CAT ruling in Forex litigation: carriage dispute cannot take place before certification hearing

Introduction¹

The Competition Appeal Tribunal (the “Tribunal”) has ruled that two competing collective proceedings applicants in the Forex litigation must go head to head for the right to represent the potential class in one single substantive hearing, which will also determine whether a collective proceedings order (“CPO”) is made at all. With this ruling in O’Higgins/Evans,²  the Tribunal rejected the approach taken in other jurisdictions with well-established class action regimes, such as Canada, where so-called “carriage disputes” are usually heard as preliminary issues prior to class certification. The Canadian approach was favoured by both competing CPO applicants in O’Higgins/Evans, and a number of the respondents, who were seeking an early resolution of the carriage dispute to save costs. However, the Tribunal held that the carriage dispute was not necessarily a discrete matter capable of being determined as a preliminary issue ahead of the CPO application hearing. Therefore, it ordered a single substantive hearing in March 2021 to determine both (i) whether or not to grant a CPO at all, and if so (ii) which CPO applicant will prevail.

Background

O’Higgins/Evans stems from two European Commission Decisions, both made on 16 May 2019, in which the European Commission found that various major banking groups infringed Article 101 of the Treaty on the Functioning of the European Union by participating in two cartels in the Spot Foreign Exchange market for the 11 G10 currencies. The first decision (concerning the so-called “Three Way Banana Split” chatroom) was addressed to Barclays, Citigroup, JPMorgan, RBS and UBS, and imposed a total fine of €811,197,000. The second decision (concerning the so-called “Essex Express” chatroom) was addressed to Barclays, RBS, UBS and MUFG Bank (formerly Bank of Tokyo-Mitsubishi) and imposed total fines of €257,682,000. Both Commission Decisions were settlement decisions.

Following these Decisions, two competing applications were made to the Tribunal for a CPO. The first application was filed on 29 July 2019 by Michael O’Higgins FX Class Representative Limited, a special purpose vehicle with Mr Michael O’Higgins as the sole director and member – Mr O’Higgins is a former Chairman of the Channel Islands Competition and Regulatory Authorities. The second application was filed on 11 December 2019 by Mr Phillip Evans – Mr Evans is a former Panel Member and Inquiry Chair at the Competition and Markets Authority and a former Senior Policy Adviser at Which? (together, the “Applicants”).

Both applications were filed on an “opt-out” basis (i.e. claimants are automatically included in the potential class unless they opt-out), and the respondents to both applications are the same (the “Respondents”), being addressees of one or both of the Commission Decisions, save that the O’Higgins Application has not been brought against MUFG. As a result, only one of the CPO applications can be certified. Both applications are being managed jointly in the Competition Appeal Tribunal.

The statutory regime governing CPOs in English law was introduced by the Consumer Rights Act 2015, which inserted various provisions into the Competition Act 1998 (the “CA Act”). These new provisions are also reflected in the Competition Appeal Tribunal Rules of Procedure (the “Tribunal Rules”). Under these provisions, two conditions must be satisfied before the Tribunal can make a CPO (if these conditions are not satisfied, then the claim fails):

• first, pursuant to section 47B(6) of the CA Act (and rule 79 of the Tribunal Rules), the claims must be considered by the Tribunal to raise the same, similar or related issues of fact or law and to be suitable to be brought in collective proceedings (the “Eligibility Condition”); and
• second, pursuant to section 47B(8)(b) of the CA Act (and rule 78 of the Tribunal Rules), the proposed class representative must be authorised by the Tribunal on the basis that it is just and reasonable for that person to act as a representative in the collective proceedings (the “Authorisation Condition”).

In short, the Eligibility Condition relates to the claims that may appropriately be certified as eligible for inclusion in collective proceedings, whereas the Authorisation Condition relates to the person who may appropriately be authorised to bring collective action.

The issue in O’Higgins/Evans

In O’Higgins/Evans, it was common ground that determination of the Eligibility Condition would be deferred for a later hearing, currently scheduled for March 2021. This is because the legal test for the Eligibility Condition is due to be considered by the Supreme Court in Mastercard Inc v Merricks³.   Merricks is currently listed for hearing on 12 and 13 May 2020, with a ruling expected in the second half of 2020. Until then, the Tribunal said that it could not reasonably rule on the Eligibility Condition in O’Higgins/Evans (nor could any tribunal do so in any other CPO application – there is currently a backlog of CPO applications in the Competition Appeal Tribunal, in anticipation of the Merricks judgment).

The question before the Tribunal in O’Higgins/Evans was therefore when to deal with the Authorisation Condition, in light of the fact that there are two competing applicants for the CPO. This question is referred to as a “carriage dispute”, a phrase borrowed from other common law jurisdictions with well-established class action regimes, such as Canada, which mirrors the UK regime in a number of aspects. In the common-law Canadian provinces, carriage disputes are frequently determined as preliminary issues prior to the certification stage.⁴

The Applicants submitted that the carriage dispute should be determined as a preliminary issue, with only the successful party then proceeding with a single application for a CPO in March 2021. It was common ground between the parties and the Tribunal that the Tribunal had jurisdiction to hear the carriage dispute as a preliminary issue. The essential reasons put forward by the Applicants for seeking the early resolution of the carriage dispute were:

• first, because the carriage dispute was a discrete matter capable of being determined as a preliminary issue at this stage of the proceedings, and that this approach would be consistent with the approach taken in other jurisdictions (in particular Canada, as well as other jurisdictions where carriage or similar disputes are typically resolved at an early stage, e.g. Australia and the United States); and
• second, that determining the carriage dispute early would be in the interests of all parties, especially the proposed class members, and would represent the most efficient use of the Tribunal’s resources. In particular, doing so would (i) save costs, (ii) avoid confusion amongst members of the proposed class and infighting, and (iii) avoid undermining or delaying any potential alternative dispute resolution.

The Applicants' submissions on this issue were also supported by three of the Respondents: Barclays, Citibank and MUFG. The other Respondents took a neutral stance. Therefore, the Tribunal was presented with a common front – notably no party opposed the Applicants’ proposal for the carriage dispute to be heard as a preliminary issue.

The Tribunal’s judgment

Notwithstanding the common front presented by the Applicants and the Respondents, the Tribunal refused to order that the carriage dispute should be determined as a preliminary issue, and instead ordered a single substantive hearing, taking place in March 2021, deciding both whether a CPO should be made at all, and if so, to which class representative.

Overriding considerations

The Tribunal welcomed the parties’ agreement on the issue, and noted that ordinarily it would be slow to deviate from a cross-party consensus on case management issues, but that it was appropriate to do so for two overriding considerations in this case:

• First, the CPO regime is a relatively new one in this jurisdiction, and this is the first carriage dispute coming before the Tribunal. Therefore, the Tribunal wanted to approach the matter with particular care, owing to the potential wider implications of its ruling for the regime as a whole.
• Second, that unless and until the CPO is made, the Applicants do not represent the proposed class, and the Applicants’ interests are not necessarily aligned with those of the proposed class. For this reason, the Tribunal noted that a CPO application is almost analogous to an ex parte Court application, in which an applicant would usually provide full and frank disclosure to the Court. Given that this obligation would be impractical to impose in a CPO application, the Tribunal felt it appropriate to probe the arguments made by the Applicants more intrusively than usual, to ensure that the interests of the proposed class were taken into account. The Tribunal stated that it “made no apology” for taking this approach.

The Tribunal also did not feel compelled to follow the Canadian case law, which all parties agreed was the most analogous jurisdiction to draw from. The Tribunal noted that the Canadian approach carried the risk of taking a decision at the carriage stage without a full understanding of certain matters which may be highly material to the question of both carriage and certification (such as the framing of the substantive claims, the class definition and the prospects of success). Further, the Tribunal cited a recent report from the Law Commission of Ontario⁵ suggesting some dissatisfaction with the current Canadian approach from class action stakeholders, and a need for reform.

Whether the carriage dispute is a discrete matter capable of being determined as a preliminary issue

The primary reason given by the Tribunal for refusing to hear the carriage dispute as a preliminary issue was that, according to the Tribunal, the carriage dispute was not necessarily a discrete matter capable of being determined in advance of certification. The Tribunal stated that an interplay between the two CPO conditions may be construed, such that the Eligibility Condition cannot properly be determined in a case with multiple proposed class representatives without also considering the Authorisation Condition.

The Tribunal accepted that on one reading, the two CPO conditions are self-standing and independent. The Tribunal noted that the two conditions certainly appear to have been drafted quite deliberately as self-standing, independent conditions. In particular, it highlighted that rule 78 of the Tribunal Rules, which articulates the Authorisation Condition, says nothing about having regard to the strength of the claims that the proposed class representatives wish to bring (i.e. it does not appear to tie the Authorisation Condition to the Eligibility Condition). That provision also expressly envisages a carriage dispute in rule 78(2)(c), which obliges the Tribunal to select the most suitable class representative when faced with multiple applications.

On the other hand, the Tribunal said that an alternative interpretation was plausible - that when deciding whether to make a CPO, it might have to consider not merely the merits of the claims put forward by the proposed class representative in isolation, but in comparison with the merits of the claims put forward by rival proposed class representatives. It argued that this approach could be inferred from the Competition Appeal Tribunal’s rigorous analysis of the Eligibility Condition in Merricks, which held that “only appropriate cases go forward.”⁶

Further, the Tribunal considered it to be the case that, even if the Supreme Court adopts the Court of Appeal’s less rigorous approach to the Eligibility Condition (a test, essentially, of arguability) when it hears the Merricks appeal, the Tribunal will not necessarily be precluded from taking the comparative merits of claims into account where there are rival CPO applications. The Tribunal said that it is perfectly possible that a test of basic arguability is used to determine whether a class representative is certified, whereas a different (relative merits) test might apply when determining which of two or more proposed class representatives should be selected as the class representative. On this interpretation, the Tribunal said there would be considerable difficulties in determining a carriage dispute in advance of certification.

As a result of the legal uncertainty which it outlined, the Tribunal held that a carriage dispute cannot, as a matter of law, be capable of being determined as a preliminary issue. The Tribunal also held that it was not appropriate to decide this legal issue at this stage of the proceedings (not least because of the risk of an appeal of such a judgment, with the result that a substantive certification hearing in March 2021 would no longer be possible). Instead, it concluded that the appropriate course would be for it to consider the interplay between the Eligibility Condition and the Authorisation Condition at the certification hearing, in light of all of the evidence, and after the Supreme Court’s judgment in Merricks.

Other factors

For this reason, the Tribunal said that the other factors put forward by the Applicants in support of a preliminary issue on carriage took a back seat. Nonetheless, the Tribunal briefly considered (and dismissed) them.

(a) Costs

First, The Tribunal rejected the argument from the parties that a preliminary issue would reduce costs. The parties argued that a short hearing in June/July 2020 would (i) knock-out one of the Applicants, avoiding their costs for the certification hearing, and (ii) reduce the costs of the Respondents, who would only have to resist the application of a single proposed representative at the certification hearing.

However, whilst the Tribunal did not dismiss these potential cost advantages for the unsuccessful applicant and the Respondents, it held that overall two hearings would likely be more expensive than one, and that proceeding by way of a single certification hearing would be the more efficient route.

(b) Confusion/risk of infighting

Second, the Tribunal dismissed the argument that a preliminary issue on the carriage dispute would avoid confusion amongst the proposed class members and the risk of infighting. The Tribunal said that this was not a significant point, and that the Applicants have a responsibility to minimise the risk of infighting and confusion to the class members.

(c) Potential Alternative Dispute Resolution

Third, the Tribunal also did not consider that the hearing of a carriage dispute would make much difference to the prospects of a settlement. The Applicants contended that, whilst the question of carriage remained unresolved, it would not be possible for the Respondents to settle the potential claims against them. However, the Tribunal noted that the question of settling this potential dispute would probably only arise once the question of the CPO had been resolved, and in any event noted that section 49B of the CA Act provides a statutory settlement procedure in circumstances where a CPO has not been made.

The Tribunal also queried the relevance of this factor, stating that it should not be deterred from doing what is right in case management terms by the fact that a different course might be more effective in promoting settlement.

(d) Other factors

Finally, the Tribunal also noted that it wanted to preserve the certification hearing currently listed for March 2021. Holding a preliminary carriage hearing could risk this – because of the prospect of the losing CPO applicant appealing the Tribunal’s ruling. The Tribunal also warned that, given the lack of a bright-line delineation between the Eligibility and Authorisation Conditions, a carriage hearing in June/July 2020 might result in the parties having to make further submissions once the Merricks judgment is handed down.

Comment

The Tribunal’s ruling means that, for now, the UK will not be following the approach taken in other jurisdictions, such as Canada, which generally determine carriage disputes in preliminary hearings prior to certification.

The primary reason for the Tribunal’s ruling is the legal uncertainty on the potential interplay between the Authorisation Condition and the Eligibility Condition. This resulted in the Tribunal being unable to rule that a carriage dispute, as a matter of law, is a discrete matter capable of being determined as a preliminary issue.

This judgment therefore further reinforces the importance of Merricks, with the UK’s collective proceedings regime in a temporary state of uncertainty until the Supreme Court provides some clarity on the correct legal test for the Eligibility Condition in CPO applications.

However, once the Merricks ruling has been handed down, it is possible that future carriage disputes could be heard as preliminary issues. The lack of a bright-line distinction between the Eligibility Condition and the Authorisation Condition may be seen as less of an issue in circumstances where the legal interpretation of the Eligibility Condition has been clarified.

Indeed, the Tribunal expressly stated that its judgment in O’Higgins/Evans did not mean all future carriage disputes have to be heard alongside the question of certification. It is therefore possible that the balance struck by the Tribunal in O’Higgins/Evans may not be appropriate in all cases; for instance in a case with a greater number of competing applicants and/or greater variance in proposed defendants, the potential costs savings arising from an early determination of the carriage dispute may be afforded greater weight, and could tip the balance in favour of carriage as a preliminary issue.

The Tribunal also suggested that a second CPO application made at a late stage could be dismissed on a preliminary basis if it would be too disruptive to the proceedings as a whole if it was not disposed of. That said, the Tribunal also suggested that once the uncertainty of Merricks has been removed, CPO applications should proceed to certification hearings more promptly, which could leave less scope for preliminary hearings on carriage.

It is also significant that the Tribunal found that the Applicants’ interests are not necessarily aligned with those of the members of the proposed class prior to certification. This overarching consideration has wider implications in the context of all CPO applications, and highlights the responsibility of the Tribunal in ensuring that the interests of the proposed class are properly taken account of prior to certification.

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1. HSF represents MUFG Bank, Ltd. and Mitsubishi UFJ Financial Group, Inc. (together, “MUFG”), proposed defendants in Case 1336/7/7/19. The content of this post is based solely on material in the public domain and does not reflect the position of MUFG.
2. Case 1329/7/7/19 Michael O'Higgins FX Class Representative Limited v Barclays Bank PLC and Others; Case 1336/7/7/19 Mr Phillip Evans v Barclays Bank PLC and Others.
3. UKSC 2019/0118, on appeal from [2019] EWCA Civ 674.
4. Quebec, which follows the civil law tradition, has a different regime.
5. Law Commission of Ontario, Class Actions: Objectives, Experiences and Reforms: Final Report (Toronto: July 2019).
6. Case 1266/7/7/16: Walter Hugh Merricks CBE v Mastercard Incorporated and Others, para 57.

 

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