In Industry News, Opinion

Introduction

As a regular partner to companies seeking competition litigation funding – including funding class actions – Balance Legal Capital has followed changes to the Consumer Rights Act with interest.

On 1 October 2015, the new Consumer Rights Act 2015 (the ‘CRA’) came into force, bringing with it some significant changes to the UK competition litigation regime. In particular, Section 8 of the CRA introduces a new “opt-out” collective action regime for competition claims. The collective action regime is intended to provide individuals and businesses with an improved route to obtaining redress for losses caused by anti-competitive conduct, which are often ripe for competition litigation funding. Although such actions will often require support from Competition litigation funders like Balance Legal Capital, uncertainties around how the funding of opt-out actions under the CRA will work in practice have called into question the current utility of the new regime. Many collective actions may be unfeasible until these uncertainties are clarified. Add to this the number of issues that have arisen in relation to the transitional provisions and it currently seems unlikely that these reforms will prove much more successful than the old opt-in regime, either for potential claimants or for competition litigation funders.

Opt-out proceedings

The old opt-in collective regime (permitted for follow-on cases only) has been used just once in over ten years.  Under the new regime, opt-out collective actions can be brought by a class representative in the UK’s Competition Appeal Tribunal (the ‘CAT’) on behalf of a defined group without the need to identify all individual claimants (or specify their losses). UK domiciled claimants within the class will be automatically included in the action (non-UK claimants can optin) unless they take active steps to opt-out.  In deciding whether to allow an action to proceed on an opt-out basis, the CAT will take into account the strength of the claims and the practicalities of bringing the proceedings on an opt-out basis.

Class certification

Collective actions must be certified by the CAT via a Collective Proceedings Order (‘CPO’).  The CAT will issue a CPO where: it authorises the class representative (which could be a class member or a third party – such as consumer body) to bring the action; and where the claims raise similar or related issues of fact/law and are suitable for resolution via collective proceedings.

Factors for the CAT to take into account in deciding whether it will authorise a representative to bring a class action include: whether the representative can fairly and adequately act in the interests of the class members; whether it has any conflict of interest; and, crucially in the context of competition litigation funding, whether it can pay the defendant’s costs if ordered to do so.  It will be interesting to see how the CAT deals with situations in which there are competing representatives for a class.  Commentators predict that certification will be a key battleground between parties to collective competition actions, as is seen in the US.

The enhanced jurisdiction of the Competition Appeal Tribunal

The new regime significantly extends the jurisdiction of the CAT, promoting its standing as a forum for the types of competition claims often backed by competition litigation funding.  The CAT can now hear stand-alone cases (where a party must prove liability as well as damages) in certain circumstances, in addition to follow-on cases (in which a party can rely on a finding by a competition authority). It has the power to award injunctive relief, and will have a limitation period aligned with that in the High Court.  The CAT will be able to award damages without assessing quantum for each individual class member.  However, a key difference from the US class action regime is that no exemplary damages can be awarded (to safeguard against unmeritorious claims).  Any unclaimed damages will be paid to a prescribed charity.

Third party funding of collective competition actions

Collective competition litigation is an area where competition litigation funding can be of particular assistance to claimants, given the high costs involved and the fact that individual losses may be too small to bring as standalone actions.  It is unlikely that a single claimant, or consumer body, would be willing to assume responsibility for funding an entire competition litigation action and given that the regime prohibits damages-based agreements (‘DBAs’) with lawyers, claimants may need to turn to competition litigation funding for support. However, since the CRA fails to directly address the role of competition litigation funding in collective actions, there is some uncertainty over the ability of funders to recoup their returns in successful opt-out actions. The CAT has the power to order unclaimed damages to be paid to the class representative in respect of costs and expenses incurred in collective proceedings, but retains significant discretion as to the level of damages awarded. Competition litigation funders will therefore be interested to see the approach the CAT chooses to take in practice, the scrutiny it gives to any funding arrangements, and whether “costs and expenses” accepted by the CAT will include the full return due to a third party funder.

Conclusion

The uncertainties around competition litigation funding (and the other issues outlined above) represent a missed opportunity for the CRA to make an immediate impact in promoting access to justice for consumers and small businesses, and in significantly improving the attractiveness of the UK as a forum for competition claims.   It is hoped that the first round of decisions from the CAT will go some way to clarifying some of these shortcomings, allowing Balance Legal Capital and other competition litigation funders to maintain our active role in this area of access to justice.

  • Oliver Hayes
    Oliver Hayes Partner

Oliver Hayes is a consultant at Balance Legal Capital LLP, a provider of third party funding for international arbitration and litigation, headquartered in London, UK. Prior to joining Balance, Oliver was an associate in the dispute resolution team at Freshfields Bruckhaus Deringer LLP, specializing in contentious matters in the financial services sector.