Le Patourel v BT - First competition class action to go to trial fails: key takeaways and implications for the regime

On 19 December 2024 the UK Competition Appeal Tribunal (CAT) handed down the first substantive judgment in an opt-out collective competition claim, Le Patourel v BT Group. This judgment has been much anticipated given it is the first collective action to proceed to trial and therefore is a litmus test for the UK competition collective actions regime.

The claim sought over £1bn in damages on behalf of over 3.7 million BT customers. The class representative, Mr. Le Patourel, alleged that the class had suffered loss as a result of unfair pricing of residential telephone landline services by UK telecoms operator BT. The claim followed and relied heavily on provisional findings made by the UK telecoms sector regulator Ofcom in 2017 in a review of the market for standalone landline telephone services, and the subsequent decision by Ofcom to accept voluntary undertakings from BT to address its concerns about BT's pricing in the standalone telephone services market, namely a price cut for standalone telephone landline services.

The CAT unanimously dismissed the claim, concluding that although the evidence indicated that the prices charged by BT were excessive (by reference to a notional competitive benchmark), they were not unfair because they bore a reasonable relation to the economic value of the services provided. On that basis, the CAT concluded that there was no abuse of dominance, and BT was not liable to pay any damages.

We consider this important judgment in more detail below, focussing on the key takeaways both for the UK competition collective actions regime and for unfair pricing cases, which account for a number of ongoing collective actions (for an overview of the regime and current trends more generally, see our recent Class Actions Radar briefing). 

In summary:

• The existence of prior regulatory findings short of a binding finding of infringement of competition law may carry weight at the certification stage, they do not guarantee success at trial, even on matters of primary fact. The weight to be attached to the findings of a regulator will be assessed on a case-by-case basis. In this case, Ofcom’s findings did not have material weight. The CAT considered that it had more detailed evidence than Ofcom, it considered that evidence afresh and reached its own conclusions.
• The CAT engaged in a detailed consideration of the two limbs of the United Brands test to determine whether there had been an abuse of a dominant position. The CAT considered in this case that a price of 20% above the notional competitive benchmark price was excessive and that BT's price was well above this level.
• Having found the price to be excessive, the CAT considered several factors in determining that the price was unfair, including whether the price was unfair by reference to the economic value of the product, the availability of excess profits in a counterfactual of workable counterfactual, and whether there was any anti-competitive or exploitative intent.
• Economic value can justify a price above the notional competitive benchmark price, which can include distinctive brand value which is valued by customers. This is a highly fact-sensitive issue. The CAT held that BT did offer distinctive value and that the fact customers did have the ability to switch to other providers and had in fact exercised it demonstrated that they valued the BT brand.
• The CAT did not follow the approach adopted in the expert evidence of either party, but opted to take a blended approach, taking aspects from the methodologies of both parties. This has been a feature of other competition cases where the CAT does not simply 'pick the winner' when testing economic evidence, but instead weighs the issues and reaches what it considers the right conclusion using its own expertise – something parties to litigation should keep well in mind. 
• Although not necessary, the CAT briefly considered the quantum analysis put forward by both parties.  In particular the CAT addressed how the unfair element of the price would be addressed and the approach to interest.  This is discussed below. 

This judgment was the first test of whether competition class actions will produce damages awards that justify the immense investment required to get them to trial. This outcome may do little to decrease funders' appetites to invest; litigation funders are portfolio players who are alive to the risks involved and price accordingly. The next significant decision awaited is on the issue of liability in the Gutman boundary fares case.  

Background

This claim arose in the wake of a review of the market for standalone landline telephone services (not sold as part of a bundle and known as "standalone fixed voice" or SFV services) undertaken by the UK telecoms sector regulator Ofcom under its regulatory powers in 2017. In its provisional conclusions published in February 2017, Ofcom outlined various concerns about BT's pricing in the SFV services market. In October 2017, it accepted voluntary undertakings from BT to address those concerns namely a reduction of £7 per month in in line rental charges, without reaching any final findings for the purpose of regulating BT's prices pursuant to Ofcom's regulatory powers. 

In January 2021 Mr. Le Patourel lodged an application to bring an opt-out damages claim under the UK collective competition proceedings regime. The claim alleged that BT had abused a dominant position by charging excessive and unfair prices for SFV telephone landline services and sought over £1bn in damages on behalf of 3.7 million customers. The claim was certified by the CAT in September 2021, and the substantive trial was heard between January and March 2024.  

No abuse of dominance: pricing was excessive but not unfair

The CAT applied the United Brands two-limb test to determine first (limb 1) whether the price was excessive by reference to a notional competitive benchmark (determined by reference to all direct and indirect costs and a reasonable margin), and if so, (limb 2) whether the price was unfair, either in and of itself or by reference to relevant comparators.

The parties disagreed on the correct approach for calculating the notional competitive benchmark price. The CAT considered the evidence and methodologies put forward by both parties in detail. Whilst they did not reject either methodology entirely, they found that there were problems with both methodologies and reached their own conclusion on the appropriate notional competitive benchmark. One input into the notional competitive benchmark price was the reasonable margin which BT could earn on the SFV services. The Class Representative had argued that the reasonable margin should be no more than 10%, whilst BT said it should be 25% (and not less than 20%). The CAT determined that a reasonable margin should be 13.5%.

The CAT found that they would consider an excessive price to be significant if it was 20% or more above the notional competitive benchmark comparing the notional competitive benchmark price against the prices actually charged, the CAT found that the BT charged an excess of between 25% and 49.9% above the benchmark price each year (the Class Representative had alleged that the excess was, on a weighted average, 83% above the notional competitive benchmark) price. The CAT therefore concluded that the price charged by BT was excessive, and that the excess was both significant and persistent.

As the CAT found the price to be excessive, it went on to consider “Limb 2” of the United Brands test, namely whether the price was unfair namely whether the price bore a reasonable relation to economic value of the SFV Service (see further below). In addition, in determining whether the price was unfair the CAT took into account several other factors, including:

• The fact that the excessiveness was significantly less than that alleged by the Class Representative, meant the weight of the excess in the unfairness analysis reduced. The CAT noted that they needed to assess whether the price was unfair compared to what would have been achieved had there been workable competition, rather than perfect competition. 
• It is possible to earn excess profits in a counterfactual with workable competition, and the Class Representative’s argument that in workable competition there would be zero excess profit was unrealistic. 
• The fact that there were a range of prices and cost efficiencies in adjacent markets (namely bundles) which were considered to be competitive.
• Whether BT had any anti-competitive or exploitative intent, but that the presence of such intent is not a prerequisite to a finding of abuse. On the facts, the CAT found that BT did not deliberately set out to target the SFV customers with excessive pricing, and that the position was more nuanced than argued by the Class Representative. 
• BT was aware it had greater flexibility to raise prices for SFV customers than for other customers but this did not add materially to the overall question of unfairness. 
• The fact that BT used the revenue from SFV services to invest in other products did not assist in showing fairness or otherwise.
• Whether there were any suitable comparators. In particular, the CAT rejected an argument from the Class Representative that because BT agreed to reduce the prices through commitments to Ofcom showed unfairness.

Overall, the CAT concluded that whilst the price was excessive, it was not unfair, either in and of itself, or as against any comparators. 

The CAT's approach to determining economic value

A key question in determining whether a price charged by a dominant company is "unfair" is whether it bears a reasonable relation to the economic value of the good or service in question. If it does not, this is indicative of it being unfair and therefore abusive.

The CAT considered the question of how to determine economic value in detail, emphasising that economic value is different to cost, and a price may fairly be set above the relevant competitive benchmark where the supplier offers "distinctive value" that increases the economic value of the product or service offered. This assessment will be highly fact-sensitive, and a matter for the exercise of judgment by the CAT. 

The CAT concluded that BT provided distinctive value to its SFV customers such that its price was considered to bear a reasonable relation to value (despite being found to be excessive). In particular, distinctive value arose from:

• so-called "Gives" provided by BT to its SFV customers (additional services namely, UK-based call centres, Call Protect services to block nuisance or scam calls, and a fault-fix guarantee); and 
• BT's brand value as a whole, with a significant element of satisfaction and brand loyalty contributing to additional positive value attached to BT's services by its customers.

The CAT also considered that evidence of switching can be relevant to determining economic value, on the basis that if customers are not captive but freely able to switch suppliers, it is easier to conclude that the price bears a reasonable relation to the underlying economic value of the product or service (because those that do not switch must have chosen not to because they subjectively attach a positive value to the product or brand). It noted that Ofcom had significantly underestimated the level of switching by customers.

The CAT's approach to economic expert evidence: "blending" of outcomes

The CAT's judgment is generally positive about the contribution made by the economic experts, noting that the expert economic evidence greatly assisted it in reaching conclusions on the core economic issues. However, it also notes that the methodologies employed by each of the experts were quite different in many of the disputed areas, including for example in respect of determining the relevant competitive benchmark against which BT's prices should be assessed, and the assessment of common costs. 

The CAT's approach to dealing with this issue was to take account of the possible defects of the various lines of reasoning presented by the different experts and "blend" the outcomes of the various economic models so as to reach what it described as "the appropriate outcome", which may not be directly the product of either side's approach. The CAT also pro-actively requested both sides to produce alternative analyses using different figures for the purpose of assessing whether the prices charged by BT were excessive.

This is an approach seen in several competition cases. Parties should therefore not assume that the CAT will look to 'pick a winner' when assessing the expert evidence, but will instead weigh each issue careful and reach its own judgment, and they and their advisers should look to tailor their approaches accordingly.  

No material weight attached to Ofcom provisional findings or acceptance of voluntary undertakings

At the certification stage, the CAT had given weight to Ofcom's provisional findings and its statement accepting voluntary undertakings from BT when considering whether the claim had at least a real prospect of success and should be certified to proceed to trial.

However, the CAT emphasised at certification that this did not mean that it would be bound by the Ofcom reports at trial, and the substantive judgment emphasises that it also did not mean that it was bound to give them any particular weight at trial. 

It is ultimately a matter for the CAT to decide what weight, if any, to place on any related findings or decision of another tribunal or regulator, and this will be highly fact-sensitive. The judgment explains that the CAT will consider a number of factors when determining if and how it will give weight to a related decision or findings, including whether:

• There is more extensive data and evidence available at trial than what was relied upon in the related finding or decision.
• The regulator or Tribunal applied a different (or less strenuous) legal test when making its findings or decision.
• The regulator or Tribunal made a final conclusion in the related matter.
• Whether objectives of the related finding or decision differed from the legislative considerations being decided on by the Tribunal. 

In this particular case, the CAT concluded that Ofcom's findings did not amount to supporting evidence of unfairness to which it was required to give material weight. 

The CAT emphasised that it had been provided with primary materials on the issues in question, that matters had moved on since the certification stage, and that Ofcom's intervention in respect of SFV customers would have been at least partly motivated by its duties to protect vulnerable customers, which differed from the competition law considerations being considered at trial.

In terms of implications for future cases, the judgment states that "this case demonstrates the pitfalls of attempting a rigid 'read-across' from the findings of a regulatory body, especially where there is no final conclusion". It is clear that the CAT will undertake detailed analysis for itself, and that establishing a successful opt-out claim will require more than simply taking a competition-adjacent regulatory finding and asserting that the conduct amounts to an abuse of dominance in breach of competition law.

Assessment of quantum

As the CAT decided that the price was not unfair, that meant the claim failed and it was not necessary for the CAT to determine the level of damages that should be ordered. However, as the parties had argued the quantum in full, and in case their ruling on liability is overturned on appeal (the Class Representative has not yet confirmed whether he will appeal the judgment) the CAT briefly dealt with the arguments that had been made on the quantum of the claim. Whilst these points are made in passing, we note a few key points to be aware of going forward.

The CAT noted that, following Albion Water Limited v Dŵr Cymru Cyfyngedig, the starting point for determining the alleged loss per customer would be the difference between the price for any given month and the competitive benchmark. They would not have accepted BT’s argument that this would overcompensate customers, as BT could have charged a price above the competitive benchmark, without it being excessive (it is notable in this regard that the claim failed precisely because the CAT reached the conclusion that BT could and did do so). The CAT also noted that there was no evidence as to what BT would have done in the counterfactual and so it would not be possible for them to make any assumptions about how BT would have acted.

The Class Representative included a novel claim for inflation, separately from a claim for compound interest. The claim was that in the counterfactual SFV customers would have spent some of the overcharge (as distinct from the allegation that they would have invested or paid down debt, which could support a claim for compound interest) and that it would now cost more to buy the same goods or services would have done at the time. The Class Representative argued that an adjustment to the damages figure to reflect inflation was needed to ensure  full compensation. The CAT stated that they would have rejected such a claim as a matter of principle and that it was not supported by any legal authority.

The CAT then considered whether it would have awarded compound interest. The CAT considered that the fact that the claim was for aggregate damages does not mean a claim for compound interest can never succeed, but it would need to be specifically evidenced. The CAT considered that the evidence put forward by the Class Representative, which relied on the interest payable on typical savings accounts or the interest due on credit cards, would apply in 'virtually any case' and did not meet the strict evidential requirements laid down in the case law. The CAT therefore concluded that it would have awarded interest on a simple, not compound basis (and would have been awarded at 2% above base rate). The CAT stated that this decision was not reached with any particular enthusiasm, as it was felt that not awarding compound interest would fail to reflect the prominence of compound interest in the real world and would not fully compensate the Class Members.