An interesting and potentially lucrative area of work for practitioners in the field of consumer rights can be found in competition law. Competition law in England and Wales has a long pedigree which pre-dates the establishment of the common law and can trace its origins back to legislation emanating from the Roman Empire.
In medieval times, the Plantagenet kings legislated through Parliament such acts as the Statute of Labourers which to control wages and prices, in an early attempt at market manipulation, in the aftermath of the Black Death.
Even before the birth of modern economics it was recognised that markets are prone to failure, have a tendency towards monopoly and need to be regulated in the public interest.
Historians will note that on the other hand the same kings also were very fond of granting monopolies themselves to such of their subjects as were willing to pay a fee, finding them a useful source of income not dependent on the will of Parliament.
These days modern competition law in England and Wales is largely to be found in the Competition Act 1998 and the Enterprise Act 2002, but this area of practice is also strongly influenced by European Union law, as inevitably many transactions will span European borders. For how much longer this will remain the case as the country lurches towards the door marked Brexit, remains to be seen.
The principal body tasked with the enforcement of competition law is the Competition and Markets Authority, but other public bodies have a role to play within particular spheres in enforcing competition law and consumer disputes can end up in the Competition Appeal Tribunal by way of litigation. It is this latter aspect of the work of the tribunal which can give rise to cases where damages can be claimed on a massive scale.
One particular case that is of interest for reasons of costs and litigation funding, relates to the MasterCard litigation which concluded this summer and which will be considered below.
The case of Merricks v Mastercard Competition Appeal Tribunal [2017] CAT 16 was concerned with an application for a collective proceedings Order. The application was summarised by the tribunal in these terms:
This is an application for a collective proceedings order (“CPO”) under sect 47B of the Competition Act 1998, as amended, (the “CA”) to enable the continuation of collective proceedings on an opt-out basis claiming damages for breach of what is now Art 101 of the Treaty on the Functioning of the European Union (“TFEU”). The proceedings are brought on behalf of a class of some 46.2 million people. The class is defined in the application as follows: 1
“Individuals who between 22 May 1992 and 21 June 2008 purchased goods and/or services from businesses selling in the UK that accepted MasterCard cards, at a time at which those individuals were both (1) resident in the UK for a continuous period of at least three months, and (2) aged 16 years or over.”
The collective proceedings regime warrants some further explanation as was later set out in the tribunal’s judgment.
The Consumer Rights Act 2015 (“CRA”) made substantial amendments to the CA as regards private actions in competition law. The new sect 47A CA entitles a person to make a claim in the Tribunal for loss or damage in respect of an infringement of, inter alia, Art 101 TFEU determined by a decision of the EU Commission, or an alleged infringement of Art 101 TFEU. The new sect 47B is entitled “Collective proceedings before the Tribunal” and includes the following provisions:
“(1) Subject to the provisions of this Act and Tribunal rules, proceedings may be brought before the Tribunal combining two or more claims to which section 47A applies (“collective proceedings”).
(2) Collective proceedings must be commenced by a person who proposes to be the representative in those proceedings…
(4) Collective proceedings may be continued only if the Tribunal makes a collective proceedings order.
(5) The Tribunal may make a collective proceedings order only—
(a) if it considers that the person who brought the proceedings is a person who, if the order were made, the Tribunal could authorise to act as the representative in those proceedings in accordance with subsection (8), and
(b) in respect of claims which are eligible for inclusion in collective proceedings.
(6) Claims are eligible for inclusion in collective proceedings only if the Tribunal considers that they raise the same, similar or related issues of fact or law and are suitable to be brought in collective proceedings.
…
(8) The Tribunal may authorise a person to act as the representative in collective proceedings— (a) whether or not that person is a person falling within the class of persons described in the collective proceedings order for those proceedings (a “class member”), but
(b) only if the Tribunal considers that it is just and reasonable for that person to act as a representative in those proceedings.
(11) “Opt-out collective proceedings” are collective proceedings which are brought on behalf of each class member except—
(a) any class member who opts out by notifying the representative, in a manner and by a time specified, that the claim should not be included in the collective proceedings, and
(b) any class member who—
(i) is not domiciled in the United Kingdom at a time specified, and
(ii) does not, in a manner and by a time specified, opt in by notifying the representative that the claim should be included in the collective proceedings.”
17. Further, sect 47C(2) provides:
“The Tribunal may make an award of damages in collective proceedings without undertaking an assessment of the amount of damages recoverable in respect of the claim of each represented person.”
18. The claims which are combined in collective proceedings must each be claims “to which section 47A applies”. The statutory regime for collective proceedings therefore constitutes a new procedure not a new form of claim.
19. Moreover, the grant of permission to pursue such claims by way of collective proceedings is expressed in discretionary terms in sect 47B(5) and requires two distinct aspects to be satisfied: (a) the Tribunal must authorise the person bringing the proceedings to act as the class representative; and (b) the Tribunal must certify the claims as eligible for inclusion in such proceedings. This is reflected in rule 77(1) of the Competition Appeal Tribunal Rules 2015 (the “CAT Rules”).3 The two requirements are addressed in separate rules: rule 78 (authorisation of the class representative); and rule 79 (certification of the claims). The CAT Rules are supplemented by the Tribunal’s Guide to Proceedings 2015 (the “Guide”), which has the status of a practice direction pursuant to rule 115(3).
MasterCard (unsurprisingly) fought the making of a collective proceedings order tooth and nail, and part of their arguments as to why the Order should not be made, related to the litigation funding which had been obtained to support the proceedings. The thrust of their objections on this aspect is summarised below:
93. Mastercard submitted as a separate and independent ground of objection that the Applicant should not be authorised as a class representative. The Applicant, Mr Walter Merricks CBE, is a qualified solicitor who has had a long and distinguished career in fields concerned with consumer protection. From 1996-1999, he was the Insurance Ombudsman, and between 1999 and 2009 he was the chief ombudsman of the Financial Ombudsman Service, which operates under the statutory framework of the Financial Services and Markets Act 2000. The Applicant has served on a number of public inquiries examining issues related to legal procedure and he is currently a commissioner on the Gambling Commission and a trustee and non-executive director of the legal charity, JUSTICE.
94. The Applicant is a member of the class covered by the proposed CPO but there is no suggestion in that respect that he has any conflict of interest with other class members. By his background, experience and qualifications, it is clear that the Applicant is well able to give appropriate instructions to the lawyers instructed on behalf of the class and is eminently suited to act as the class representative in these collective proceedings. Mastercard indeed did not suggest otherwise.
95. The opposition to authorisation of the Applicant related not to him personally but to the terms of the agreement (the “Funding Agreement” or “FA”) which he had entered into with a third party funder, by which the collective proceedings and any liability in costs would be funded. It was argued by Mr Ben Williams QC for Mastercard and by Mr Nicholas Bacon QC for the Applicant in response.
97. The objection was based on three grounds, which can be summarised as follows:
(i) the Funding Agreement would not enable the Applicant to continue to fund the litigation or pay Mastercard’s recoverable costs, if he were ordered to do so, since it could be terminated by the funder;
(ii) even if it could not be so terminated, the limit of £10 million for funding a liability for Mastercard’s recoverable costs was inadequate;
(iii) the terms of the Funding Agreement gave rise to a conflict of interest on the part of the Applicant.
Mastercard contends that these are very material considerations on the question of authorisation of the class representative. See in that regard rule 78(2)(d) and (3)(c)(iii).
In effect, the existence of litigation funding in a particular form, was turned against the applicant, as a reason why the proceedings should not be authorised. The tribunal therefore had to consider how litigation funding which provided for a substantial fee to be paid in the event of a successful outcome ran with the grain of the costs provisions governing the proceedings.
The starting point was that it was accepted by the tribunal that a funder’s fee was a proper item of costs or expense, with echoes of the arguments in the case I argued last year of Essar being deployed:
115. Sect 47C CA introduced new and distinct provisions concerning the costs of collective proceedings. We see no reason to give the words used a special meaning or to treat them as terms of art governed by jurisprudence on very different statutory provisions. In the ordinary sense, if a third party agrees to provide substantial monies in order to fund litigation, the payment which has to be made to that third party in consideration of this commitment, whether out of the damages recovered or otherwise, is a cost or expense incurred in connection with the proceedings.
116. As for the supposed difficulty of the lack of expertise of the Tribunal in deciding what is an appropriate price for litigation funding, on which Mr Williams sought to rely, that is no less novel a task than the process of approving a collective settlement under sects 49A or 49B CA. There is now a developing market in litigation funding, and the Tribunal can if necessary hear evidence as to what would represent an appropriate return. We note that this appears to be what Sir Philip Otton did as the arbitrator faced with such a question in the Essar Oilfields case: see at [22].
117. Mr Williams submitted that the CAT Rules cannot give the Tribunal a broader power than the governing statute. That is clearly correct, but our conclusion is entirely consistent with the CAT Rules. Rule 104(1) defines “costs” in terms of the costs and expenses recoverable in proceedings in the civil courts. As the further sub-paragraphs of rule 104 show, that is clearly referring to an adverse costs order (e.g inter partes costs). This definition is expressly “for the purpose of these rules.” Rule 93(4) addresses specifically the operation of sect 47C(6) CA. It provides that an order can be made for payment in respect of the class representative’s “costs, fees or disbursements”. Since the word “costs” in that expression accordingly has the meaning defined by rule 104(1), “fees or disbursements” clearly refer to additional matters. They are apt to cover, for example, an ATE premium or the fee of a commercial funder.
So far, so good but due to drafting errors, in the litigation funding agreement there was not actually an obligation on the part of the applicant to pay the funder’s fee: which in turn raised the question how this could be one of his costs or expenses.
118. For Mastercard, it was submitted that even if the amount due to the funder under sect 2.5(b) FA constitutes “costs or expenses” within the terms of sect 47C(6) CA, given the nature of the contractual obligations on the Applicant under sects 2.1 and 2.5 FA, it was not a cost “incurred” by the Applicant. The obligation under sect 2.1, which appears to be somewhat duplicated in sect 2.5(b), is only a “best endeavours” obligation and in any event does not impose any liability on the Applicant to pay the “Total Investment Return”. As we understood it, the objection to the obligation under sect 2.5(c) was that it is entirely contingent: there is no obligation at all until the Tribunal has made an order for payment of these monies to the Applicant. As regards either form of obligation, it was therefore submitted that since this is not a cost incurred by the Applicant, there is no basis on which the Tribunal could order that it be paid to him, and the primary position of payment to the prescribed charity under sect 47C(5) CA would therefore apply.
119. For the Applicant, it was emphasised that payment of the fee charged by the funder was essential for the operation of the Funding Agreement. Clearly, no commercial funder would provide substantial funding and assume the significant financial risk of major litigation without consideration, and the structure of the collective proceedings regime for opt-out proceedings was to enable that consideration to be paid out of the unclaimed damages awarded to the class of claimants. The Applicant could not be expected to assume an independent personal liability to the funder for its fee. The statute should accordingly be given a purposive interpretation to encompass a funding structure such as the present. In that regard, we were referred to a range of extra-judicial material which recognised the importance of third party funding in enabling access to justice.
120. We accept that sect 47C(6) CA should be given a purposive construction to further the effective operation of the collective proceedings regime introduced by Parliament. However, such a purposive approach has limits and cannot do violence to the language of the statute. We do not see how the obligation in sect 2.1 and/or sect 2.5(b) FA can be viewed as an obligation on the Applicant to pay the fee of the funder and thus come within the ambit of sect 47C(6), even if broadly interpreted. The obligation in sect 2.5(c) FA comes closer, but since it does not arise until after the Tribunal has made an order for payment, we still consider that it would not constitute an incurred liability for which the Tribunal has power to make an order.
121. Thus, in its present form, we consider that the Funding Agreement would not entitle or enable the Tribunal to order the payment of the “Total Investment Return” in the manner envisaged. It follows that the funder could terminate under sect 2.4 FA; and given that it faces the prospect of failing to recover the consideration for which substantial funds would be advanced, that must be, at the very least, a realistic possibility. As things stand, therefore, we would not authorise the Applicant to act as the class representative.
This could have been fatal to the application. However the tribunal went on to exercise the prerogative of mercy:
122. However, faced with this submission, Mr Bacon said that the Applicant was prepared to amend the Funding Agreement so as to provide for an obligation on him to pay the Total Investment Return, subject to recovering it out of the unclaimed damages pursuant to an order of the Tribunal. That would create a conditional liability, but nonetheless a direct liability. Although this offer was made only towards the end of the oral argument, it clearly would not be right to refuse to authorise the class representative if the obstacle to that authorisation could be readily overcome Accordingly, the Applicant was permitted to put in a short note after the conclusion of the hearing, setting out the terms of the proposed amendment, with permission for Mastercard to submit its observations in writing in response.
123. This was duly done, and the Applicant informed the Tribunal that he had agreed with the funder that sect 2.1 FA could be amended so as to read:
“In consideration of the Commitment, Seller, agrees to pay the Purchaser the Total Investment Return, limited to such amount of the Total Investment Return as determined by the Tribunal to be payable to the Seller pursuant to Competition Act 1998, s.47C(6) and, subject to any order of CAT, (a) absolutely assigns, conveys, sells, sets over, transfers, and warrants to Purchaser the Transferred Costs Rights, free and clear of any Encumbrance; and (b) agrees to use his best endeavours to ensure Purchaser obtains the full benefit of the Transferred Undistributed Proceeds Rights.”
Somewhat surprisingly, no corresponding amendment was proposed to sect 2.5(b) FA. Nonetheless, the additional wording inserted into sect 2.1 imposes an obligation on the Applicant to pay the funder, conditional upon the Tribunal making an order to pay the Applicant the equivalent amount under sect 47C(6) CA.
The arguments did not stop there, as an issue was then taken on the point that section 47C did not include provision similar to that made in the Civil Procedure Rules 1998 for “CFA Lites”, permitting waivers without erosion of the indemnity principle. It can of course be observed, that there is a school of thought that no statutory intervention was required for the CFA Lite regime at all, and the original 2003 Regulations were an exercise in excessive caution.
124. In his written observations, Mr Williams argued that this does not solve the problem as it is circular: no costs are incurred by the Applicant unless an order is made by the Tribunal; therefore the Tribunal has no power to make an order since no costs have been incurred. He submitted that to encompass such a situation sect 47C(6) CA would need to contain wording analogous to those inserted by amendment in sect 51(2) SCA and the consequential rule of the Civil Procedure Rules (“CPR”) to enable the recovery of costs covered by conditional fee agreements. CPR rule 44.1(3) thus provides:
“Where advocacy or litigation services are provided to a client under a conditional fee agreement, costs are recoverable under Parts 44 to 47 notwithstanding that the client is liable to pay the legal representative’s fees and expenses only to the extent that sums are recovered in respect of the proceedings, whether by way of costs or otherwise.”
In the event the tribunal were not troubled by this point when reaching their decision:
125. However, sect 47C(6) CA is not an inter partes costs rule and it is not dependent on a strict application of the indemnity principle as that applies to recovery of costs. As we have already observed, this is a specific rule designed for a new and discrete procedural regime. The question is whether the statutory reference to a cost or expense being “incurred” is broad enough to cover a conditional liability. In our judgment, it is. Given the purpose of the CRA and the new collective proceedings regime, that is the correct and appropriate construction. Indeed, we think it is similarly the basis on which this provision, in conjunction with rule 93(4), enables the recovery out of unclaimed damages of the success fee or ‘uplift’ element of legal costs “incurred” under a conditional fee agreement, which is not recoverable as costs in the High Court (and therefore does not fall within rule 104: see also rule 113). Put another way, if a funding agreement contained a clause stating:
(a) the class representative is obliged to pay the funder’s fee of £x;
(b) the obligation under sub-clause (a) is reduced to the extent that the amount which the Tribunal orders should be paid to the class representative in respect of this obligation falls below £x”
then we consider the obligation to pay the funder’s fee of £x would be a cost “incurred” within the meaning of sect 47C(6) CA. And on that basis, we do not see that the different formulation used in the amendment here should produce a fundamentally different result: that would elevate form over substance.
126. We accordingly do not think that this is a case of statutory ambiguity so as to justify resort to Hansard under the principle of Pepper v Hart. However, in the course of argument both sides took us to different passages in the Parliamentary debates on what became the CRA. We did not find the passage relied on by Mr Williams advanced matters either way. But Mr Bacon referred us to the House of Lords debate on 3 November 2014, when the Parliamentary Under Secretary of State for Business, Innovation and Skills resisted a proposed backbench amendment to what became sect 47C CA that would have prohibited the use of third party funding in collective proceedings. Baroness Neville-Rolfe stated:
“We have thought carefully about this. The Bill already contains restrictions on the financing of claims as it prohibits damages-based agreements and does not provide for a claimant to be able to recover any uplift in a conditional fee agreement. Therefore there is a need for claimants to have the option of accessing third-party funding so as to allow those who do not have a large reserve of funds or those who cannot persuade a law firm to act pro bono to be able to bring a collective action case in order to ensure redress for consumers.
Blocking access to such funding would result in a collective actions regime that is less effective. This would bar many organisations, including reputable consumer organisations such as Which?, from bringing cases as Parliament hoped in 2002. Restricting finance could also create a regime which was only accessible to large businesses. This would weaken private enforcement in competition law, which is of course not the Government’s wish or intention.”
The tribunal went onto observe:
127. The Government in promoting the legislation therefore clearly envisaged that many collective actions would be dependent on third party funding, and it is self-evident that this could not be achieved unless the class representative incurred a conditional liability for the funder’s costs, which could be discharged through recovery out of the unclaimed damages. Accordingly, insofar as it might be thought that the statutory provision is ambiguous, we consider that the statement from the relevant Minister in the House of Lords on the passage of the Bill supports the conclusion we have reached. In the form in which it is proposed to be amended, the Funding Agreement is therefore not rendered ineffective by sect 47C(6) CA.
The application failed on more substantive grounds, but the arguments put forward in relation to the effect of litigation funding may well have traction in other more mainstream areas of work where a group litigation order is sought.
In particular, a prize that is usually sought by claimants at the time of making the GLO is several liability for costs: this can in turn render scrutiny of funding arrangements and the ATE policy a legitimate exercise antecedent to making such an order. It may in turn fuel applications for security for costs against funders.