Supreme Court’s Group Claims Decision – Cause for Celebration?
24 Dec 2020
The Supreme Court has handed down its long-awaited judgment in Merricks v Mastercard[1], in which it agreed with the Court of Appeal that the Competition Appeal Tribunal (‘CAT’) had applied an overly strict test in refusing to certify a class action involving an estimated 46 million UK adults.
Under the relevant legislation, class action competition claims must be ‘suitable to be brought in collective proceedings’. The majority in the Supreme Court decided that this means ‘suitable in a relative sense: i.e. suitable to be brought in collective proceedings rather than individual proceedings’[2]. This is a low threshold, and significantly less demanding that the one adopted by the lower courts.
The Supreme Court’s decision has been hailed as ‘a hugely important win’ for consumers[3], with some describing the ruling as representing a ‘culture shift’ which brings the UK closer to the US system of ‘a lighter regulatory burden with greater scope for litigation’[4].
Whilst the Supreme Court’s decision is welcome to claimants, it is important to realise that the ruling has only limited application, as the group claims regime in the UK is very far from being one unified system. In fact there are three main species of group claim:
(1) Collective proceedings under section 47B of the Competition Act 1998
This section, inserted by the Consumer Rights Act 2015, created US-style opt-out class actions for claims based on breaches of the Competition Act. Such claims must be certified by the CAT. It is this species of claim which benefits from the Supreme Court’s decision regarding the threshold test for certification.
In Competition Act collective proceedings the court can award damages, ‘without undertaking an assessment of the amount of damages recoverable in respect of the claim of each represented person’[6], commonly known as ‘aggregate damages‘. The court can order that any aggregate damages not claimed by class members may be used to meet the class representative’s incurred ‘costs or expenses’. This phrase was held by the CAT to include a litigation funder’s premium incurred by the representative[7].
Although as can be appreciated from the above these claims are designed to attract litigation funding, there is, perhaps strangely, a prohibition for solicitors to act under a Damages Based Agreement (‘DBA’) in competition class actions[5]. (DBAs allow a solicitor to keep a percentage of any damages awarded in lieu of being paid as the case proceeds.)
(2) Group Litigation Order proceedings under rule 19.11 of the Civil Procedure Rules 1998
The court can make a Group Litigation Order (‘GLO’) to govern case management where there are or are likely to be a number of claims which give rise to common or related issues of fact or law. Only ‘opt-in’ proceedings are permitted, so all claimants must actively join the claim. The Volkswagen emissions group litigation is proceeding under a GLO.
In GLO proceedings there is no provision for the court to award aggregate damages, and no provision for meeting any costs, let alone paying a litigation funder’s premium, out of unclaimed damages. However, solicitors can act under a DBA.
(3) Representative proceedings under rule 19.6 of the Civil Procedure Rules 1998
Where more than one person has ‘the same interest’ in a claim, a representative may bring the claim on behalf of those people, and any judgment given will be binding on all those in the class. The Lloyd v Google case[8] is a putative representative claim which the Supreme Court is due to consider during 2021.
There is a relatively strict test applied to ensure that the class members truly all have the same interest in the claim, although the Court of Appeal’s decision in Lloyd v Google has widened the scope of the test somewhat, especially if claimants are willing to seek the ‘lowest common denominator’ of damages[9].
As with GLO claims, there is no provision for aggregate damages, and no provision for meeting any costs out of unclaimed damages. Somewhat surprisingly, the Google claim is being funded by Therium, a litigation funder, with a budget of £15.5 million, even though there is no precedent for a litigation funder being entitled to be repaid or paid any premium out of unclaimed damages or otherwise in GLO proceedings. There is no prohibition on solicitors acting under a DBA, although as the law stands, unless the solicitors entered into a DBA with each member of the class, they would have no entitlement to recover any proportion of the damages beyond those awarded, if any, to the class representative himself.
Is this a sensible system?
There is clearly a need for large groups of consumers to achieve justice. As Lord Briggs put it in his Merricks judgment:
‘Proof of breach, causation and loss is likely to involve very difficult and expensive forensic work, both in terms of the assembly of evidence and the analysis of its economic effect. Viewed from the perspective of an individual consumer, the likely disparity between the cost and effort involved in bringing such a claim and the monetary amount of the consumer’s individual loss, coupled with the much greater litigation resources likely to be available to the alleged wrongdoer, means that it will rarely, if ever, be a wise or proportionate use of limited resources for the consumer to litigate alone.’
However, the uneven evolution of the UK’s procedures for group claims, as set out above, has resulted in a confused, inconsistent set of different avenues of redress for large groups of victims.
There does not appear to be a rational reason for the UK to have an entirely separate group claim procedure for competition claims as opposed to other consumer claims.
There likewise does not seem to be an obvious reason why for consumer claims there is a strict test for allowing opt-out representative claims to proceed (class members must have the same interest), and a different test for opt-in GLO claims (class members’ claims must give rise to common or related issues of fact and law).
Most starkly, why should the system distinguish between the funding options available to claimants in competition claims as against those available to claimants in other kinds of group consumer claim?
A personal example – I am organising a group claim for students at University College London (‘UCL’)[10] seeking compensation on the basis of the material changes made to their course in breach of contract during the current pandemic. Given that all or almost all students at UCL have suffered an identical form of breach of contract, and a lowest common denominator of damages could probably be identified, the claim is one which might have been pursued as a representative claim for the entire class, on an opt-out basis. This would bring obvious benefits to students, who would receive compensation without having to participate in a claim, and save my firm the time and expense of having to collect together claimants one by one.
However, as the law currently stands, bringing the claim in that format would preclude my firm from being paid out of the damages, so we would not be able to bring the claim on a ‘no-win, no-fee’ basis, and we would also not be able to assure a litigation funder that they would have any recourse to the damages to recover their invested capital and premium. For that reason the claim must proceed under the opt-in GLO system, with its own limitations and disadvantages.
The solution
The procedure for group claims is crying out for simplification. There should be one system which makes the sensible provisions in the Competition Act available to all group claims. Opt-out and opt-in claims should be allowed wherever claims of those in an identifiable class give rise to common or related issues of fact or law, with DBAs permitted and litigation funding explicitly welcomed.
The court should have the power to award aggregate damages in all group claim situations, and there should be provision for costs, including litigation funding costs and insurance premiums, to be met from unclaimed aggregate damages. As an alternative, the court should have the power to award the lead solicitors and the representative’s funder a percentage of any damages awarded if the court deems this fair.
Such a system would usher in a new era of corporate responsibility, with large corporations and institutions no longer feeling able to breach contracts or act anti-competitively in the knowledge that a class action is a very remote possibility. Regrettably, the system in place now leaves large groups of claimants with a set of needlessly complex options, none of which is fully suited to the modern world of DBAs and litigation funding.
Shimon Goldwater, Asserson Law Offices
21 December 2020
shimon.goldwater@asserson.co.uk
[1] Mastercard Inc v Merricks [2020] UKSC 51
[2] Ibid, paragraph 56
[3] https://www.thetimes.co.uk/article/court-allows-class-action-case-that-could-cost-mastercard-14bn-lrbnf39h2
[4] https://www.ft.com/content/57acc293-cf6b-4286-9ef0-847dcd8080e4
[5] Competition Act 1998, section 47C(8)
[6] Competition Act 1998, section 47C(2)
[7] Merricks v Matercard Inc [2017] CAT 16, paragraph 115
[8] Lloyd v Google LLC [2019] EWCA Civ 1599
[9] Ibid, paragraph 75
[10] www.StudentGroupClaim.co.uk
Article written by: Shimon Goldwater