The Consumer Right Act 2015 came into force on 1st of October 2015 and introduces a limited “opt-out” collective action and collective settlement regime to the UK for the first time.
From the 1st of October the Competition Appeals Tribunal (“CAT”) now has jurisdiction to hear standalone claims. Previously the CAT was limited to hearing only damages claims followed on from decisions of competition regulators. The CAT will also now be able to hear such cases not only on an “opt in” basis (with claimants choosing to join a class), but also on an “opt-out” basis (with claimants being automatically part of the class unless they opt out). These changes should mean that low-value, high-volume claims competition claims viable in the UK.
One of the historic challenges for litigation funders considering financing group litigation has been assembling a sufficiently large group to make the case viable and mitigate the impact of the funding cost. Lawyers often face a “chicken and egg” problem, in that claimants will only agree to join the litigation if they are assured that there is funding and insurance in place and that they will not be exposed to costs risks. On the other hand, funders and insurers will only be willing to commit to a case once the claimant group reaches ‘critical mass’ and represents a sufficiently large aggregate damages claim in order to make the project viable.
While the problem of aggregating a sufficient group can exist to some degree in any group litigation, it can be particularly acute in consumer claims, where individually the claims may be very small, meaning that the case is only viable if very large numbers of claimants sign up. This issue was illustrated clearly in the now infamous JJB sports case[i] where only 0.1% of affected consumers joined the litigation.
Good news for funders?
There are certain aspects of the new regime which appear to encourage the use of third party funding and after the event insurance. At its heart, the legislation aims to mitigate the problem illustrated by the JJB sports case by making sure valid actions have sufficient class members to move forward.
In implementing this legislation, the Government has been anxious to avoid creating a US-style class litigation culture. As such, the new legislation contains a number of measure aimed at discouraging “unmeritorious claims”. For example, Damages Based Agreements (“DBAs”) are not permitted. Conditional Fee Agreements (“CFAs”) are permitted, but offer limited incentives to law firms to take on potentially significant fee risk. As such, third party funding is likely to play a crucial role in financing such claims.
Furthermore, the new legislation preserves the “loser pays costs” regime, but this risk is entirely confined to the class representative. As such, whether the class representative is one of the affected claimants, or a consumer organisation such as Which? — claims will likely only proceed where there is adequate ATE insurance in place to cover adverse costs.
While the new regime does seem to invite the use of third party funding and ATE insurance, there are some important questions to be answered, notably — how and from whom will the funder be paid in the event of success.
The legislation provides that any unclaimed damages are to be paid to charity, however the CAT has the discretion to award some or all of the unclaimed damages to the class representative to cover litigation costs. A solution may therefore be for the funder to be paid from this sum, however funders may be nervous about the risk that the CAT may not exercise its discretion or may not award a sufficient sum to give the funder the sort of return it expects and needs.
The class certification process is likely to be key in this regard. Under the draft CAT rules, the LASPO rules on funding arrangements apply to all proceedings before the tribunal and that any party entering into a CFA shall notify the Tribunal of the existence of the agreement.
It may be reasonably assumed that in certifying a class which is funded by a third party funder, the CAT will be giving some indication that it intends to allow the funder to dip into the unclaimed damages pot for payment of the success fee.
However, to the extent that uncertainty exists over whether the CAT will ultimately exercise its discretion, this may serve as a deterrent to potential funders. The cleanest solution would be to allow the funder to simply take a pro rata share of each claimant’s damages, possibly paying for fixed costs (such as any unrecovered base fees and disbursements and the ATE premium) out of the unrecovered damages pot. This would seem to provide a neat solution and where the group is large enough, should have minimal impact on each claimant’s individual entitlement to recover money.
For further information on funding & Insurance for competitions claims, see our previous blog on the subject.
If you have a potential competition claim for ATE insurance, or would like some advice on you’re your firm can prepare to tender for competition cases, please get in touch with us:
James Blick, Director Rebekah Weiler, Associate Director
0207 337 6032 0207 337 6035