favour with claimants.
• ‘Standalone’ claims: These are damages claims (brought either as collective proceedings or as non-collective claims) for infringement of competition law that are not based on a competition authority decision that an infringement has occurred and therefore require liability to be established on the facts. This is by contrast to ‘follow-on’ claims which rely on a competition authority decision that has already established liability^[1].

Standalone claims in the CAT made some progress relatively early on. For example, in 2016, Mastercard was ordered at first instance to pay Sainsbury’s £69 million in damages in respect of its U.K. Multilateral Interchange Fees^[2] (MIFs). In a decision subsequently upheld by the Supreme Court, the Court of Appeal overturned the first instance judgment, and remitted the issue of quantum to the CAT (among other things) for reconsideration, following which the case was settled^[3].

Opt-out collective proceedings brought under the revamped regime have taken longer to get going. The Supreme Court’s judgment in Merricks v Mastercard^[4] in 2020 confirmed the correct test for certification of a collective proceeding, a necessary preliminary step before the proposed class representative (PCR) can proceed with the claim. Coming five years after the introduction of opt-out collective proceedings in the CAT, the Supreme Court’s judgment confirmed that the bar for certification was relatively low, which has led to a recent slew of standalone and follow-on opt-out collective actions being certified, as we discuss below.

Recent years have also seen a number of non-collective follow-on claims making their way through the CAT, such as those comprising the Trucks cartel litigation, and a very large number of (at least partially follow-on) retailer claims against Mastercard and Visa in the MIF litigation^[5].

Given the current tendency to transfer competition damages claims from the High Court to the CAT (as has happened recently in respect of the MIF litigation) and the fact that collective proceedings must be dealt with in the CAT, the CAT is now the venue of choice for (at least) follow-on claims, and an increasing number of standalone claims.

We consider in detail below the following themes and issues emerging from the CAT litigation to date, and the outlook ahead.

1. Certification of collective proceedings – what have we learned since Merricks?
2. Case management challenges
3. Damages and settlement – themes emerging
4. Looking ahead

1. Certification of Collective Proceedings – what have we learned since Merricks?

The Supreme Court’s decision in Merricks^[6] does seem to have spawned the anticipated uptick in certification applications—these have come in various shapes and sizes. Based on the types of claims certified to date, it appears that standalone claims are, perhaps counterintuitively, more popular with PCRs than follow-on claims. For example, the Boundary Fares^[7] standalone claims were certified on an opt-out basis in October 2021. The claims involve allegations of abuse of dominance by passenger train operators for failing to take steps to prevent customers being overcharged for travel beyond the boundaries covered by their travel cards. In May 2022, Dr Rachel Kent’s standalone claim for abuse of dominance against Apple alleging the imposition of terms requiring exclusive distribution of iOS Apps via the App Store and Apple Pay, as well as allegations of excessive and unfair pricing, has also been certified on an opt-out basis^[8]. A similar standalone claim against Google in respect of its contractual requirement for smartphone and tablet manufacturers to pre-install Google Play Store on devices was certified orally on July 18, 2022. Most recently, the CAT last week certified a standalone claim against Govia Thameslink Railway Ltd^[9] in relation to alleged abuse of dominance over its sale of tickets for single-branded train services at a lower price than those for multiple brand train services.

Opt-out, standalone consumer claims are arguably the most challenging type of damages claim permitted in the CAT. They require the PCR to establish liability, and quantum on a class-wide basis. The recent certification of several standalone collective proceedings perhaps therefore heralds the beginning of a new chapter for consumer activism.

That being said, follow-on claims are not disappearing. For example, the high-profile follow-on collective claims in the Trucks litigation have recently been certified and will continue to trial (the CAT having recently issued its first determination in a carriage dispute (as to which, please see below)).

It is still early days in the collective proceedings regime, but some themes are starting to emerge:

• The low threshold to certification established in Merricks is playing out in practice. A key part of the test is whether the claim is better suited to collective rather than individual proceedings. In McLaren^[10], the CAT went so far as to say its role is ”to do the best it can with the evidence” and it appears that evidential deficiencies are unlikely to defeat a certification application if the CAT can see a workable way through. It is telling that in no case so far has the CAT rejected any proposed collective proceeding outright and only one^[11] out of ten proceedings so far has not been approved on the basis sought: in O’Higgins/Evans^[12], the CAT denied certification on an opt-out basis but stayed both certification applications in order to allow for them to be reformulated as opt-in applications.^[13]
• At the certification stage, the focus will generally not be on the merits unless there is an application for strike out or summary judgment. When considering the issue of certification itself, the CAT has focused on issues such as class scope (for example, whether claims in respect of deceased persons were valid in Merricks), economic viability (see BT^[14] below) and the characteristics of competing PCRs (see Trucks below), but generally not the underlying merits of the claim. This is in line with the approach required by Merricks. A significant number of certification hearings to date have, however, also involved unsuccessful applications for strike out and/or summary judgment. In that context, the CAT has had to consider the merits of the claim. For example, in Apple, the proposed defendant applied to strike out an aspect of the PCR’s case on alleged abuse of dominance, relating to excessive pricing, which led to the CAT scrutinising the PCR’s pleading and proposed expert evidence to a greater degree than it otherwise would have. Interestingly, in one of thecases where an application for strike-out/summary judgment was not made by the proposed defendant(s) (O’Higgins/Evans) the CAT considered striking out the claim of its own motion because it considered the claim as presented, including in relation to causation and loss, was particularly weak. While the applications for strike-out/summary judgment to date have been unsuccessful (the threshold is, in the usual way, a high one), we expect such applications to continue, it being increasingly the only real way for defendants to seek to apply some scrutiny to the PCR’s case at the certification stage and to potentially knock some or all of it out early on.
• There is no general presumption in favor of either opt-in or opt-out. This was confirmed by the Court of Appeal in BT. It is important because the difference between the two types of collective action may well reflect a claim’s economic viability. Opt-in claims may require substantial work and upfront costs on the part of the PCR’s funder to ascertain the class, without any guarantee a sufficiently large one will be formed to ensure the class action will be economically viable. Indeed, in making a certification decision, the CAT will have regard to “the estimated amount of damages that each individual class member may recover”“ (as it did in BT), indicating that the economic viability (or otherwise) of a claim has some bearing on whether a claim will be certified as opt-in or opt-out, rather than just being a consequence of that decision. The CAT will, however, make the determination of opt-in or opt-out on the basis of all the circumstances of the case, including its strength (that being the other context in which some, albeit limited, merits analysis may occur), and has an unfettered discretion. O’Higgins/Evans confirmed that the weaker the case, the less justification there generally is for certifying on an opt-out basis.
• Whether you are a consumer or corporate may impact the class you are in and on what basis. This may be another factor in favour of opt-in or opt-out, depending on the circumstances. In McLaren, the CAT considered the position of larger corporates claiming within a broader opt-out class—the defendants having argued that big businesses should be removed from the class and dealt with on an opt-in basis. The CAT refused to treat larger businesses in the class differently to smaller corporates and consumers. However, in O’Higgins/Evans the CAT specifically held that, because the class comprised mostly sophisticated businesses with potentially large claims for which opting in to litigation would be practicable, certifying the claim on an opt-out basis would not be appropriate in that case.
• Carriage disputes are becoming a prominent feature of the regime. There may well be an uptick in carriage disputes as opportunities for more collective proceedings to be brought increase and therefore the number of potentially competing PCRs and funders vying to litigate increases. There have already been two high-profile carriage disputes, in O’Higgins/Evans and in Trucks. In Trucks, the CAT found both applications, by UK Trucks Claim Limited (UKTC), a special purpose vehicle which sought certification on an opt-out basis, and Road Haulage Association Limited (RHA), a well-known haulage trade association which sought certification on an opt-in basis, capable of certification. It ultimately certified the opt-in action by RHA, including because over 17,500 potential claimants had already signed up to RHA’s claim (with that number expected to increase). The markedly different natures of the two PCRs—RHA being an already well-known trade association—was considered a neutral factor. Finally, a point of guidance from O’Higgins/Evans (where the CAT did not need to resolve the carriage dispute) is that being the first PCR to file the application makes no difference to the outcome.

Overall, the theme from the recent certifications of collective proceedings is that the competition class action regime is now, somewhat belatedly, finding its place as an increasingly popular form of litigation in the U.K., across a range of industries. That will no doubt be welcomed by prospective litigation investors and funders and perhaps also by consumers more generally. However, it is worth bearing in mind that the CAT has shown a willingness to use a variety of case management tools to calibrate how and on what basis claims are allowed to proceed.

2. Case Management Challenges

When the quantum of damages in competition litigation can be in the billions, and the number of parties and issues potentially vast, competition litigation on this scale inevitably raises difficult case management issues. While there are now several claims of this magnitude in the pipeline, litigation of this scale has never before been resolved at trial in the CAT and it remains to be seen how feasible trying these claims will in fact be.

The task of litigating such claims to trial, and then actually trying them in hearings, in some cases, lasting up to six months or more, raises obvious challenges to effective case management. The scope of the factual and/or expert evidence required for such claims is potentially huge with the potential to require many weeks of cross-examination. Where there are a large number of parties involved, each potentially requiring separate legal representation, this can lead to massive legal costs. In some cases (such as the MIF litigation) there is not only a large total number of claimants (running into the thousands), but there are multiple waves of them, each on slightly different procedural tracks. 

And there are already important case management lessons to be learned. Conflicting first instance decisions in the MIF litigation in 2016 and 2017, which resulted in lengthy processes for clarification and correction by the Court of Appeal in 2018, and subsequently the Supreme Court in 2020, means the CAT is alive to the need for proactive and, indeed, innovative case management.

The Trucks claims are one of the most notable examples so far of the CAT taking a proactive approach (and the need for it). It bears emphasising that the Trucks litigation before the English courts is massive in scale, relating to truck purchases and leases in multiple jurisdictions, including tens of thousands in the U.K., and many thousands more in France and Germany alone.

The CAT has indicated a desire to avoid excessive delay and to allow at least some of the individual Trucks claims to proceed to trial in the near future. As such, a combined October 2020 case management conference saw the CAT prioritise hearing some claims in the near term by ordering a ‘multiple trial’ approach, with three separate claimant groupings, and three separate merits trials for each claimant grouping taking place over several years (the first trial recently concluded in June 2022). The CAT recognised that taking a multiple trial approach could potentially result in inconsistent decisions on certain issues but that that was “inescapable at some level” given the number of claims. The CAT balanced that risk against the desirability of resolving some of the claims and litigating the core issues sooner and not leaving them to “some date far in the future”.

The CAT has also recently taken steps to proactively case manage the vast MIF litigation. Since the Supreme Court’s decision in Sainsbury’s in 2020, which confirmed Visa and Mastercard’s liability in respect of certain MIFs, claims by retail groups such as the Dune Group, Westover, Soho House and Richer Sounds are being case managed together by the CAT. By contrast with the approach to case management in Trucks, any eventual trial is now expected to be split across a series of staged hearings, focusing at each stage on different key issues that are yet to be formulated.

To facilitate this approach, the CAT has recently made what is known as an ‘umbrella proceedings order’ in respect of the MIF litigation. This type of order is a recent innovation in the CAT that will mean that common issues across the MIF litigation that are determined in one set of proceedings are intended to be binding on the parties in the others, thereby potentially reducing the scope for conflicting decisions that we saw in the early stages of the MIF litigation. The CAT has also indicated that it may in due course be appropriate for ‘sample’ claimants to be identified in respect of certain issues, such as pass-on.

In a related development, the CAT has also permitted parties to voluntarily apply for a stay of their claims while other claims go ahead on the condition that they agree to be bound by the outcome of the lead proceedings (including any appeals). This approach could lead to ‘voluntary’ sampling of claims, where certain claimants will let others take the lead and so avoid the cost of running (with respect to at least certain issues) what is expected to be expensive and complex litigation.

These recent innovations notwithstanding, the case management of both the MIF and Trucks litigation (amongst others) to trial will continue to pose a real challenge for the CAT and require a delicate balancing exercise between proportionality, fairness and reasonable cost. It remains to be seen how well the differing case management approaches will strike that balance over the coming months and years. 

3. Damages and Settlement—Themes Emerging?

Large costs liabilities are often a powerful and mutual impetus for claimants and defendants to settle competition (and indeed any) litigation in the U.K.

The prospect of settlements being entered in terrorem of asserted liability on a mass scale was recognised by the Supreme Court in its Merricks ruling. In addition, where liability, in at least some respects, is a foregone conclusion as it is in a follow-on claim, the incentive for defendants to settle may increase, particularly where the aggregate damages across multiple claims will be substantial. On the other hand, if a standalone claim is so large and complex as to be practicably ‘untriable’, defendants may see value in ‘running down the clock’ towards a very expensive and unwieldy trial that in reality the claimants (and their funders) may never have expected, or have had the inclination, to reach, in order to extract a more favourable settlement.

The idea of trying the MIF litigation on a staged issue-by-issue approach (as mentioned above), with the benefit of an umbrella proceedings order, has potentially interesting implications for settlements. As noted above, claimants that are subject to such orders in separate proceedings may find themselves bound by findings in related proceedings to which they are not party, in a way that impacts the economics of settlement for them (i.e. where the CAT makes findings that increase or reduce the scope of liability or quantum across the board, e.g. on pass-on). Consequently, one party’s position on, or prosecution of, a particular issue may end up materially (and unexpectedly) changing the settlement dynamics for another unrelated party that is bound by that issue, mid-litigation.

The extent of the influence of litigation funders and investors over settlements in the MIF litigation remains to be seen, and whether this will set a precedent for competition litigation more generally in the U.K. The manner in which funding packages can be structured may incentivise fuller consideration being given to settling actions earlier.

Finally, the CRA introduced a residency settlement requirement in opt-out collective proceedings, such that overseas residents must positively opt in to any collective proceedings, including for the purpose of being bound by any settlement approved by the CAT. This requirement might mean that some defendants are less willing to settle collective proceedings if that does not achieve a global settlement, or if it risks cutting across any global settlement they subsequently wish to strike. The residency requirement therefore has the potential to complicate the settlement of collective proceedings where class membership crosses borders.  

4. Looking Ahead

To where are damages claims in the CAT likely to head next? First, we know that the collective actions currently before the CAT involve claims in a range of industries, including telecommunications, media and information technology, financial services, commercial vehicles and rail transport. That is already a wide range and there is no sign of it narrowing. For example, a follow-on damages claim has recently been announced against manufacturers of high-voltage power-cables on behalf of domestic electricity consumers in the U.K., following a European Commission (EC) cartel infringement decision in 2014. The range of industries subject to such claims may yet further expand, especially where there is scope for consumer activism. We have seen this exemplified in the recent stand-alone alleged abuse of dominance collective proceedings launched against Apple and Google, which have now been certified. An abuse of dominance claim was also launched earlier this year against Meta (the owner of Facebook) in relation to alleged anti-competitive trading conditions giving Facebook control over users’ commercially valuable personal data. These global companies have systems and automated processes that serve hundreds of millions of customers, but if those systems fail or work in a way that is capable of being characterised as an unfair advantage for the company over the market, that has the potential to create litigation risk in respect of potentially many millions of class members.

Consequently, and given the low threshold for certification, we may see litigation funders and investors continuing to test the boundaries of the kinds of claims that can be brought over the coming years. However, as the regime develops and more claims are certified, focus may well shift away from the certification process and towards more complex, substantive arguments about causation, quantum and how these issues impact large claimant classes. As the CAT builds precedent at the certification stage, and in due course at the liability trial stage too, the process for achieving certification and bringing claims to trial should become clearer and potentially more streamlined. Collective proceedings may even start to become ‘commoditised’—there will be fewer procedural surprises and clearer tactical choices, allowing claimant firms, funders and defendants alike, to create, over time, a more certain path to trial or settlement along the way.

Brexit might have a less immediate impact on the competition litigation landscape than perhaps was first thought. The so-called ‘continued competence’ provisions under U.K. law mean that it will not be possible to bring a follow-on claim in respect of an EC investigation commenced after 31 December 2020, but that potentially still leaves a considerable tail of investigations capable of giving rise to claims in the CAT. The CMA has also indicated that it plans to step-up its investigation of the UK part of cases that were previously within the remit of the EC^[15]. There may also be other ways for claimants to be creative and utilise both EC and CMA decisions in CAT claims. For example, claimants may seek to ‘piggy-back’ off findings in EC decisions in the CAT in cross-border cases, where both U.K. and EU markets are implicated by a CMA decision. Therefore, it may be that claims in the CAT in the future are more frequently of a hybrid nature—i.e. follow-on, by virtue of a CMA decision, and standalone (but not truly so in substance) with respect to similar infringing conduct that was the subject of an EC decision. Therefore, it may be possible for claimants to bring, in effect, Europe-wide competition claims in the CAT of a similar scale as those initiated prior to Brexit. However, it remains to be seen whether this will be possible in the longer term, or whether the CMA will eventually change its focus such that there is less overlap between CMA and EC decisions in the future.

So, it is still not clear what the implications of Brexit will be for CAT damages claims in the longer term. One possibility is that, while collective proceedings in the CAT have only recently just got going and are noticeably on the increase, stepping back, we may in fact be approaching the peak of the wave of very large scale competition claims in the CAT, such as in Trucks or the MIF litigation, and this will be followed, gradually, by a long decline in litigation of that nature.

Turning to the CMA itself, a major area of ongoing investigation, which could potentially continue to be fertile ground for follow-on claims over the years ahead is excessive and unfair pricing abuses by pharmaceutical firms^[16]. The CMA’s recent fines totalling over £100 million in relation to the supply to the NHS of the anti-nausea tablet Prochlorperazine and the epilepsy medication Phenytoin is a case in point. The CMA and the EC have also launched twin investigations into Meta’s and Google’s online advertising, indicating that the information technology space will also be a priority for the CMA. Follow-on claims may result.

What is clear, at least, is that competition litigation has never been so busy in the CAT and we can expect it to stay that way for some time to come.