UK: Settlement Of Collective Actions: UK Competition Appeal Tribunal Issues First Ever Approval

In a landmark ruling, the UK Competition Appeal Tribunal has approved a settlement for the first time since the collective proceedings regime was introduced in 2015. The settlement relates to the 'roll on roll off' (RoRo) claim, following-on from the European Commission's 2018 infringement decision against several shipping firms.

Background to the Tribunal's judgment

Mr McLaren's application for an opt-out collective proceedings order (CPO) against the 12 defendant shipping firms was certified in May 2022 (and the notice period for opting-out expired in August 2022). In September 2023, Mr McLaren and one of the defendants (CSAV) agreed to settle CSAV's liability for £1.5 million. The settlement applied only to CSAV, not to the other defendant firms. As required by the Competition Act 1998 and the Tribunal Rules 2015, Mr McLaren and CSAV subsequently filed an application with the Tribunal for the settlement to be approved.

• £1.12m in damages.
  
  
• £100,000 by way of contribution to Mr McLaren's costs of the settlement approval application.
  
  
• £280,000 in full and final settlement of CSAV's share of the costs of the collective proceedings to date (excluding any costs awards already made and settled between Mr McLaren and the defendants).

The application was supported (amongst other things) by: (1) a report from Mr McLaren's economic expert who estimated the quantum of the overall claim to be £147m and that CSAV's market share was 1.7%; and (2) an opinion of an independent expert barrister (which addressed the merits of the settlement).

The Tribunal heard submissions from Mr McLaren, CSAV and the non-settling defendants at a hearing in December 2023. Importantly, the class members were notified of the application but no member of the class objected to the settlement.

In issuing its approval, the Tribunal considered each of the following issues:

• Is the settlement one which the Tribunal should approve on the basis that the sum is within a reasonable range and the split between damages and costs is appropriate (i.e. is it "just and reasonable")?
  
  
• Should the non-settling defendants be barred from making contribution claims against CSAV (i.e. is it appropriate to make a barring order and, if so, on what terms)?
  
  
• Should there be a distribution now of the settlement sum, or should distribution be delayed to a later stage?
  
  
• Should any undistributed sums revert back to CSAV (i.e. should the reverter mechanism be permitted and, if so, at what stage)?
  
  
• What is the impact (if any) of a pending ruling on Mr McLaren's funding arrangements?

We summarise the Tribunal's views on each of these issues below.

Is the settlement one which the Tribunal should approve on the basis that the sum is within a reasonable range and the split between damages and costs is appropriate?

Under section 49A of the Competition Act and Rule 94 of the Tribunal's Rules, the Tribunal can only approve a settlement if it is "just and reasonable". In doing so, the Tribunal is required to take account of various factors.

(9) In determining whether the terms are just and reasonable, the Tribunal shall take account of all relevant circumstances, including—

(a) the amount and terms of the settlement, including any related provisions as to the payment of costs, fees and disbursements;

(b) the number or estimated number of persons likely to be entitled to a share of the settlement;

(c) the likelihood of judgment being obtained in the collective proceedings for an amount significantly in excess of the amount of the settlement;

(d) the likely duration and cost of the collective proceedings if they proceeded to trial;

(e) any opinion by an independent expert and any legal representative of the applicants;

(f) the views of any represented person [...] or of any class member [...]; and

(g) the provisions regarding the disposition of any unclaimed balance of the settlement, but a provision that any unclaimed balance of the settlement amount reverts to the defendants shall not of itself be considered unreasonable.

With an understandable desire to encourage successful settlements (given the costly, lengthy and complex nature of collective actions), the Tribunal made clear that settlement approval does not require a "mini-trial" and that applications should be dealt with pragmatically in a "proportionate and cost-effective manner" which may involve "an element of rough-and-readiness" (particularly given the relatively modest settlement sum involved in this case).

Ultimately, the Tribunal found the settlement to be "just and reasonable" because:

· Both Mr McLaren and CSAV believed that the settlement terms were "just and reasonable", and the Tribunal considered that belief to be reasonable. (Rule 94(9)).

· The amount and terms of the settlement were "entirely reasonable", including the split between damages and costs (albeit the question of how costs should be dealt with will be determined at a later date). The Tribunal was comforted by the fact that the settlement monies and cost payments had been negotiated separately, and not as a global sum with the split determined subsequently. (Rule 94(9)(a)).

· It was "highly relevant" that the estimated number of persons likely to be entitled to a share ran into the millions. In the Tribunals' view, the large size of the class, combined with the relatively small settlement sum, also meant that distributing the settlement monies now was "just not worth doing" . (Rule 94(9)(b)). See further at 5 below.

· The amount of damages to be awarded at trial was unlikely to be significantly in excess of the settlement. The settlement figure was therefore "within a normal range" given the uncertainties of litigation. (Rule 94(9)(c)). It is worth noting however that, as explained in our earlier briefing, there is a question as to how the Tribunal is able to make this judgment without the assistance of expert evidence based on disclosure. The Tribunal does in fact acknowledge this point in its judgment, but considered that "it is not for us to substitute our own view as to the merits in place of the parties' solicitors and counsel, and independent counsel, who have looked at this in a great deal more detail than we can in a relatively short hearing". (Rule 94(9)(c))

· Collective proceedings are expensive and take a long time to resolve. The Tribunal therefore considered it for everyone's benefit, including the non-settling defendants, to remove a defendant who is willing to settle early ("the fewer parties you have the less costs, the less complexity, and the shorter hearings"). (Rule 94(9)(d)).

· The parties' view that the settlement was "just and reasonable" was supported by evidence (including witness statements and a report from independent competition counsel). It is perhaps noteworthy that the Tribunal accepts the views in that report with seemingly little scrutiny, albeit the author is an experienced competition barrister (and formerly a solicitor) "well known by the Tribunal". (Rule 94(9)(e)).

· Notice of the settlement had been given and no objections were made. However, whilst the Tribunal had not received wider views, it was satisfied that all the pros and cons of the settlement had been laid before it – given the evidence filed in support of the application for settlement approval. As raised in our earlier briefing, the Tribunal will expect full and frank disclosure from the parties in their assessment of the settlement, in particular, where it is only hearing submissions from those who have an interest in the settlement being approved (as is often the case). (Rule 94(9)(f)).

· The Tribunal did not need to consider the provisions regarding the disposition of any unclaimed balance of the settlement, as that question was deferred – see section 5 below. (Rule 94(9)(g)).

Is it appropriate to make a barring order?

The settlement agreement provided for a 'barring order', essentially preventing the non-settling defendants from: (1) claiming future contribution from CSAV if the Tribunal were to subsequently find CSAV to be liable for a greater share of the damages than the 1.7% market share used for the settlement; and (2) arguing that CSAV were responsible for a greater proportion of the harm than its 1.7% market share. This will no doubt have been an important issue for CSAV in the settlement so as to ensure they had finality as to their involvement in the proceedings and were not at risk of being brought back in by one of the non-settling defendants seeking contribution.

Collective settlement with one or more, but not all, defendants

6.130 The class (or settlement) representative may reach a collective partial settlement, i.e. agree terms with only one, or several, of a larger number of defendants (or would-be defendants), and that collective partial settlement may be the subject of an application for a CSAO.

6.131 If the defendants are subject to joint and several liability, for example where they were participants in a cartel, achieving such a partial settlement may present difficulties if the settling defendant(s) are concerned about their potential liability to the non-settling defendant(s) in subsequent contribution proceedings. In those circumstances, the Tribunal may consider incorporating in the approval order a barring provision that prevents the non-settling defendant(s) from claiming contribution from the settling defendant(s), on the basis that if it were subsequently determined that there was such a right of contribution, the class (or settlement) representative will be limited to recover from the non-settling defendant(s) only damages for which those defendants would be proportionally liable. If the settling parties apply for such a provision to be included in the Tribunal's order, the Tribunal will permit any non-settling defendant (or potential defendant) to make submissions as to whether an order on those terms should be made.

However the non-settling defendants argued that the Tribunal did not have jurisdiction to make such a barring order on the basis that section 2(2) of the Civil Liability (Contribution) Act 1978 requires there to be contribution proceedings on foot at the time of the barring order, not potential contribution proceedings in the future. Whilst the Tribunal was firmly of the view that a barring order is desirable in these types of cases (as they create certainty and promote settlements), it also acknowledged that the point of law was uncertain and "could easily go up to the Court of Appeal".

Fortunately for the Tribunal, it was not ultimately required to answer the question because the parties agreed to resolve the issue. In short it was agreed that: (1) CSAV would not be subject to any contribution claims from the non-settling defendants; and (2) if the Tribunal were to determine at trial that CSAV's contribution should be greater than 1.7% of the total liability, the claims by Mr McLaren against the non-settling defendants would be reduced proportionately. The thrust of this agreement is that, in exchange for achieving a settlement with CSAV now, Mr McLaren accepted the potential 'haircut' to the damages to be paid out by the non-settling defendants in the event the Tribunal determined CSAV's proportionate liability to be greater than 1.7% at trial. The non-settling defendants also agreed not to appeal the settlement approval order, thereby providing further certainty to Mr McLaren (and CSAV).

Should distribution be made now or deferred?

The settlement agreement provided for the issue of distribution to be deferred, a point with which the Tribunal agreed given the relatively small sums involved and the potentially very large number of class members. The settlement sums were to be held in escrow and distributed at the conclusion of the collective proceedings or at such other time that Mr McLaren considers it "economical, proportionate and in the interest of the class to seek to distribute it" (subject to the Tribunal's consent). In the Tribunal's view, to seek to distribute the settlement monies now would introduce an "element of costs and complexity in a stage when it is not necessary".

Should the reverter mechanism be permitted and, if so, at what stage?

Rule 94(9)(g) requires the Tribunal to take account of a settlement's provisions regarding the disposition of any unclaimed balance, and refers expressly to unclaimed sums reverting back to the defendants. (In contrast, where a case goes to trial without settlement, there is no mechanism for unclaimed sums to revert back to the defendants). In this case, the settlement agreement provided for undistributed monies to revert back to CSAV on a "first in last out" basis, i.e. not pro-rated with the entitlement of any of the non-settling defendants. This means, in essence, that CSAV would have priority over unclaimed sums (i.e. CSAV would be entitled to be paid any unclaimed amount before payment of any subsequent reversions agreed in any future settlement(s) with any or all of the non-settling Defendants).

Whilst describing the reverter terms as "reasonable" on their face, the Tribunal did not commit to making an order to that effect. Instead it decided to defer the issue to a later date given there wasn't yet a distribution plan before it or a determination as to how damages would be assessed or allocated.

What is the impact of a pending ruling on funding arrangements?

The Tribunal's settlement approval order was made subject to Mr McLaren's funding arrangements being approved by the (separately constituted) Case Management Tribunal (with liberty to apply if the funding arrangements were not approved). This issue is anticipated to be resolved fairly quickly. Mr McLaren's funding arrangements are being challenged following the Supreme Court's decision in PACCAR[1] regarding the lawfulness of certain third-party litigation funding arrangements.

Key take-aways

As noted by Marcus Smith, President of the Tribunal, back in 2022 "The next big question, I suspect, will be how settlements are approved". Whilst the Tribunal's first decision should be read and understood in its context (i.e. the relatively small sums involved and the corresponding proportionality of the Tribunal's approach), it does provide helpful insight into how the Tribunal will approach the settlement approval process.

First, it is clear that the Tribunal will want to be satisfied that all the pros and cons of the settlement have been laid before it, in particular where it is only hearing submissions from the parties seeking settlement approval. Parties and their advisors should therefore be mindful of the need to adopt an 'all cards on the table' approach to any application for settlement approval.

Second, expert evidence will be key in order to assist the Tribunal in determining that the proposed settlement is "just and reasonable". In addition to economic expert evidence (which would be expected in any case involving consideration of quantum), the Tribunal was also clearly influenced in this case by a report from independent legal counsel opining on the merits of the proposed settlement. It will be interesting to see whether more detailed expert evidence will expected, or whether more scrutiny will be applied to expert evidence by the Tribunal, in cases involving more significant sums and/or where the parties are attempting to settle a more significant proportion of the claim (especially if a settlement is reached at a more advanced stage of the proceedings following detailed disclosure). The Tribunal was, however, clear that a settlement approval hearing was not intended to be a "mini trial", such that there is a delicate balance to strike when it comes to stress testing the reasonableness of the settlement by reference to expert evidence.

Third, whilst the Tribunal's Rules (and Guide to Proceedings) envisage the issues of settlement and distribution being considered together, it appears likely that in practice – at least in the context of multi-defendant CPOs with large numbers of potential class members – that the issue of distribution will be deferred until the resolution of the proceedings. Indeed, the Tribunal acknowledged that it would not be efficient or cost-effective for distribution to proceed in a piecemeal fashion, particularly when the settlement sum was relatively modest. This approach is sensible and accords with the practice in Canada in the context of multi-defendant class actions.

However, key questions still remain and further guidance from the Tribunal will be keenly awaited. In particular, some of the thornier issues (such as the barring order and reverter mechanism) did not ultimately have to be determined by the Tribunal.

In relation to the barring order (which, as noted by the Tribunal, could likely become the subject of appeal) it may not always be possible in future cases for parties to agree the terms of the barring order by consent, especially if more significant sums are at stake.

The fact that the issue of distribution is likely to be deferred in the context of multi-defendant CPOs may mean that further clarity from the Tribunal in relation to any revert mechanism will be awaited for some time. Understanding the Tribunal's position on this issue will be important given the impact that such terms may have on the ability of the settling parties to assess fully the economics of a proposed settlement.

All in all, the decision is a welcome first step in answer to that "next big question". However significant questions remain and further guidance from the Tribunal is required to ensure parties to collective proceedings have greater certainty as to the Tribunal's approach to approving settlements.

1. [2023] UKSC 28.