I. Introduction
On 26 March 2015, a seismic shift occurred in English civil procedure, with the implementation of a collective proceedings regime, pursuant to which an action may proceed on opt-out principles, if the relevant court so directs. This collective proceedings regime, enacted by virtue of Schedule 8 of the Consumer Rights Act 2015,Footnote 1 pertains solely to competition law grievances (the ‘UK Competition Class Action’).Footnote 2 Entitled Private Actions in Competition Law, this regime followed the Government’s comprehensive 2012 consultation on the subject.Footnote 3 Relevant draft Rules of Court have been prepared in readiness for its implementation,Footnote 4 and the regime is expected to come into force on 1 October 2015.
The UK Competition Class Action, whilst sectoral in design, is the first time in English legal history that the UK Parliament has implemented an opt-out class action, and its ramifications are likely to be far-reaching. This landmark legislative initiative follows more than a decade of concerted reform activity at domestic level, much of which arose from the concern that competition law was one province of activity in which there was a limited ability, by either aggrieved individuals or businesses, to institute actions by which to test their claims in English courts.
These concerns were by no means limited to the UK. Similar misgivings were espoused by the European Commission which, on 11 June 2013, published a series of common and non-binding principles for collective actions, via its Recommendation on Common Principles for Injunctive and Compensatory Collective Redress Mechanisms in the Member States Concerning Violations of Rights Granted under Union Law (hereinafter ‘2013 Recommendation’).Footnote 5 The purpose of this Recommendation was to ‘ensure a coherent horizontal approach to collective redress in the European Union without harmonising Member States’ systems’,Footnote 6 as a means of promoting the private enforcement of rights granted under Union law.Footnote 7 Since publication of the 2013 Recommendation, not only has the UK Competition Class Action been enacted,Footnote 8 but the legislatures of the Member States of BelgiumFootnote 9 and FranceFootnote 10 have also promulgated, and enacted, proposals for class, or collective, actions of differing scope and design.
The focus of this article is upon the recently-enacted UK regime, and in particular, upon the significant divergences which exist between the 2013 Recommendation and the legislative drafting choices which the UK has adopted for its class action — and, in addition, the reasons for those divergences. English law-makers have not been prepared to countenance the European Commission’s vision of collective redress in its entirety. Given that the 2013 Recommendation requires that one such departure be ‘duly justified by reasons of sound administration of justice’, the purpose of this article is to examine, and to justify, three important areas of jurisprudential divergence which characterise the UK Competition Class Action. There are, of course, many legislative design points and policy choices regarding that class action upon which the European Commission, and the UK Parliament, concur. The three points of divergence are, however, central to the operation of the UK Competition Class Action, and are worthy of some detailed critical analysis.
The first disparity concerns the Commission’s RecommendationFootnote 11 that its principles governing compensatory collective redress should be ‘applied horizontally and equally’ in any areas where collective claims for violations of the rights granted under EU law are relevant. In other words, the intention was that each Member State should implement collective redress mechanisms which were generic in nature, in that they could deal with a range of legal disputes, provided that the procedural requirements for commencing the action were met. Although the jurisdiction of England and Wales does have generic collective redress regimes ‘on its statute books’,Footnote 12 the UK Competition Class Action is clearly only sectoral. Interestingly, so are the recently-enacted BelgianFootnote 13 and FrenchFootnote 14 collective redress regimes. In the UK’s case, the ‘die was cast’ for sectoral reform some five years ago. As discussed in Part II, the 2013 Recommendation must realistically be tempered by the political environment which exists in a particular Member State — albeit that the 2013 Recommendation for horizontal reform is, in this author’s view, distinctly preferable.
The second disparity concerns that of standing to sue. The 2013 RecommendationFootnote 15 only sanctions a form of representative action, in that the sole party with the requisite standing to sue is the so-called ‘ideological claimant’Footnote 16 (ie an entity which does not have a cause of action against the defendant itself, but which is authorised to bring the action on behalf of directly-affected class members). Specifically, the European Commission recommends that standing only be vested in a statutorily-stipulated representative entity, or an ad hoc certified entity which meets certain authorisation criteria, or a nationally-recognised public authority. On the other hand, the UK Competition Class Action is framed far more broadly. It confers standing upon both an ideological claimant and a directly-affected class member.Footnote 17 The Commission’s very restrictive approach towards the issue of standing to sue is critiqued in Part III. As explained in that Part, exclusive reliance upon the ‘ideological claimant’ has neither history nor policy to recommend it.
The third divergence concerns the all-important question of how the class is to be formed. The 2013 Recommendation embodies the traditional and longstanding European conservatism regarding the formation of an aggrieved class on ‘opt-in principles’, ie requiring the express consent or mandate of each group member, for his or her claim to be included within the group of persons who are entitled to claim compensation. Article 21 provides that:
The claimant party should be formed on the basis of express consent of the natural or legal persons claiming to have been harmed (‘opt-in’ principle). Any exception to this principle, by law or by court order, should be duly justified by reasons of sound administration of justice.Footnote 18
By contrast, the UK Competition Class Action adopts an opt-in or opt-out approach for the formation of the class, depending upon judicial choice.Footnote 19 In competition law infringement claims, it is anticipated that an opt-out class action will be the norm, given the relatively low-value-claim-per-class-member, and the numerous consumers or businesses amongst whom that loss is typically spread. The opt-out model entails defining the class (eg ‘those who purchased widgets between x date and y date’) without requiring an individual mandate to sue on the part of those class members — so that any class member who falls within the definition, and who wishes to disassociate from the litigation, must take a proactive step to opt-out of the class, otherwise s/he is bound. It is argued, in Part IV, that the exceptional scenario of opt-out which the European Commission grudgingly permits — and only when ‘duly justified by reasons of sound administration of justice’ — is entirely defensible for the UK Competition Class Action. Indeed, the opt-out model warrants fuller consideration by Member States than has ever been endorsed by the European Commission itself. The only circumstance in which the UK Parliament is ad idem with the European Commission on class formation concerns sub-classes of foreign class members — for those must opt-in, no matter how the UK Competition Class Action is formed,Footnote 20 to ensure, inter alia, that those foreign class members have acceded to the jurisdiction of the UK court (an entirely correct drafting decision, in this author’s view).Footnote 21
Of course, it would be misleading to suggest that the European Commission and the UK Parliament differ across the spectrum of class actions design. Quite the reverse. There are, in fact, several points of commonality between them. Under both regimes, the class members can be natural or corporate persons, without restriction. Recovery of full compensatory damages is advocated for class members under both (in contrast to the recent French group action, in which only pecuniary damages are permitted).Footnote 22 Certification, or authorisation, is mandatory, by way of upfront judicial verification that the collective action is indeed appropriate to go forward in that form. Exemplary damages are expressly prohibited, on the basis that they would lead to over-compensation. Third party funding of collective actions is permitted under both (albeit that there is a notable divergence about lawyers’ contingency fees, with the 2013 Recommendation permitting that method of funding where there is ‘appropriate national regulation of those fees in collective redress cases’,Footnote 23 whereas the UK Parliament has expressly prohibited percentage contingency fees for opt-out collective proceedings.)Footnote 24 Costs-shifting, or the ‘loser-pays’ principle, is preserved under each instrument, ostensibly as a deterrent to vexatious, or ‘blackmail’-type, litigation.
However, it is the previously-mentioned discord between the 2013 Recommendation and the legislative drafting in the 2015 UK Competition Class Action — concerning horizontal (generic) implementation, standing to sue, and class formation — which is of most interest. Essentially, it reflects the deeply-divisive policy issues which pervade the class actions landscape across Europe. Moreover, it also demonstrates a deliberate, and carefully-considered, departure by the UK legislature from the European Commission’s non-binding principles. These disparities have manifested due to both political preference and legal pragmatism.
II. Horizontal Versus Sector-Specific Reform
The irony is that, several years ago, the European Commission initially promoted a sectoral approach to collective actions reform, borne of independent studies commissioned by separate Directorates, whilst UK policy-makers have long advocated the introduction of a generic class action that would be able to cope with any type of grievance in any sector of the market. How odd it is, then, that precisely the opposite position from where each jurisdiction started has manifested during the course of 2013–15.
At European level, a rather tortuous path has been trodden since the issue of collective redress began to feature prominently on the Commission’s agenda. At the very outset, the reform was sectorally-oriented. Each of the Competition Directorate-General (in the context of anti-trust infringements)Footnote 25 and the SANCO Directorate-General (in the context of consumer collective redress)Footnote 26 considered the topic for almost a decade, from 2005, with a variety of options being canvassed.Footnote 27 A number of studies were separately commissioned by the European Commission,Footnote 28 and influential reports published.Footnote 29 The starting point for reform was fairly low, as the Competition Directorate admitted in 2005: ‘[w]hile Community law... demands an effective system for damages claims for infringements of antitrust rules, this area of the law of the 25 Member States presents a picture of “total underdevelopment”.’Footnote 30
However, a more unified approach toward collective redress implementation was gradually demonstrated. In 2007, via the Commission’s EU Consumer Policy Strategy 2007–13,Footnote 31 the Commission suggested a unification of the separate initiatives. One major motivation for that more cohesive direction was that ‘[c]onsumer and competition policymakers and enforcers at EU and national level should cooperate more closely to further their common goal of consumer welfare’, so as to achieve more ‘citizen-focused outcomes’.Footnote 32 That common drive became even more evident among three separate Directorates (the aforementioned two, plus that of Justice), via the publication, in 2010, of the joint information note, Towards a Coherent European Approach to Collective Redress: Next Steps.Footnote 33 That led to an important horizontal public consultation (of the same name) in 2011.Footnote 34 It was recommended therein that all Member States introduce generic collective redress mechanisms to facilitate the enforcement of rights that EU citizens enjoy under EU law. In 2012, the European Parliament’s ResolutionFootnote 35 on Towards a Coherent European Approach to Collective Redress concurred with the view that generic (horizontal) reform was the correct approach, so as to provide, ‘uniform access to justice via collective redress within the EU, and specifically but not exclusively dealing with the infringement of consumer rights’.
Further controversy lay ahead, however. In June 2013, a draft Directive on actions for damages in competition cases was proposed,Footnote 36 but which deliberately excluded collective redress.Footnote 37 The influential Committee on Economic and Monetary Affairs subsequently confirmed that the Directive ‘should not require Member States to introduce collective redress mechanisms for the enforcement of Articles 101 and 102 of the Treaty’,Footnote 38 whilst reiterating that collective actions for competition law should be ‘encouraged, even if not made obligatory for the Member States’.Footnote 39 Given this reticence on the part of the Directive to insist upon collective redress, the importance of the 2013 Recommendation, which proposes the horizontal implementation of collective redress regimes in each Member State to aid the enforcement of rights granted under Union Law, is all the more apparent. Indeed, in justifying the fact that the Directive left it to the Member States as to whether to introduce collective redress as a means of private enforcement of competition law, the Commission viewed its horizontal Recommendation on collective redress (which necessarily applies to competition law), and its Directive on competition law which contains specific rules pertinent to the specialist area of competition law, as ‘a “package” that, seen as a whole, reflects a balanced approach deliberately chosen by the Commission’.Footnote 40
The Commission proposed, in its 2013 Recommendation, that national collective action regimes would be valuable, for example, in areas of personal data protection, financial services, consumer protection, competition, environment protection, and investor protection,Footnote 41 but endorsed a generic regime for Member States, which would apply to any so-called ‘mass harm situation’ where two persons (legal or corporate) allegedly suffered damage from the same unlawful behaviour.Footnote 42
The shift at EU policy level, from sectoral to generic collective redress reform, undoubtedly reflects political conflicts and renewed co-operations, both within and beyond the Commission. Three significant reasons for the movement to generic reform were articulated. First, the Commission was concerned about ‘the issue of inconsistencies between the different Commission initiatives on collective redress’ and the risk of an ‘uncoordinated’ series of sectoral regimes. Secondly, collective redress was relevant to areas far wider than in those consumer and competition sectors in which the reform activity commenced in earnest in 2005. Thirdly, a horizontal approach to reform was considered more likely to achieve ‘the smoothest interface with national procedural rules’.Footnote 43 Hence, the Commission concluded, in its 2013 report, that it was ‘deem[ed] necessary to increase policy coherence and to take a horizontal approach on collective redress’.Footnote 44
The shift in reverse, from generic to sectoral collective redress reform in the UK — to the point where the UK Parliament has not adhered to the Commission’s Recommendation of horizontal reform in the now-enacted UK Competition Law Class Action — has been no less remarkable over the relative short period in which that change of policy has occurred. In fact, the enacted regime in Schedule 8 of the Consumer Rights Act 2015 is the second time in four years that a sectoral opt-out class action has been considered by the UK Parliament. The previous attempt — which concerned a collective action for ‘financial services claims’Footnote 45 — was a casualty of the legislative ‘wash-up’ which followed the announcement of the General Election in 2010.Footnote 46 That was the first occasion upon which there was a clear political intent in the UK to enact an opt-out class action (under that proposal, as with the UK Competition Class Action, the collective proceeding would have proceeded on an opt-in or an opt-out basis, depending upon judicial choice).Footnote 47 In fact, the UK Competition Class Action will be limited in some crucial respects. First, jurisdiction to hear such claims will be vested exclusively in the Competition Appeal Tribunal (CAT); and secondly, the collective action only concerns a claim in respect of an infringement decision (ie a follow-on action) or an alleged infringement (ie a stand-alone action) of the relevant prohibitions of the Competition Act 1998 or of Articles 101(1) or 102 of the Treaty on the Functioning of the European Union.Footnote 48
Given the horizontal (generic) reform recommended by the Commission in its 2013 Recommendation for ‘mass harm situations’, it is ironic that neither of the recently-enacted French and Belgian regimes implement horizontal reform either. The French regime relates only to breaches by a defendant of its legal or contractual obligations pertaining to ‘the sale of goods or provision of services’,Footnote 49 or ‘injuries result[ing] from anti-competitive conduct’ (the latter as a follow-on action, where the unlawful conduct has been formerly adjudicated on by the national or European competition authorities).Footnote 50 The Belgian regime only applies to violations of contractual obligation by a defendant, or must be based on one of the particular European or Belgian consumer statutes which are identified in the group action legislation.Footnote 51
Importantly, the sectoral nature of the UK’s recent history of collective actions reform proposals — evidenced by both the ultimately-enacted UK Competition Class Action and the ultimately-unenacted financial services regime — is directly contrary to the recommendations of the UK’s civil advisory body which preceded both of these proposals. In 2008, the Civil Justice Council of England and Wales (CJC) recommended the introduction of a generic regime of opt-out collective redress.Footnote 52 That preference for generic over sectoral reform was based upon four separate factors. First, there was evidence of the need for better redress measures across a range of sectors.Footnote 53 Secondly, the CJC acknowledged that, in appropriate cases, sectoral-specific regimes may need to sit alongside generic regimes, if their rules were so different that a separate regime was warranted (hence, sectoral regimes were not ruled out).Footnote 54 Thirdly, a majority of stakeholders who provided views to the CJC during its consultation preferred the generic, rather than sectoral, approach.Footnote 55 Fourthly, a generic regime would fit well with existing procedural regimes in England (viz, the Group Litigation Order had coped with grievances from wide-ranging areas, as had the representative action well before it).Footnote 56 The CJC concluded that opt-out reform was desirable, albeit with a strong system of ‘checks and balances’ in place, given that there was ‘overwhelming evidence that meritorious claims, which could be brought, are currently not being pursued.’Footnote 57
However, in 2009, the Ministry of Justice (MOJ) rejected that CJC recommendation for generic reform, although allowing that ‘the Government considers that the only practical way forward is on a sector by sector basis’.Footnote 58 Hence, sectoral reform would be permissible where a need was demonstrated in that particular sector. A sector was described as a ‘discrete area of economic or social activity, within which particular issues, including specific types of legal claim, may arise’, and competition law was identified as one such example.Footnote 59 Two reasons were given by the Government for the rejection of any generic regime. First, there were ‘potential structural differences between the sectors which will require different consideration’ (eg different degrees of regulation, or suitable representative claimants, existed; and ‘the balance of the issues concerning the merits of opt-in and opt-out’ could vary). Secondly, there were economic considerations, in that ‘defendants in some economic sectors might be particularly vulnerable to the risk of disproportionate “blackmail suits”’.Footnote 60
For reasons explained elsewhere,Footnote 61 the author strongly disagrees with the MOJ’s arguments for sectoral reform, and considers that reasoning to be flawed. Not only would a generic regime have dealt adequately and fairly with the two issues identified by the MOJ, but some serious potential inconsistencies in legislative drafting and policy-making may foreseeably arise with sectoral-based reform (a point which the European Commission also identified as being significant in its 2013 Recommendation, insofar as the European landscape was concerned). In addition, there are practical considerations that could easily arise from sectoral reform in the UK. For example, any appeal to the highest court on an interpretational point might not apply to another sectoral regime; satellite litigation as to whether a grievance is covered by a sectoral regime could arise; it could affect public confidence in the law if one sector had available methods of seeking redress via an opt-out regime and other sectors lacked any such measure at all, or might have one which was more stringently-worded; and the political complexities of achieving legislative reform, sector-by-sector, can never be under-estimated, as the ‘wash-up’ of the financial services regime aptly demonstrated.Footnote 62
Hence, on this first point of departure between the 2013 Recommendation and the UK Competition Class Action, the author firmly believes that the UK policy-makers have taken a wrong turn, and should have endorsed the CJC’s recommendation for generic reform, instead of favouring the sectoral path which is currently being pursued. As the European Commission has correctly identified, full coherence in policy and in legislative drafting is only possible with horizontal reform. However, regarding the other two notable divergences, the position is put, in Parts III and IV of this article, that the Commission’s views are not to be favoured.
III. Standing to SUE: Restrictive Versus ‘Open’ Standing
The political choice by the European Commission to vest standing in an ideological claimant, as the exclusive entity capable of instituting a class action, raises two important legal conundrums. First, the inability of directly-affected class members to institute their own collective action for compensatory damages may cause serious detriment for those class members. Secondly, if an ideological claimant is to be the sole vehicle for commencing a collective action, the criteria by which to determine the adequacy of that claimant must be specified very carefully. Each dilemma will be considered in turn.
A. Vesting Standing Exclusively in a Representative Entity: A Critique
1. A refusal or unwillingness to act
The first problem with vesting exclusive standing in an ideological claimant is that it may not wish to act. That will leave directly-affected class members without any means of redress, if either a unitary action or some other means of collective redress, are not viable avenues.
This situation has been painfully demonstrated in English law. A follow-on representative action was contained in s 47B of the Competition Act 1998 (the ‘s 47B regime’).Footnote 63 That regime has now been abolished, as a result of the recent reforms brought about by the implementation of Schedule 8.Footnote 64 Implemented in 2003,Footnote 65 the s 47B regime operated on opt-in principles, and permitted a specified body to institute an action for ‘consumer claims made or continued on behalf of at least two individuals’, for damages in respect of proven anti-competitive breaches.Footnote 66 The only ‘specified body’ ever statutorily-authorised was Which? (the English Consumers’ Association), whose designation occurred on 1 October 2005.Footnote 67 There was only ever one representative action instituted by Which? under the s 47B regime — in respect of the price-fixing of replica England and Manchester United football shirts during 2000–01.Footnote 68 The Office of Fair Trading (OFT) found JJB Sports PLC and its co-defendants guilty of price-fixing, and imposed substantial fines on all defendants. At least 800,000 consumers overpaid; however, about 130 were identified in Which?’s claim form.Footnote 69 The s 47B claim was ultimately settled on confidential terms.Footnote 70
Which? itself heavily-criticised the s 47B regime, remarking that, ‘[t]he single biggest hurdle… is the requirement to name claimants on the claim form. We believe that there should be a high degree of flexibility in this area.… Currently the claim form [used] in s 47B damages claims [is] front loaded, [it] must contain a concise statement of the relevant facts, legal issues, and amount claimed in damages. All essential documents must be annexed to the form. In practice, settling the claim form and supporting documents is a substantial amount of work.’Footnote 71 Which? concluded that ‘[t]he only real, practical way to get over this is to introduce an opt-out system.’Footnote 72 (The opt-in nature of the s 47B regime has elicited significant concern from other quarters too.)Footnote 73 Legal counsel for Which? opined that, in light of the experience in the ‘football shirts’ case, the ‘[c]osts and complexity of litigation process are likely to deter’ Which? from instituting further actions.Footnote 74 True to this prediction, Which? brought no further s 47B actions, despite being the only designated body which could do so.
Of course, there may also be very serious resource implications for ideological claimants. A consumer organisation, or any other ideological claimant, does not exist solely to prosecute collective actions. The entity will have numerous other obligations (eg consumer education, advocating for legislative reform). Indeed, many will have charitable status, and as Which?’s Head of Legal Affairs realistically remarked, in the wake of the ‘football shirts’ case, ‘[a]s most representative bodies will be charities, there will always be concerns about proportionality if an opt-in system prevails — both from a cost and time perspective’.Footnote 75 The representative entity may not even be particularly well-resourced, compared with the defendant/s which it is pursuing on behalf of the class,Footnote 76 and may itself prefer a wider statutory designation of representative claimants with which to share the burdens of instituting and conducting such expensive and time-consuming litigation.Footnote 77 These concerns about instituting collective actions, given the resource limitations imposed upon consumer organisations, have not been a problem unique to England. The French consumer organisation, Que Choisir, shared similar experiences when instituting an opt-in representative actionFootnote 78 against mobile phone operators in respect of excessive phone charges in that jurisdiction.Footnote 79
There were other publicly-acknowledged deficiencies with the s 47B regime too (eg the claim had to be concerned with goods or services received as a consumer and not in a business context;Footnote 80 and stand-alone actions were not permitted either).Footnote 81 Nevertheless, the fact that Which? remained the only ‘specified body’ permitted to bring representative actions under s 47B — and that this legislative model removed any ability for other ideological claimants (or, indeed, any well-financed individual who had a direct claim) to pursue an action on behalf of aggrieved consumers — was highly problematical for this follow-on collective action. The s 47B regime represented an important lesson against the vesting of exclusive standing to sue in an ideological claimant.
2. Proving commonality and adequacy: conflicts of interest
Ideological claimants also raise a legally difficult point to do with the degree of commonality and adequacy of representation necessary to certify a collective action. What if the class members have a conflict of interest among themselves, relating to the common issues in the dispute? How can an ideological claimant adequately represent them all?
Jurisprudence in longstanding class action regimesFootnote 82 demonstrates that conflicts among class members can also arise, say: where some class members are suing for one remedy (eg damages for breach of contract) and other class members are seeking another (eg a statutory recompense); where the damages claimed by one set of class members requires proof of the opportunities foregone, whereas the damages for other class members requires proof of overpayments; or where one set of class members is keen to maximise the damages that a defendant would need to pay, while other class members have a continuing business relationship with the defendant which depends upon that defendant’s long-term financial fluidity and prosperity. In the context of competition law claims, the problems of potential conflicts can be particularly acute, given the potential for dispute as to where the damage (ie the price-fixed component of the widgets) actually fell. It may be alleged that the direct purchasers of price-fixed widgets suffered no damage because they passed on the amount of any overcharge to their customers. Alternatively, it may be alleged that the end-consumers in the distribution chain suffered no damage because the first-line (direct) purchasers absorbed the overcharge themselves and then sold on to the end-consumers at normal prices. Inevitably, this raises intra-class conflict regarding where the damage rests, the methods (if any) by which class-wide damages can be proven, and the status of the passing-on defence. The potential conflicts between class members in different stages of the distribution chain was a key problem in proving the requisite ‘same interest’ among class members in the English representative action in Emerald Supplies Ltd v British Airways PLC,Footnote 83 discussed shortly.
Typically (but not always),Footnote 84 conflicts of interest among class members may be handled by the use of sub-classing, whereby separate representative claimants are appointed to adequately represent the interests of that sub-class.Footnote 85 This technique is permitted by the Draft CAT Rules which underpin the UK Competition Class Action.Footnote 86
However, a key difficulty with the 2013 Recommendation is that, if a regime only confers standing to sue on an ideological claimant, then that one claimant cannot represent conflicted class members (which would bar the UK Competition Class Action, as discussed in the following section); no sub-class representative can be drawn from the class; and hence, some class members may not be included in the class action, even if they were to share common issues of fact or law with the claim being brought by the representative claimant. If other Member States follow the 2013 Recommendation and endorse an ideological claimant exclusively, then those regimes will inevitably suffer from a lack of capacity to cope with conflicts of interest that may arise. This point also strongly militates against the 2013 Recommendation’s legislative policy which vests standing solely in the ideological claimant. A wider standing, encompassing directly-affected class members as representatives (as enacted in the UK Competition Class Action),Footnote 87 is the preferable choice.
B. The Criteria Governing the Representative Entity
From a legislative drafting point of view, an ‘ideological claimant’ can be one of three types: (i) at its widest, any entity or natural person which fits the general requirements of an ‘adequate representative’ for the class (the ‘ad hoc ideological claimant’); (ii) at the mid-spectrum, any entity which is legislatively-nominated as an appropriate body to bring the class action (the ‘designated ideological claimant’); or (iii) at its narrowest, a prescribed public authority (eg a national competition authority).
Interestingly, all three types are envisaged in the 2013 Recommendation,Footnote 88 whilst the UK Competition Class Action allows for just the ad hoc representative as ideological claimant.Footnote 89 Hence, both instruments permit the widest form of representative claimant. The inevitable caveat on this drafting choice in the 2013 Recommendation is that a Member State must carefully set the criteria which apply to that representative claimant at the certification of the class action. In that regard, the drafters of the UK Competition Class Action have rightly been careful to specify numerous criteria governing the representative claimant (the provisions in the Draft CAT Rules are also included in Table 1,Footnote 90 for the sake of completeness).
Table 1 The criteria (actual or proposed) governing the representative claimant in a UK Competition Class Action
Notably, the European Commission recommended that national collective redress regimes should provide for a representative entity which has ‘a non-profit making character’, and that there should be a ‘direct relationship between the main objectives of the entity and the [EU] rights... claimed to have been violated in respect of which the action is brought’.Footnote 91 Coalescing with this, the UK Parliament’s view is that law firms, third party funders, and special purpose vehicles (ie those entities which are formed specifically to act as representative claimant in a class action), should not be allowed to act as representative claimants.Footnote 92 Although this is not presently provided for in either the Consumer Rights Act 2015 or in the supporting Draft CAT Rules, the certification criteria above, as drafted, would surely properly exclude any such entity from consideration. On this particular point, the parallel viewpoint between the 2013 Recommendation and the UK Competition Class Action represents an important and welcome safeguard for the integrity of the regime.
IV. OPT-IN Versus OPT-OUT and the ‘Sound Administration of Justice’
The third and final point of divergence between the 2013 Recommendation and the UK Competition Class Action concerns the opt-in versus opt-out approach to class formation. To clarify, the opt-in approach, favoured by the Commission, requires aggrieved persons to mandate their intention to join the class, by express consent, prior to the levying of judgment or judicially-approved settlement order. It requires those identified class members to claim their individual compensation, if liability is proven or settled thereafter. The binding effect of the judgment or settlement applies only to those who opt-in to the action. The opt-out model, on the other hand, does not require an individual mandate to sue on the part of the class members. Rather, any class member who falls within the class definition but who wishes to remove himself or herself from the litigation (and from its binding effect) must take a proactive step to opt-out of the class. The damages may be assessed on a class-wide aggregate basis and without reference to the individual assessment of damages per class member; with an opportunity then for individual class members to come forward to claim their compensation; and with the destination of any residual unclaimed damages to be managed by statutorily- or judicially-approved methods.
Most opt-out actions need to convert to opt-in at some point. As the author has noted elsewhere,Footnote 93 at some stage, class members will have to ‘put their feet on the sticky paper’ and actively seek to establish individual entitlement to monetary relief, in the event that the common issues are decided in the class’s favour, or the action is settled — unless certain specific scenarios apply (ie a direct refund can be made to class members in accordance with records held by the defendant, or a cy-près distribution of the entire damages sum is made).
A. The Traditional European Endorsement of Opt-in
The 2013 Recommendation’s preference for an opt-in class formation reflects a long-favoured approach — not only at European level, but in many civil law European jurisdictions.Footnote 94 There is certainly nothing in any European Member State which resembles the generic longstanding opt-out class actions to be found in the United States,Footnote 95 AustraliaFootnote 96 and Canada.Footnote 97 However, some versions of opt-out regimes have been implemented in Member States, consisting of:Footnote 98 the representative opt-out model (eg the ‘popular action’ in Portugal,Footnote 99 which is still ‘not very common’);Footnote 100 the representative opt-out model, only used when the opt-in model is an inappropriate method of dispute resolution (eg as in Denmark);Footnote 101 and the settlement-only opt-out model (implemented in the Netherlands).Footnote 102
Several reasons have been espoused for the general reluctance on the part of the majority of Member States to implement any, or any widely-available, opt-out class action regime. The European Parliament has endorsed the opt-in approach ‘in order to avoid potential abuses’, and as a safeguard ‘in order to avoid unmeritorious claims and misuse of collective redress’.Footnote 103 The frequent European exhortations against ‘US-style class actions’, and the perceived excesses arising thereunder, are also oft-repeatedFootnote 104 (most recently by the European Commission itself).Footnote 105 Moreover, a collective redress system which embraces victims unidentified before judgment ‘is contrary to many Member States’ legal orders, and violates the rights of victims who might participate in the procedure unknowingly, and yet be bound by judicial decision’.Footnote 106 For example, the Swiss Parliament, when introducing a new Civil Procedure Code in 2011, expressly rejected a US-style class action for Swiss civil procedure, partly because of the ‘central principle’ that the parties must exercise sole control over the object of the disputeFootnote 107 (albeit that a proposal to introduce an opt-out settlement-only regime for financial services claims is presently under consultation).Footnote 108 Similarly, French law contends that the claimant must have a legitimate interest in the success or dismissal of his claim, which requires that s/he has a direct and personal interest. This ethos mandates that litigants should be identified and represented,Footnote 109 and indeed, forms the basis of the recently-enacted French opt-in group action.Footnote 110
Furthermore, it has been said that the practicalities of res judicata and judicial process favour opt-in. The Danish Ministry of Justice explained that opt-in benefits the court, because it ‘knows exactly on whom the judgment will have a binding effect (legal force) and that the right of the individual to dispose of his or her own contractual relations is not restricted’; it benefits the defendant, because it ‘safeguard[s] the defendant’s need for predictability, seeing that the defendant will have an overview of the members of the class from a certain time in the proceedings (the expiry of the opt-in time limit) and will thereby be able to predict the consequences of a judgment’; and it benefits claimants, because it ‘provides a clear overview of who will be covered by the binding effect of the judgment, which will facilitate the execution of the judgment’.Footnote 111
However, the 2013 Recommendation allows that an opt-out class action be permitted in individual Member States, ‘by law or by court order’, provided that it be ‘duly justified by reasons of sound administration of justice’.Footnote 112 This acknowledgement is important, and reflects the reality that the arguments in favour of either opt-in or opt-out are quite divided, and not at all one-sided.Footnote 113 However, it will clearly be for any Member State which favours the opt-out approach to justify that choice, in the face of the recent 2013 Recommendation. Hence, the following section argues that the disappointing and/or difficult legal treatment of English class members to date has provided a clear mandate for the UK Government’s decision to endorse opt-out, by virtue of the forthcoming UK Competition Class Action.
Interestingly, there had been a number of reform proposals in the UK, dating back to 1994, but all had recommended an opt-in model.Footnote 114 Hence, the Financial Services Bill 2010 (in proposing an opt-out approach) represented a remarkable departure from previous policy (and legislative enactments)Footnote 115 — and the current competition law reform continues that more liberal trend.
B. The Exceptional Scenario, When ‘Duly Justified’
This section seeks to justify, explicitly, the ‘why’ of this article’s title, ie why the UK Parliament was correct to depart from the general opt-in recommendation of the Commission, and permit the judicial choice of opt-in or opt-out under the UK Competition Class Action. There are, in the author’s view, ten separate justifications as to why the ‘sound administration of justice’ dictates that an opt-out class action has properly been provided-for, by the UK legislature and the CAT rules-making body.Footnote 116 Essentially, these justifications fall into three groupings: the inadequacy of presently-available domestic procedural devices; the successful — or sometimes fruitless — attempts to use opt-out regimes elsewhere; and evidence of lengthy dissatisfaction by domestic policy-makers and judiciary alike. These reasons pertain specifically to the competition law context, although some of them are reflected more widely in the general consumer sphere, as discussed by the author elsewhere.Footnote 117 It is further submitted that the lessons conveyed by these factors are (or should be) instructive for other Member States and for the European Commission. Dealing with each in turn:
1. Inadequacies of existing domestic regimes
The unsuccessful attempt by the victims of an international air cargo cartel to use the long-standing English representative ruleFootnote 118 in Emerald Supplies Ltd v British Airways PLC Footnote 119 — when that particular cartel has been the subject of opt-out class actions litigation in Canada,Footnote 120 the United States,Footnote 121 and AustraliaFootnote 122 — has only served to highlight how totally inadequate that representative rule is, for any grievance where class members have allegedly suffered different amounts of damages.
The Court of Appeal called Emerald ‘fatally flawed’,Footnote 123 because the class members did not have the requisite ‘same interest’ which the rule required. The class members did not know, at the outset of the action, whether they were class members, given that, if the passing-on defence could be successfully raised such that some class members suffered no loss, that would mean that ‘the criteria for inclusion in the class depend[ed] on the outcome of the action itself’, which was impermissible under the rule.Footnote 124 The relief claimed by Emerald was not ‘in its nature beneficial to all’Footnote 125 whom it purported to represent, because the class was potentially beset with conflicts of interest in proving a constituent element of the cause of action, viz, damage (because of the aforementioned question of which class members absorbed the price-fixed overcharge, and which class members successfully passed it on).Footnote 126 Indeed, the Court of Appeal showed no willingness to fit the claim within the auspices of the representative rule. It did not explore the notion that the class members shared ‘common ingredients’ among their claims sufficient to support declaratory relief;Footnote 127 the possibility of sub-classing (previously endorsed under the English representative rule)Footnote 128 was not considered; and the technique of class redefinition, so as to narrow the class and exclude from the representative action those whose loss had been passed on to others down the supply chain,Footnote 129 was not used either.
As the author has described elsewhere,Footnote 130 the decision in Emerald occurred exactly a century after the leading representative rule case of Markt & Co Ltd v Knight Steamship Co Ltd, and ‘[b]oth decisions demonstrate a judicial shackling of the rule, to the point where it lacks any degree of reasonable utility at all, except in the most limited of cases.’Footnote 131 Unfortunately, the procedural skirmishing which ultimately doomed Emerald also compares unfavourably with the realities of collective redress in other major common law jurisdictions, whose law-makers have proactively 'moved on' from versions of the English representative rule, so as to provide litigants in those jurisdictions with a feasible procedural alternative, viz, an opt-out class action.Footnote 132
Similarly, the opt-in s 47B representative follow-on action was of spectacularly-limited utility (as previously discussed in this article). The overall outcome in the solitary ‘football shirts’ case of Consumers’ Association v JJB Sports PLC Footnote 133 was less-than-praised too. Without any possibility of aggregate assessment of damages under the s 47B regime, the damages payable were entirely dependent upon the number of people who opted in. As one commentator remarked at the time, ‘for [defendant] JJB, they must also be smiling. Yes, they will have to pay £20,000 upfront, and that amount could rise substantially — but it probably won’t’.Footnote 134
The lack of any Group Litigation Order for a competition law infringement, since that (opt-in) regime’s availability in May 2000, has been notableFootnote 135 (and noted).Footnote 136 Whilst GLOs have proven useful for environmental, nuisance, tax-related, and other grievances, competition law grievances have not troubled the regime at all.Footnote 137 This renders all the more curious Chancellor Morritt’s observation, in Emerald, that the price-fixed victims’ litigation against the airlines justly would be better served by instituting their actions under the GLO regime, because the ‘existing 178 additional claimants, and any others who seek to join in [later] are more conveniently accommodated under that procedure’.Footnote 138 Although Chancellor Morritt remarked that the GLO achieves ‘the avoidance of multiple actions based on the same or similar facts’,Footnote 139 other judges have (accurately) noted quite the opposite, pointing out that every individual potential class member who wishes to join the GLO must make an individual claim and have their claim added to the group register.Footnote 140 At least the Court of Appeal in Emerald did not advocate the GLO regime, for those price-fixed victims who found the representative rule so entirely lacking in utility. Nevertheless, the irrelevance of the opt-in GLO regime has undoubtedly contributed to the enactment of the UK Competition Class Action.
The sparse private enforcement landscape was also enhanced, in England, by the relative paucity of follow-on actions for damages instituted by a directly-affected victim of anti-competitive conduct, pursuant to s 47A of the Competition Act 1998.Footnote 141 That regime (as the CAT has remarked) was specifically ‘created by Parliament with a view to facilitating claims for damages or restitution’,Footnote 142 and that follow-on actions provide undoubted advantages over stand-alone actions (especially given that evidence of unlawful conduct can be difficult for a stand-alone claimant to gather).Footnote 143 Hence, the political appetite to improve redress was genuinely-formed, but ultimately lacking in effectiveness. Some s 47A actions were instituted in respect of, for example, the supply of non-potable water,Footnote 144 educational services at independent senior schools,Footnote 145 predatory conduct against a bus company in South Wales,Footnote 146 the service of coal haulage by rail,Footnote 147 cremation services,Footnote 148 the price-fixing of the amino acid methionine,Footnote 149 and the sale of electrical and mechanical carbon/graphite products.Footnote 150 However, it seems that these represent a small fraction of the overall proven anti-competitive infringements which could theoretically give rise to a follow-on action.Footnote 151
At least the failure of s 47A to permit stand-alone actions (as criticised by the former CAT President,Footnote 152 and by the English Court of Appeal)Footnote 153 has been remedied by the UK Competition Class Action, for the CAT will acquire jurisdiction to hear stand-alone actions, and on an opt-out basis. As for the s 47A regime, it has been abolished under the recent reforms enacted in Schedule 8.Footnote 154
2. Looking elsewhere for solutions
Ironically, English class members have sometimes had to look to the US class action regime for any hope of redress. Regarding the international fuel surcharge cartel involving air passengers of British Airways and Virgin on long-haul passenger flights between 2004–06, English class members joined the relevant US federal class action as ‘add-on sub-classes’, successfully. The settlement reached in the Californian District Court in Intl Air Transport Surcharge Antitrust Litig Footnote 155 was rightly regarded as a legal milestone,Footnote 156 in that it was the first time that a domestic US sub-class and an English sub-class had been treated entirely equivalently in respect of the compensation awarded in a US class action (albeit that the English ‘add-on’ class was an opt-in class; and any unclaimed damages in respect of its sub-classes reverted to the defendant, and was not awarded cy-près as for the US sub-class).Footnote 157 However, the fact that the UK-based class members were required to comprise an ‘add-on’ foreign class to a US class actions settlement was testament to the lack of remedial options available to those UK-based price-fixed victims.
The abovementioned fuel surcharge settlement was one of the fortunate ‘add-on’ foreign classes which were not subject to successful legal challenge. Not all add-on classes have received such a positive reception. Several legal difficulties have arisen, regarding attempts to convince a United States’ court that it was an appropriate forum in which to determine a UK class member’s grievance.Footnote 158 To provide just a few examples, the US court may lack subject-matter jurisdiction over foreign (including UK) class members;Footnote 159 the UK class members may have their class actions suit dismissed because of forum non conveniens, if England is held to be the better forum (eg where all defendants consent to the English courts’ jurisdiction, or the rules of causation were more favourable in English law);Footnote 160 the class constituted an ‘f-cubed’ class (ie foreign investors who purchased shares in foreign companies that traded on foreign exchanges) and was thus impossible to certify because the relevant US securities lawFootnote 161 did not have extra-territorial effect;Footnote 162 or the inclusion of foreign class members may render the US class action more difficult to certify, in that commonality would be achieved more easily if they were excluded.Footnote 163 This variety of misfortunes in attempting to join US class actions would not have been necessary, if an opt-out regime had been available in the UK.
Additionally, there is the separate conundrum of whether absent UK class members, who do not opt out of a US class action, would be bound by the judgment or judicially-approved settlement issued by a US court. In Vivendi Universal SA Securities Litig,Footnote 164 the US District Court concluded that, whilst there was ‘no clear authority addressing the res judicata effect of a US class action judgment in England’, its view was that, ‘English courts, when ultimately presented with the issue, are more likely than not to find that US courts are competent to adjudicate with finality the claims of absent class members and, therefore, would recognize a judgment or settlement in this action.’ However, the author strongly disagrees with that view, for reasons expressed elsewhere.Footnote 165 The certainty (in this author’s opinion) that a judgment or settlement reached in any ‘global class action’ issued by a North American court, which purported to bind absent English class members who had not opted out, would not be recognised by an English court nor be given res judicata (preclusive) effect in England, exacerbates the lack of redress available to those English class members.
3. Domestic policy-making, political and judicial dissatisfaction
Empirical research has shown that very significant gaps exist in redress for consumers and small-and-medium-enterprises in the competition law sector in the UK. The authors of the 2007 Deloitte and Touche LLP surveyFootnote 166 described their findings in depressing terms: respondents ranked private damages actions for anti-competitive conduct fifth (out of five), in terms of importance in deterring infringements, leading to the conclusion that ‘the threat of private damages actions is seen as a relatively unimportant factor in creating a deterrent effect’;Footnote 167 22% of respondents considered that their company had been harmed by breach of a competition law by a third party, but more than half of these did not even consider bringing a private action for damages, principally because the expected costs outweighed the expected benefits of the litigation; and just over 2% of respondents had ever brought an action for perceived competition law infringements.Footnote 168 The author’s own empirical study of collective redress demonstrated that, over the period of 2001–07, there were very few follow-on actions brought in England, in respect of either OFT or European Commission infringement penalty decisions (the study cited only eight).Footnote 169 At that time, England’s private enforcement landscape lagged behind that of Canada’s, in particular.Footnote 170
An efficient and powerful UK economy depends (according to the Government) upon effective private enforcement of the substantive competition laws of the jurisdiction. This, in turn, has been said to depend (in part) upon the introduction of an opt-out regime. In that regard, the OFT frankly admitted, in 2007,Footnote 171 that ‘private actions have not played the role that was envisaged for them ... there remain significant barriers to those who have suffered loss (consumers and small and medium-sized businesses, in particular) taking a private action, such that the likelihood of obtaining compensation remains remote, and the incentives for business to comply with competition law are more limited than was intended. This impedes the overall effectiveness of the competition regime in the UK, such that the regime is not yet delivering the productivity and competitiveness benefits to the UK economy that were originally contemplated.’ Five years later, the Government conceded that it was important to implement an opt-out collective action, in order ‘to help strengthen the competition framework, by empowering businesses to tackle anti-competitive behaviour that is stifling growth.’Footnote 172 Despite the responses to the proposal of an opt-out regime generating ‘the most heated debate’,Footnote 173 the Government concluded, in 2013, that anti-competitive conduct needed to be redressed, via the introduction of opt-out (and its ancillary design feature of aggregate damages), because the costs of such behaviour ‘include costs to society as a whole, arising from productive inefficiency’.Footnote 174
Finally, influential commentary by senior judiciary, regarding the unsatisfactory state of affairs, has served as a prelude to the introduction of the UK Competition Class Action. Sir Gerald Barling, former President of the CAT, remarked, extra-curially, that, ‘[i]n my view, there are a number of benefits that may flow from introducing an opt-out regime, at least in the UK. .... such a procedure would, of course, remove the often significant hurdle of enticing a sufficient number of consumers to sign up to a claim, where its value to each claimant may be no greater than a few pounds.... It is ironic that the underlying purpose of competition law is said to be to protect the consumer, yet... the ultimate consumer is normally unable or unlikely to seek recompense, even where an unlawful cartel somewhere in the chain of supply has been exposed and punished.’Footnote 175 Senior judges also noted the shortcomings of the s 47B regime: eg in Enron Coal Services Ltd (in liq) v English Welsh & Scottish Rwy Ltd,Footnote 176 Jacobs LJ criticised the s 47B regime as ‘likely to be of little use in practice, after the very limited success of the one claim brought so far.’ Significantly, this pattern of judicial requests for a more effective (opt-out) system by which to deliver meaningful justice to groups of aggrieved persons has previously been a hallmark of successful class actions reform in many common law jurisdictions.Footnote 177 The impact of judicial dissatisfaction, about the procedural regimes pursuant to which they are required to decide mass grievances, cannot be under-estimated.
Hence, to conclude, the ‘sound administration of justice’ has been served, in the UK, by the forthcoming implementation of a class actions regime which will be either opt-in or opt-out, depending upon judicial choice. The ten justifications outlined above demonstrate, in combination, that a further means of collective redress is required in that jurisdiction, as a ‘last resort’ measure, to address widespread and uncompensated grievances on the part of UK class members. Having said that, the authorisation of an opt-out regime will be governed by a restrictive certification matrix which will not permit any but the most suitable cases to go forth on an opt-out basis. A summary of the certification criteria which will apply under the UK Competition Class Action is contained in Table A1.Footnote 178
V. Conclusion
The period of 2013–15 has been a time of significant development for class actions reform in Europe. The 2013 Recommendation was hallmarked by the same conservatism, and declared antipathy to the ‘US-style class action’, as has been evident for many years. Indeed, the perceived ‘excesses’ of the US regime have (unfortunately, in this author's opinion) always garnered far greater attention from EU policy-makers than the numerous advantages, viz, access to justice, judicial economy, and deterrent effect, which that regime has also delivered.Footnote 179
By contrast, UK policy-makers have been prepared to acknowledge that, for the ‘right case’, particularly for one that entails low-value individual damages spread across a wide class of individuals or businesses, an opt-out collective redress regime has merit. The UK Competition Class Action demonstrates a measured and balanced approach to the opt-out debate — evidenced, for example, by the Government’s remark that, ‘opt-out regimes have been introduced into a range of countries [Canada and Australia being mentioned, among others] where they have not led to widespread abuses, [such] that an effective and proportionate opt-out regime can be of benefit for both UK businesses and consumers’.Footnote 180
A number of safeguards, or 'brakes', upon the operation of the UK Competition Class Action have been incorporated within the certification matrix, in particular, which will have a substantive impact upon the type, and volume, of cases brought forth as opt-out class actions. This has been a deliberate and carefully-implemented policy decision by the law-makers. As with any landmark law reform, the interpretation and application of that new law to the particular cases at hand will largely determine the utility of the new regime, and in that regard, the Competition Appeal Tribunal is well-placed, as a specialist court, to develop a body of jurisprudence around that newly-promulgated law.
Importantly, the exceptional opt-out route to which the 2013 Recommendation refers will become a judicial choice under the UK Competition Class Action. As this article has argued, the UK Parliament was correct to depart from the general opt-in recommendation of the European Commission, and to permit the judicial choice of opt-in or opt-out under the UK Competition Class Action. That legislatively-authorised choice of opt-out has been ‘duly justified’ in this jurisdiction, for reasons of legal jurisprudence, historical frustration and longstanding political and judicial hopes for ‘something better’. Of course, opt-in principles may be preferred by the CAT, for the case at hand — but it is anticipated that the low-value claims, and the numerous disperse class members affected by competition law infringements, will tend to attract an opt-out class formation. In that regard, the UK Competition Class Action rightly, and boldly, forges a different path from the general conservatism which has long been espoused by European Commission policy-makers (and by the legislatures of many other Member States).
However, insofar as the breadth of the reform is concerned, a generic (horizontal) regime which covers wide areas of activity was favoured in the 2013 Recommendation, a proposal which necessarily avoids the problems of sector-upon-sector differential reform. Nevertheless, the political realities in the UK are such that generic reform was ruled out in 2009 and, at the very least, the initial opt-out class action reform promulgated in this jurisdiction was, from that time forth, inevitably going to have to follow a sectoral path. Nevertheless, all reform initiatives must start somewhere — and undoubtedly much judicial, practitioner and academic learning will follow from the ‘test regime’ which the UK Competition Class Action represents. In time, this may yield greater momentum for generic reform.
In respect of standing to sue, the UK Competition Class Action has provided the widest possible basis, by permitting both a directly-affected class member and an ideological claimant to sue — provided that the strict certification criteria governing the class representative are satisfied. This is a far preferable course to the narrower standing which was recommended by the European Commission, by which responsibility is vested in an ideological claimant alone.
In summation, when the civil procedure of a jurisdiction does not enable its substantive law to be applied and adjudicated in the judicial forum, then that legal system has, in some measure, fallen into disrepute. As Lord Woolf, one of the great reformist English judges of the modern era remarked, ‘the effective and economic handling of group actions necessarily requires a diminution, compromise or adjustment of the rights of individual litigants for the greater good of the action as a whole’.Footnote 181 Both the 2013 Recommendation (via its horizontal reform approach) and the UK Competition Class Action (via its implementation of opt-out class actions without an individual’s mandate to sue) aptly demonstrate that spirit of compromise. Importantly, both legislative instruments seek to introduce compensatory regimes which will reduce the cynicism which arises whenever the doctrinal law which underpins the arrangements of individuals and businesses is perceived to be unenforceable. That is a ‘greater good’ which no jurisdiction’s policy-makers and law-makers can afford to under-estimate.
Appendix
Table A1 Summary of the certification criteria under the UK Competition Class Action
