Alexander Kamp, LLB, LLM (Bruges)
I. Introduction
The Consumer Rights Bill 2014 (‘Bill’)[1], which is currently under consideration by the House of Lords, proposes to introduce, inter alia, a new collective redress[2] scheme for private competition claims, including provisions for both opt-in and opt-out collective actions. If it enters into force, the Bill has the potential to cause significant changes to English civil litigation, where collective redress is hitherto a rather insignificant feature.
Competition claims often require extensive economic evidence and specialist lawyers. This problem is particularly significant in stand-alone cases where claimants need to not only prove causation and loss but also that there was a competition infringement in the first place. Claimants who have suffered small individual losses due to a competition infringement will therefore think twice before starting an action with an uncertain outcome that may result in significant legal and expert costs. Generally, parties will only be willing to bring claims if their private gain outweighs their private cost[3]. The introduction of collective redress could facilitate such claims by allowing claimants to join forces. This, in turn would allow claimants to share and thereby reduce the costs of bringing the action.
In view of the concerns raised during the public consultation on the Bill[4], the proposal also establishes a number of safeguards to protect defendants against frivolous or unmeritorious claims. It is submitted that the Bill’s effectiveness will crucially depend on whether the safeguards leave sufficient incentives for parties to bring an action. While many of the safeguards are likely to give rise to practical problems[5], this paper will focus on the certification procedure provided for in the Bill and Competition Appeal Tribunal’s (CAT) draft rules on collective actions[6] (Draft Rules).
II. The Collective Redress Regime
The Bill proposes to allow claimants to bring opt-in and an opt-out collective actions in the CAT in respect of competition law claims for both follow-on and stand-alone cases[7]. In order for claimants to do so, the CAT will have to certify both the class representative and that individual claims are fit to be included in the collective proceedings. The CAT will also determine whether the claims should go ahead on an opt-in or opt-out basis.
Further safeguards include that the ‘opt-out’ aspect of a claim will only apply to UK-domiciled claimants (but foreign claimants may still opt-in to the proceedings) and that exemplary damages and contingency fees will be prohibited. Additionally, the Bill requires that any unclaimed sums be paid to the Access to Justice Foundation.
The certification procedure
The Bill provides, firstly, that the CAT will have to certify the proposed class representative who will bring the collective action[8]. Secondly, it will have to certify whether individual claims are fit to be part of the collective action[9] and, if so, whether such an action should proceed on an opt-in or an opt-out basis[10].
The detailed procedure is set out in Rules 5 to 7 of the CAT’s Draft Rules, which implement the new paragraph 15B of the Enterprise Act 2002 as proposed in the Bill[11]. Rule 5 provides that a collective proceedings order (“CPO”) may only be made if (a) the person who brought the proceedings can be authorised as a class representative in accordance with Rule 6 and (b) the claims are eligible for inclusion in collective proceedings in accordance with Rule 7. I will now go on to assess Rule 6 and Rule 7 of the Draft Rules in turn.
Rule 6
Rule 6(1) provides that a person may act as a representative whether or not that person is a class member; but in any case, only if the CAT considers it just and reasonable for that person to do so.
The factors the court will take into account in determining whether it is just and reasonable for a person to be a class representative are set out in Rule 6(2). These factors include, inter alia, the ability of the proposed class representative to act fairly and adequately act in the interests of the class members, any material conflicts of interest, the proposed representative’s suitability and his ability to pay the defendants costs[12]. In assessing whether a proposed representative can act fairly and adequately act in the interests of class members, Rule 6(3) provides that the CAT will take into account all circumstances. The rule then specifically mentions the proposed representative’s suitability to manage the proceedings (where it is a member of the class) or whether proposed representative is a pre-existing body (where it is not a member of the class).
It was evidently the government’s intention that third party litigation funders, law firms and so-called special purpose vehicles, should not be allowed to be certified as representative claimants and to start collective actions[13]. It is noteworthy that this prohibition is not explicitly reflected in either the Bill or the CAT’s Draft Rules. No amendments have been made to this section during the legislative process[14] and there seems to be no clear intention to depart from the position expressed in the government’s response. The most likely explanation of this discrepancy is therefore that the Bill and the Draft Rules merely intended to leave sufficient scope to allow ‘genuinely representative bodies’, such as trade and consumer associations, to act as representative bodies.
The current phrasing could mean that a third party, law firm or special purpose vehicle may, after all, be certified as a class representative, as long as it can prove that it would comply with the requirements of Rule 6. In particular, such a party would have to prove that it would fairly and adequately act in the interests of the class members (Rule 6(2) (a)) having particular regard to whether it is a pre-existing body and its nature and functions (Rule 6(3) (b)) and that it does not have a material interest that is in conflict with the interests of class members (Rule 6(2) (b)). Given the clear statements in the government’s response to the consultation, it will, however, be hard to argue that such parties should be allowed to bring collective actions.
Rule 7
According to Rule 7(1) the CAT may certify claims as eligible for inclusion in collective proceedings where the proposed class representative satisfies the CAT that the claims (a) are brought on behalf of an identifiable class of persons, (b) raise common issues and (c) are suitable to be brought in collective proceedings. Rule 7(2) contains the non-exclusive list of factors that the CAT will take into account for the purposes of Rule 7(1)(c).
Rule 7(3) allows the CAT to decide whether the claims should proceed on an opt-in or opt-out basis based on all matters it thinks fit, including but not limited to the factors set out in Rule 7(2) and, in addition, (a) the strength of the claims and (b) whether it is practicable to bring the claims as an opt-out action having regard to all circumstances including the estimated amount of damages that each individual class member may recover.
It has been argued that one of the issues that will certainly cause problems in the class certification context is the situation of indirect purchasers and the passing-on defence[15]. The issue here is that, unless the CAT is faced with an extremely simple cartel that exclusively affects end customers, there are likely to be multiple layers of purchasers down the distribution chain which have also been harmed by the cartel. It is very hard for these indirect customers to prove that harm has been caused to them by the anticompetitive behaviour on a class-wide basis.
This will most likely be treated in the broader ‘appropriateness test’ under Rule 7(2) (a) as well as the test in Rule 7(2) (e) requiring that it must be possible to say of any person whether they form part of the class or not. This problem has also repeatedly arisen in antitrust and consumer protection class actions in Canadian and the US[16]. However, in comparison with the US equivalent, the wording of the CAT’s Draft Rules leaves scope for a more flexible approach to class certification. The CAT’s Draft Rules merely require the claims seeking certification as a class to ‘raise common issues’ (Rule 7(1) (b)) while US Federal Rule 23(b)(3) requires that there must be a predominance of common over individual issues in order for a class to be certified.
Given the wording of the CAT’s Draft Rules, such problems are less likely to arise at the certification stage but class members could still be faced with complex issues when they need to prove that the defendant’s behaviour caused them loss or at the stage when the overcharge claimed from the defendant needs to be distributed amongst the class.
This perhaps warrants the conclusion that the nature of competition infringements is such that it is very hard to provide an ‘easy fix’ for those customers and consumers who have suffered small losses. Collective redress constitutes an improvement as it allows claimants to share the costs and the effort of proving the competition infringement. However, it raises questions regarding the distribution of damages which claimants will inevitably still have to deal with.
III. Conclusion
The ultimate practical impact of the new regime will depend on a number of factors such as the availability of funding and, in particular, how the CAT will apply the judicial certification procedure. The procedure seems to leave some scope for third parties, law firms or special purpose vehicles to act as class representatives, in the unlikely event that they are able to fulfil the requirements of Rule 6 of the Draft Rules. As regards the situation of indirect purchasers, the wording of the Draft Rules seems to leave sufficient scope for the CAT to circumvent this problem at the initial certification stage. Problems are, however, likely to arise at a later stage in the litigation. This raises the broader question of the suitability of collective redress for complex competition claims. It remains to be seen how and to what extent this concern can be overcome.
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[1] Available athttp://services.parliament.uk/bills/2014-15/consumerrights.html
[2] In this paper I will use the terms collective redress, collective proceedings and class actions to refer to litigation initiated collectively by groups of claimants.
[3] This is also known as the ‘rational apathy problem’, see H. Kalven and M. Rosenfield, ‘The Contemporary Function of the Class Suit, 8 University of Chicago Law Review 4 (1941), p 648.
[4] See ‘Private actions in competition law: a consultation on options for reform – government response’ at page 34, Para 5.33.
[5] Such as, in particular, the prohibition of contingency fees.
[6] The Draft Rules are available at http://www.catribunal.org.uk/247-8406/Draft-Tribunal-Rules-on-Collective-Actions.html
[7] This proposal to reform the law on collective actions is contained in Schedule 8 of the Bill. See the new s47A, B and C of the Competition Act 1998 as proposed in Consumer Rights Brill 2014, Schedule 8, Part 1, Paragraphs 4 to 6.
[8] See the new s47B (5) (a), (7) (a) and (8) of the Competition Act 1998 as proposed in Consumer Rights Brill 2014, Schedule 8, Part 1, Para 5.
[9] See the new s47B (5) (b), (7) (b) and (6) of the Competition Act 1998 as proposed in Consumer Rights Brill 2014, Schedule 8, Part 1, Para 5.
[10] See the new s47B (7) (c) of the Competition Act 1998 as proposed in Consumer Rights Brill 2014, Schedule 8, Part 1, Para 5.
[11] See Schedule 8, Part 2, Para 31 of the Bill.
[12] Rule 6(2) (a) – (d)
[13] See ‘Private actions in competition law: a consultation on options for reform – government response’ at page 34, Para 5.32 and at page 40, Para 5.55.
[14] See this version of the bill showing changes made in committee, 14.03.2014, as available on http://www.parliament.uk/documents/commons-public-bill-office/2013-14/compared-bills/Consumer-Rights-bill-140314.pdf
[15] Tristan Jones, ‘Collective Actions: the problem of loss in complex cases’, January 2013. Available at http://competitionlawblog.files.wordpress.com/2013/02/collective-actions-loss-in-complex-cases.pdf
[16] See William H. Page, ‘Indirect Purchaser Suits after the Class Action Fairness Act’ (10 June, 2011) for a survey of all indirect purchaser class actions in the US. Available at SSRN: http://ssrn.com/abstract=1862218