11 11月 2024
Insight
Global
The landscape
The UK has a separate regime for collective claims based on infringements of competition law, which are heard by the Competition Appeal Tribunal (CAT). Its scope was significantly expanded in 2015. Claims can be brought by a class representative on behalf of consumer or business claimants, seeking aggregate damages on either an opt-in or opt-out basis. Claims may be "follow-on", based on an existing decision by a competition regulator finding a competition law breach, or "standalone", without any underlying infringement decision.
The landmark Supreme Court judgment in Merricks v Mastercard in December 2020 gave this avenue considerable momentum by setting a very low bar for certification of claims by the CAT (certification being the initial procedural hurdle before the claim can proceed to trial). Since then, there has been a significant increase in claims filed (17 last year, and at least 10 so far in 2024, compared to just 9 in the five-year period prior to the Merricks judgment).
Growth in competition class actions is further fuelled by increased availability of litigation funding (with the potential for significant returns proving very attractive to funders), broad disclosure rules and the CAT's willingness to engage in sophisticated economic analysis and detailed consideration of complex legal tests.
No claims have yet resulted in an award of aggregate damages. Judgment is still awaited in the first full trial of opt-out competition collective proceedings, which took place in early 2024. However, several high-value claims have passed the certification stage, with more expected in coming months.
The UK is one of the most popular jurisdictions in which to bring competition class actions, and we have seen a wave of claims being certified to proceed to trial in recent years. It remains to be seen how the level of damages ultimately awarded – if any – in forthcoming high-profile substantive trials impacts the availability of funding for future claims, but at this stage we see no sign of the boom in claims abating."
Natalia Rodriguez
Partner
Current developments
While we continue to see a number of "plain vanilla" follow-on claims, there is a growing trend towards standalone claims, often rooted in allegations of abuse of dominance but pursuing novel theories of harm.
Such claims often stem from a perceived regulatory gap, with class representatives becoming increasingly creative in arguing that claims involving matters such as consumer rights and data privacy – or even environmental issues – amount to an abuse of a dominant position, in order to claim aggregate damages under the opt-out collective competition claims regime. Recent examples have included claims in relation to mobile phone loyalty "penalties", "throttling" of iPhone batteries and alleged misreporting of sewage discharges by water companies.
Class representatives may also seek to use the opt-out regime to obtain redress for consumers where a regulator has adopted a forward-looking solution following a review of issues in a particular sector (such as a regulatory change or acceptance of voluntary commitments), without any compensation for those previously affected.
The willingness of the UK Competition Appeal Tribunal to accept claims being "shoe-horned" into the opt-out competition class actions regime on the basis of novel theories of harm rooted in abuse of dominance allegations – at least at the certification stage – means that the risk of competition class actions in the UK now extends well beyond the sort of practices traditionally seen as likely to give rise to substantial damages actions."
Kim Dietzel
Partner
Future trends
The UK will likely remain one of the most popular jurisdictions to bring competition class actions. However, it remains to be seen how the level of damages awarded – if any – in high-profile upcoming substantive trials impacts availability of funding for future claims.
As more claims move beyond the initial certification stage, there will inevitably be more focus on distribution of damages to class members. The former President of the CAT has stated that he would like to see a very large proportion of damages distributed to claimants. However, experience in other jurisdictions such as the US suggests that may be overly ambitious and will not come to pass.
In a recent case involving the approval of a settlement in opt-out proceedings, the CAT considered that even 10% of claimants coming forward to claim damages awarded to them may turn out to be an overestimate. If average distribution rates are this low, it will raise questions about the effectiveness of the UK regime, particularly for opt-out cases.
Finally, there is an ongoing debate as to whether the CPO regime in the CAT should be expanded to include consumer protection claims in line with those brought for breaches of competition law.
Next steps for businesses
The most important first step for businesses to minimise the risk of competition class actions is to deliver regular tailored compliance training to employees. This is designed to reduce the risk of competition law infringements in the first place. A wide range of anti-competitive conduct could potentially give rise to a claim, or indeed multiple claims at different levels of the supply chain.
Larger company groups should ensure that subsidiaries – including non-UK subsidiaries – understand the importance of competition law compliance. This is because claimants may seek to establish an "anchor defendant" in a claimant-friendly jurisdiction such as the UK.
Businesses should be alert to current "hot topics" for competition regulators. These may represent areas of greater risk for both investigations and damages claims. Current areas of focus include the application of competition law to collaboration between competitors on ESG initiatives to achieve sustainability goals, and the impact of non-poaching agreements and wage-fixing agreements on competition in labour markets.
However, it is also important to recognise that the CAT’s willingness to accept novel theories of harm – at least at the certification stage – means the risk of a competition collective damages claim now extends to a broad set of business practices. For businesses that could be considered to hold a dominant position in a particular market, this risk is heightened and may extend to conduct which arguably falls within "market practice" or is associated with particular business models, particularly in connection with the use of AI/algorithms and data. It can be difficult to fully mitigate these risks, beyond ensuring that the legitimate rationale for key decisions is clearly recorded.
Notable casesIn addition to the Supreme Court judgment in Merricks v Mastercard in December 2020, recent notable cases include the first two CAT judgments approving settlement in opt-out competition collective proceedings (Maritime Car Carriers and Boundary Fares). Any settlement agreed by the class representative with one or more defendants in a certified opt-out claim must be approved by the CAT, and these judgments provide helpful guidance for businesses considering whether to settle a claim, and if so on what terms. There have also been a number of important CAT judgments on the validity of litigation funding agreements for competition collective proceedings following the Supreme Court judgment in PACCAR in July 2023 ((Alex Neill v Sony, CICC I v Mastercard and Gutmann v Apple). In PACCAR, the Supreme Court held that agreements under which a funder receives a share of the damages awarded fall within the statutory definition of Damages Based Agreements (DBAs), which are expressly prohibited in opt-out competition collective proceedings. The CAT has since taken the view that renegotiated agreements in which the funder's return is calculated as a multiple of the capital invested, rather than a percentage of the damages or settlement figure, are not DBAs and therefore permissible in opt-out competition claims. However, these judgments are all under appeal. Legislative proposals to potentially overturn PACCAR have stalled, so the Court of Appeal's verdict on this point is keenly awaited. |
Chapters
- Class Actions radar: Scanning global trends and risks
- Class Actions radar: Australia
- Class Actions radar: United Kingdom – General (England and Wales)
- Class Actions radar: United Kingdom – Competition
- Class Actions radar: France
- Class Actions radar: Germany
- Class Actions radar: Italy
- Class Actions radar: South Africa
- Class Actions radar: Spain
- Class Actions radar: Thailand
Key contacts
Legal Notice
The contents of this publication are for reference purposes only and may not be current as at the date of accessing this publication. They do not constitute legal advice and should not be relied upon as such. Specific legal advice about your specific circumstances should always be sought separately before taking any action based on this publication.
© Herbert Smith Freehills 2024
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