Disputes - What to look out for in 2020: Group actions

In brief

• the Supreme Court will finally consider the UK’s flagship opt-out class action mechanism. The judgment, which is likely to be delivered in late 2020, will shape the future of class actions for years to come.
• the Supreme Court will also consider another class action mechanism (using CPR 19.6) which the Court of Appeal permitted to be used for a large group claim for data breaches.

A turning point for opt-out class claims

The Consumer Rights Act 2015 (CRA 2015) was meant to herald a new era for class actions in the UK. The legislation introduced, for the first time, an opt-out class action for damages. Simply put, an opt-out mechanism means that claimants falling within a defined class are included within the claim, unless they positively select to be excluded (ie they “opt-out”).

The key advantage of this structure is that it allows claims to be pursued where the quantum of damage per claimant is relatively modest (and not significant enough to justify the time and cost of bringing a claim) but where the total harm suffered by all claimants together is very significant. As such, the mechanism allows redress for harm which would otherwise go uncompensated.

There was much discussion at the legislative stage as to which types of harm ought to be included within the scope of the opt-out regime. In the end, the mechanism was limited to breaches of competition law, although the door was left open to widen this scope in the future. Although competition harm can take many forms, the most typical types include where a consumer or business has been charged higher prices as a result of the existence of a cartel, or where a business has abused its dominant position in the market.

The advent of opt-out class actions was not welcomed by all. Some warned of the UK moving to a US-style litigation culture. It was suggested that claimant lawyers would be queuing up at the first sniff of a potential competition infringement and a vast swathe of legal actions would result in price rises, increased insurance premiums and a toxic litigious culture pervading our society.

Looking at matters today, this all seems rather dramatic. However, no opt-out class action have yet successfully made their way through the first stages of the litigation process. 2020 is the year when we predict this will change. Leading the way is the Merricks litigation.

The Merricks litigation

The Merricks case stems from the European Commission’s finding that MasterCard infringed competition law for a period of 16 years, from 1992 to 2008, as a result of the high level of fees charged to businesses who accepted payment by MasterCard. The claimants comprise individuals who purchased goods or services within that window from businesses accepting Mastercard. It is alleged that the claimant group suffered the ultimate harm, as a result of businesses passing on to them (though higher prices) the increased costs which MasterCard had imposed. The claimant group, of around 46 million consumers, made use of the opt-out collective proceedings regime. Claimants who fall within the class definition will automatically be included unless they positively opt-out.

The first stage of opt-out litigation is for the class to be certified by way of a “Collective Proceedings Order”. At the certification stage, the court considers the anatomy of the claim to assess whether the claimants have similar interests and the claim has sufficient prospects of success. The first instance court (the specialist Competition Appeal Tribunal, or CAT) refused to certify the class in Merricks, primarily because it considered it would be too difficult to calculate a total amount of damage or to establish how the loss split between each claimant. The Court of Appeal disagreed and imposed a lower threshold test – a “reasonable prospect of success” – that an appropriate mechanism was available to calculate the distribution of damages. The Court of Appeal did not formally certify the class but sent the case back to the CAT to consider the application against the more lenient test. It seemed likely that the CAT would certify the class.

However, the Supreme Court granted permission to appeal and will now consider the test afresh in 2020. Its guidance will be critical: if it endorses the relatively low threshold test applied by the Court of Appeal, this will pave the way both for the Merricks case and many others. Conversely, a stricter test will put the brakes on the Merricks litigation and opt-out actions more generally.

Another difficulty the Supreme Court will have to grapple with is how damages are quantified in opt-out claims. In contrast to the CAT, the Court of Appeal stated that it was not necessary to be able to calculate exactly how much harm any particular individual had suffered as a result of the competition infringement. Rather, it was sufficient to consider an aggregate level of damages for the class as a whole. If the Supreme Court takes a similar view, this will be an important moment in assessing damages for tort claims; in particular, it will call into doubt the compensatory principle of loss, which is a bedrock of English law.

Opening the flood gates?

In addition to Merricks, there are opt-out claims pending in relation to competition infringements in relation to the trucks cartel, train companies allegedly overcharging for tickets where a customer already has a season ticket covering part of the journey and a cartel in foreign exchange transactions. Many other actions are rumoured to be waiting in the wings.

If the Merricks claim is given the go ahead, or even if it is not but the Supreme Court’s decision is generally positive towards the opt-out regime, expect to see a swathe of further actions coming forward for certification. This is particularly true given the amount of litigation funding in the UK market, much currently waiting to be deployed. We may yet experience a move towards the US style of class action litigation.

What about group claims for other types of harm?

We have already predicted that 2020 is likely to be a significant year for class claims relating to breaches of data protection law: see here.

The Lloyd v Google claim is particularly significant. The claim is based on the CPR 19.6 procedure, which the Court of Appeal permitted to be used for a large group claim against Google. A decade earlier, the same Court refused to allow the mechanism to be used to bring a large group competition claim for victims of the air cargo cartel (Emerald Supplies v BA). At the time, the court held that the interests of the claimant group were too divergent for them to all be included in a CPR 19.6 claim.

Two observations seem particularly relevant after Lloyd: First, was the fact that the opt-out regime in the CRA 2015 excluded data cases a factor that persuaded the Court of Appeal to permit a data class action under CPR 19.6? Second, given the loose test of class interest applied by the Court of Appeal in Lloyd, will the 19.6 regime now represent an alternative vehicle for class claims in the competition space, particularly if the Supreme Court deliver an adverse judgment on the use of the opt-out action in the Merricks claim?

What this means for you

• if you have been a victim of a competition infringement, it is already possible to bring a civil damages action to seek compensation for the harm suffered. We are seeing a number of these claims, often backed by litigation funding.
• however, if the Merricks claim is certified, expect to see a dramatic rise in opt-out class actions by victims of competition law infringements seeking redress, particularly in cases where the level of harm does not justify a claim being brought on an individual basis.
• as the market in competition class actions grows, expect claims not only where there is a pre-existing regulatory decision (so-called “follow-on actions”) but also in “standalone claims”, where liability must also be proved.
• similarly, if the Lloyd v Google case is given the green light by the Supreme Court, expect a rise in class actions not only for data breaches but in other areas too (eg for greenwashing of investment products: see our article here).

The future of group actions in the UK is in the balance. 2020 will prove to be either a good year for claimants or else would-be defendants will be popping champagne corks before the next Yuletide.