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The new UK Class Action Regime – An overview

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There has been considerable speculation as to whether the new class action regime introduced by the Consumer Rights Act 2015 (the CRA), which facilitates collective proceedings in the Competition Appeal Tribunal (the CAT) for breaches of competition law, will lead to a surge of U.S.-style class actions in the UK. The new regime will come into force on 1 October 2015 and new CAT Rules have now been laid before Parliament.

The most significant changes introduced by this new regime are as follows:
  • The CAT can hear collective proceedings and make collective settlement orders.
  • A U.S.-style “opt-out” collective claim will be possible for claimants within the UK.
  • A collective action can now be brought by someone who “will fairly and adequately act in the interests of class members” rather than just certain specified bodies.
  • The current restriction that a CAT collective action must be a ‘consumer claim’ will be removed, allowing businesses to be part of a collective action.
  • The CAT can hear stand-alone claims as well as ‘follow-on’ claims.
  • The CAT can grant injunctions.
  • There is a fast track procedure for smaller claims.
  • Limitation will be brought into line with the High Court, with a transitional period.
  • The CAT will be able to make an aggregate award of damages rather than having to assess individually the amount of damages recoverable by each class member.
Claimants already have the ability to avoid the need to prove a breach of competition law by bringing a ‘follow-on’ claim in the CAT based on an existing finding by the UK or European competition regulators. The above changes should provide further encouragement to bring collective actions in this context.
However, the retention of the ‘loser pays’ principle leaves the claimants (or the class representative in collective actions) liable for the defendant’s costs if the claim is unsuccessful and could put a brake on claims. The prohibition on exemplary damages and damages based agreements for collective actions will also have a chilling effect on claim volumes.  Furthermore, significant uncertainties remain, in particular as to the circumstances in which the CAT will consider opt-out collective actions to be appropriate, the CAT’s approach to class certification and how an aggregate award of damages could be calculated in circumstances where each individual claimant’s loss might vary widely.
For these reasons, it remains to be seen whether the new regime will bring a flood of class actions, or whether claimants will wait for the further changes set out in the EU Damages Directive, which will be implemented in the UK by the end of 2016. This should improve the position of claimants still further, including by introducing a rebuttable presumption of harm where there has been a regulatory finding of a cartel infringement, and giving the court or tribunal the power to estimate loss where it is excessively difficult to prove the amount of loss.
Basis of claims
Claims can be brought by any person who has suffered loss or damage, including both consumers and businesses. Claims will be based on:
  • an alleged infringement of competition law (referred to as “stand-alone cases”); or
  • a competition law infringement decision of the Competition and Markets Authority (CMA), the CAT (on appeal from the CMA) or the European Commission (referred to as “follow-on cases”).
The relevant competition law infringements are agreements which prevent, restrict or distort competition within the UK or the EU, or abuse of a dominant position affecting trade within the UK or between EU member states.
The CAT regime
Currently, stand-alone cases cannot be brought in the CAT and must be brought in the High Court.  This will change from 1 October 2015, and the CAT will have jurisdiction to hear stand-alone cases. In follow-on cases (currently and under the new rules) the CAT is bound by an infringement decision of the CMA, the CAT or the European Commission once it has become final.
Follow-on cases are limited to the infringements found by the regulator, and the CAT then only needs to decide the issues of causation (which is likely to be critical in many cases) and quantification of loss. In addition, in both follow-on and stand-alone cases, the CAT is bound by findings of fact made by the CMA in the course of conducting an investigation which is relevant to an issue in the proceedings, unless the CAT directs otherwise. Findings of fact which are directly relevant to a decision as to infringement are normally regarded as binding, but the CAT may direct that a peripheral or incidental finding of fact is not binding.
The new procedures
The CRA will come into force on 1 October 2015. The regime created by the CRA will be complemented by new CAT Rules, including a section dealing with collective proceedings.   The new regime expands the jurisdiction of the CAT significantly. 
The CAT now has the power to grant collective proceedings orders, and to grant collective settlement orders.  This is the foundation of the CAT’s new ‘class action’ type jurisdiction. 
The CAT will also be empowered to grant injunctions under the new regime, and a fast track procedure has been introduced for smaller, simpler claims.  Under the fast track, a claim will be actively case managed through to a hearing within 6 months of its commencement.  Notably, injunctions in fast track cases will not necessarily require a cross undertaking in damages.  This is consistent with the legislative aim to make redress for competition claims quicker, cheaper and easier to obtain for private parties.
Procedure for claims
Collective proceedings are commenced by a proposed class representative filing a collective proceedings claim form with the CAT. The claims sought to be included in collective proceedings must “raise the same, similar or related issues of fact or law” in order for the CAT to make a collective proceedings order. In addition, they must be “suitable to be brought in collective proceedings”, which requires the CAT to consider the costs and benefits of continuing the collective proceedings, the size and nature of the class, whether it is possible to determine for any person whether they are a member of the class, and other factors set out in the CAT rules. The collective proceedings can also combine existing CAT proceedings, with the consent of the claimants in those proceedings.
The CAT, not the claimants, decides the description of the class of persons whose claims are eligible for inclusion in the collective proceedings. Two types of collective proceedings can be brought:
  • Opt-in proceedings, on behalf of each class member who opts in by notifying the class representative that their claim should be included in the proceedings; and
  • Opt-out proceedings, on behalf of each member of the defined class domiciled in the UK who opts out by notifying the class representative. Class members who are not domiciled in the UK must opt in to be included in the proceedings. 
In determining whether the collective proceedings should be opt-in or opt-out, the CAT will take into account the strength of the claims and whether it is practicable for there to be opt-in collective proceedings, having regarding to the estimated amount of damages that individual class members may recover. Opt-out collective proceedings, which are a feature of U.S. class actions, were not previously permitted in the UK.
Under the new regime, the limitation rules have been relaxed, subject to a transitional phase.  The previous two-year limitation period for CAT claims has been brought into line with the High Court.  However, for claims arising before 1 October 2015 the previous limitation regime will apply, which will reduce the impact of the new regime at the outset.
Resolution of claims
A judgment or order given in the collective proceedings is binding on all parties represented by the class representative. There is a right of appeal to the Court of Appeal on a point of law. If a claim is successful, the CAT can make an aggregate award of damages without first assessing the amount of damages recoverable in respect of each individual class member. In practice, the method of calculating damages will need to be considered in the early stages of a case with the assistance of economists and/or accountants, and this may determine whether opt-out proceedings are appropriate. Unlike in the U.S., the CAT cannot award exemplary damages or “treble damages”. Damages-based agreements (where the claimants’ lawyers are paid a proportion of the damages awarded to the claimants) will be unenforceable in relation to opt-out collective proceedings. In contrast, similar arrangements are common in U.S. class actions. The purpose of this rule was to avoid a “litigation culture” in the UK, provide a safeguard against weak claims or speculative litigation, and avoid creating an incentive for claimant lawyers to focus on the largest cases. However, ‘no win, no fee’ conditional fee agreements and after the event insurance are permitted.
In the U.S., the usual rule that each side bears its own costs, even if the claim is unsuccessful, removes a significant disincentive to bringing class actions. However, under the new UK regime, the usual “loser pays” rule is retained. If a claim is unsuccessful, the claimants in opt-in proceedings will usually be liable for the defendants’ costs, and the class representative bears the costs risk.
Collective settlements are possible for both opt-in and opt-out proceedings. These are subject to approval of the settlement by the CAT in the case of opt-out proceedings.
EU Damages Directive
The EU Damages Directive (2014/104/EU) applies to claims relating to infringements of competition law and must be implemented in the UK by 27 December 2016. The Directive will assist claimants in collective proceedings in the CAT, and provided that limitation issues do not arise, potential claimants may choose to wait for the UK implementing legislation before commencing their claims. In particular, it requires EU Member States to ensure that a final infringement decision of a national competition authority or review court of any EU Member State is deemed to be “at least prima facie evidence that an infringement of competition law has occurred and, as appropriate, may be assessed along with any other evidence adduced by the parties”.
Further, the Directive provides for a rebuttable presumption that cartel infringements cause harm, and national courts must have the power to estimate the amount of harm caused if it is practically impossible or excessively difficult precisely to quantify the harm suffered. However, claimants cannot recover compensation to the extent that they have passed on to their customers any overcharging resulting from the infringement by the defendant.
Although they have not yet been tested, the new class action rules will change the litigation landscape for potential claimants and their lawyers, as well as for defendants. It will be easier for claimants to bring collective actions for breaches of competition law, share and minimise their legal fees, and benefit from a successful result or settlement. Those who have breached competition law can expect an increased likelihood of a class action being brought against them, with increased liability arising from opt-out collective proceedings. Firms conducting internal investigations or being investigated by regulators for breaches of competition law will also need to consider whether taking a step during the investigation might harm their position in any future class action.

However, the new rules provide some important controls in relation to the award of damages and costs which should prevent the rapid growth of class action litigation, as has occurred in the U.S. Much will depend on how broadly or narrowly the class is defined, the merits of each claim, and the risk appetite of defendants either to settle or defend the case to its conclusion. The CAT’s first few decisions will be vital in shaping the development of UK class action practices and determining whether claimants will seek to bring increasingly large and complex cases.