In these times of global economic uncertainty and ongoing geopolitical conflict, demand for legal finance solutions and asset tracing expertise is expected to rise as companies seek support for the recovery of damages suffered as a result of anticompetitive behavior and relief from the associated financial burden. Legal finance is an increasingly important tool for pursuing redress in anticompetitive scenarios, as well as enabling the defense of weak claims. This article addresses some of the key trends in the rapidly developing competition litigation space in the England and Wales.
A surge in opt out class actions before the CAT
In contrast to the position in the US, opt out class actions have not been a significant part of the English competition landscape until relatively recently. In 2015, the Consumer Rights Act (CRA) introduced significant changes to private actions in the UK, notably creating for the first time a mechanism for opt out collective proceedings in competition matters to be brought before the Competition Appeal Tribunal (CAT).
Before this development, competition litigation in England and Wales operated on an “opt in” basis, meaning that claimants had to take proactive steps to participate in a collective action. The new opt out procedure allows a party to bring a claim on behalf of the class, without the express mandate or even knowledge of the rest of the class. If the court permits the claim to proceed, then any judgment or award will be binding on and available to all members of the class unless they proactively “opt out”.
Opt out proceedings before the CAT have been on the rise since the Supreme Court handed down the judgment in the landmark Merricks decision, certifying its first application for a Collective Proceedings Order (CPO) and paving the way for future actions. Already we have seen a rise in these kinds of claims: In 2021 there were seven opt out mass actions brought before the CAT and a further five actions have been brought so far in 2022.
However, the types of cases coming before the CAT of late have not been the typical follow-on damages style cases. Apple is currently facing a £768 million collective action over claims it disguised overloaded batteries with software updates; PlayStation is facing a collective action worth up to £5 billion for “excessive and unfair prices” and some of the world’s most prominent crypto exchanges are facing a £9.9 billion lawsuit over the delisting of the BSV coin.
It is unclear whether these are the types of claims that everyone had in mind when the opt out regime was created. With an influx of these claims, which appear to be less obviously suited to being brought under the opt out regime, it is taking much longer for matters to progress though the CAT, and reaching a collective proceedings order now takes many months.
The cost of CAT claims continues to rise
Not only is the number of claims before the CAT increasing, but so are their associated costs. For example, in the recent FX decision1, the CAT found that the claimants’ proposed approximately £30 million budget fell short at least £10 million and their approximately £33 million after-the-event (ATE) insurance policies were also deemed deficient. Even by the CPO stage, one of the legal financiers involved had already spent £9 million (approximately £3.2 million on solicitors' fees and £6 million on barristers and experts).
The decision in the FX decision further reinforces the importance of securing adequate ATE coverage, especially when the level of coverage will be scrutinized by the court. In response to the disconnect between existing ATE insurance coverage and large, risky disputes, Burford launched Burford Worldwide Insurance (BWIL). With BWIL, Burford can offer companies the complete package: Financing for the costs of pursuing the dispute and insurance policies that protect against the risk of potentially tens of millions in adverse costs for litigation matters. No other legal financier in the world can provide an in-house comprehensive solution to legal risk and costs.
The high cost threshold of bringing these claims before the CAT shows how crucial legal finance is for parties to be able to pursue competition matters to completion. However, the economics also need to make sense from the financier’s perspective. A combination of huge litigation budgets and limitations on the legal financier’s return can make these cases difficult for legal finance providers to invest in. For example, in these matters, a multiple of the financier’s investment can only be taken from undistributed damages at an amount that has been approved by a judge. This contrasts with the US position, where opt out claims are perfectly suited for financing.
While the CAT has openly acknowledged the importance of legal finance to allow CAT claims to proceed, if legal financiers can’t make adequate returns to meet their own fiduciary duties to shareholders, then these cases will remain difficult to finance. This risks endangering the whole regime.
The decision in FX removes the low certification bar
Post-Merricks the general consensus has been that the bar for certification of opt out claims was set at a very low level. Following that decision, we saw a steady stream of collective claims certified by the CAT. This led to what seemed like an air of resignation from defendants at CPO hearings because they anticipated that the judge would simply wave the application through.
Obtaining certification of the claim would logically have been a good time to open settlement discussions. If the case was certified, the defendant would think there is a reasonable likelihood of them ultimately losing the case and would have been prepared to come to the negotiating table. But with the bar being so low for certification, there is much less of an incentive to settle at this stage and proceedings were starting to unnecessarily drag out for longer periods and becoming even more expensive.
The FX decision was the first CAT certification refusal following Merricks. With this decision, the CAT showed its willingness to strike out poorly pleaded claims and deny certification. This indicates a potential shift in the way these cases will be litigated and may mean that post-certification settlement is back on the table.
Opting in versus opting out
Recent case law indicates the CAT’s preference for commercial claimants to bring opt in matters (high value, low volume) and consumer claimants to bring opt out claims (low value, high volume). For example, in the FX decision and in the Trucks cartel case the CAT preferred an opt in collective action over an opt out, deciding that the nature of the claimants meant that their claims were better-suited to being brought on an opt in basis.
Due to the limited case law available on this topic, it remains to be seen where the line is that determines whether a claim should be brought as an opt in versus an opt out. Whether a claim proceeds under an opt out or opt in basis can have a significant impact on whether the claim is suitable for financing. As noted earlier, in opt out claims the legal finance provider’s returns must be taken from the undistributed proceeds and must be approved by the judge. It will not be clear until the conclusion of the case how much is left for the financier to take its return from. Therefore, it is often preferable for legal finance providers if the claims proceed under an opt in book building approach, where separate agreement can be reached with the claimants in respect of the financier’s return.
While there is much still to be determined in this developing area of competition law, what is clear is that legal finance will play an important role in collective actions in England and Wales going forward. As the CAT stated in the Trucks case: “Without collective proceedings, the overwhelming majority of those class members would be unlikely to be able to bring their claims at all. The collective proceedings would be impossible without third-party funding.”
1 Michael O’Higgins FX Class Representative Limited v Barclays Bank PLC and Others; and Mr Phillip Evans v Barclays Bank PLC and Others  CAT 16