The collective settlement regime starts to take shape

Mr Gutmann brought opt-out standalone proceedings on behalf of an estimated 1.4 million class members, claiming approximately £57 million (excluding interest). Mr Gutmann alleged that the first defendant, First MTR South Western Trains Limited ("First MTR"), and the second defendant, Stagecoach, abused their dominant position in the passenger rail service market by failing to make 'boundary fares' sufficiently available for purchase, or use their best endeavours to ensure a "general awareness" amongst customers of the existence of such fares. Boundary fares allow passengers who own a Travelcard to pay only for the part of their journey that falls outside the zones covered by the Travelcard. Mr Gutmann alleged that the Defendants' infringement caused passengers who owned a Travelcard to be charged twice for the same journey. The Tribunal certified the collective proceedings on 19 October 2021.^[2]

Mr Gutmann agreed a provisional settlement with Stagecoach, but not with First MTR (against whom proceedings continue).^[3] The settling parties applied to the Tribunal for an order approving the settlement, as required by s.49A of the CA 1998, and r.94 of the Tribunal's Rules. In broad summary, the parties settled on the following terms.

• Stagecoach agreed to pay a total settlement to class members of up to £25 million, divided into three pots. There were different rules for each pot, and within each pot different amounts were allocated in respect of direct purchases from Stagecoach and purchases from third party retailers.
  
  
• For pot 1, to which £19 million was allocated, there was no limit on the number of claims, and no cap on the value of each claim, but there were more stringent evidential requirements relative to the other pots: class members would need to evidence purchase of a train ticket and TfL Travelcard to receive damages. Lesser sums were allocated to each of pots 2 and 3, and restrictions were imposed on the number of claims and the value of each claim, but the evidential requirements were less stringent.
  
  
• If the total claim value for any pot exceeded the allocated funds, then the amount claimed from that pot would be proportionally reduced. For example, if claims made in respect of pot 3 (which had a £2 million cap) totalled £4 million, then each class member would only receive 50% of their claim.
  
  
• The parties agreed re-allocation mechanisms, to deal with a scenario where certain pots (or parts of pots reserved for direct or indirect purchases respectively) were undersubscribed, but others were oversubscribed.  However, amounts would only be reallocated upwards: to a pot with more stringent evidential requirements.
  
  
• Stagecoach agreed to pay an additional £4.75 million of "ringfenced costs", in settlement of the costs that Mr Gutmann incurred in bringing proceedings, and £750,000 in respect of his notification/distribution costs. The parties also agreed that undistributed damages would be paid towards Mr Gutmann's non-ringfenced costs, up to a maximum of £9.85 million, but on the basis that any such payment would be reduced commensurately with any damages distributed to class members (i.e., the more paid to class members the less payable in respect of the non-ringfenced costs).
  
  
• Finally, the parties agreed that Stagecoach would retain any unclaimed damages, which was likely a key commercial driver of the settlement from Stagecoach's perspective. Since Stagecoach would only pay the settlement sum when notified of the total amount claimed by the class, this would not entail any reversion.

The Tribunal was dissatisfied with the originally formulated settlement. The expert evidence adduced by Mr Gutmann estimated the average loss suffered by each class member at £27.90. The Tribunal was conscious that, with average losses so low, many class members may be dissuaded from submitting valid claims. At the Tribunal's prompting, the parties removed the evidential requirements for pot 3, such that claimants could claim £5 per journey, up to a maximum of 6 journeys, based only on a self-certification that their claim was valid and without having to provide any evidence. The Tribunal considered that the risk of fraudulent claims could be mitigated and had to be balanced against the converse risk of dissuading valid claims. The parties were also prompted by the Tribunal to agree a "reverse waterfall" mechanism whereby any undistributed damages in Pot 2 would be paid into Pot 3, and vice versa. The Tribunal was clear that, absent these revisions, and the provision of further material in response to its requests (see further below), the proposed settlement would "probably have been rejected".

The takeaway is that parties cannot expect the Tribunal to "rubber stamp" a settlement, even where (as in this case) it has been endorsed as reasonable by an independent expert in the field of competition damages litigation. The Tribunal is under a duty to scrutinise the settlement and form its own view on whether it is "just and reasonable". Where settlements contain a distribution plan that makes the payment of compensation to class members contingent on the production of evidence, parties should anticipate that the Tribunal may have reservations about possible barriers to compensation and will need to be nimble to meet those concerns, prior to and/or during the settlement approval hearing, or risk having their settlement rejected.

In McClaren, the only other collective settlement approval order to date, the Tribunal was asked to approve a settlement where the defendant would pay fixed sums in respect of damages and costs. It was not asked to approve a distribution plan; distribution was deferred. By contrast, in this case, the Tribunal was asked to approve an "up to" settlement figure, to be distributed according to a complex distribution plan, with limits placed on the recoverable compensation. The parties originally provided the Tribunal with the estimated number of class members and their estimated average loss, but the Tribunal made clear that this would not suffice. The Tribunal required evidence of likely take-up by class members to assess the reasonableness of the limitations imposed on each pot.

In response to the Tribunal's requests, Mr Gutmann provided an estimate of total take-up of the proposed settlement, based on research on the uptake of damages in collective proceedings in North America and use by consumers of "delay repay" schemes offered by train operating companies in the UK. The Tribunal was willing to accept that estimate but said that "[i]t clearly would have been preferable had the parties undertaken proper research into anticipated take-up rates based on seeking feedback from actual or potential class members".

It is clear from the judgment that settling parties seeking approval of a distribution plan in future will be expected to submit evidence on anticipated take-up from the outset. The Tribunal's expressed preference for that evidence to be empirically grounded in the facts of the case, i.e., on survey data from actual class members, is salutary; albeit it may be that procuring such evidence is impracticable in certain cases, or may result in an unacceptably long delay between a settlement being agreed, and an application being made to the Tribunal (since the commercial terms of the settlement will plainly affect take-up).

Interestingly, the Tribunal accepted that there was "insufficient time" for such research to be conducted in this case, given that the application was made a few months before trial, with the consequent "threat of escalating costs if there was any delay in the approval process". This suggests that the Tribunal will also assess the evidence regarding anticipated take-up in the context of the litigation and balance the risk of approving a settlement with sub-optimal information against the cost of forcing settling parties to proceed to trial.

The Tribunal remarked that the structure of the proposed settlement gave rise to a conflict between the interests of the class representative's lawyers and funders, and those of the class. The lower the amount distributed to class members the more that would be paid to the lawyers and funders (by way of "non ringfenced costs"). This conflict accentuated the need for the Tribunal to scrutinise the settlement carefully and apply independent judgment. It was critical, to enable the Tribunal properly to exercise that judgment, and to protect the interests of the class, that settling parties "put all relevant facts and considerations before the Tribunal", including points that militated against acceptance of the settlement (the Tribunal said this was particularly necessary where, as here, there existed a lack of empirical data from class members regarding anticipated take-up).

It may be regarded as counterintuitive for parties seeking to persuade the Tribunal of the reasonableness of their proposed settlement to point to countervailing factors, which might undermine that view. But it is clear from this judgment that the Tribunal expects settling parties to give full and frank disclosure (similar to the position for ex parte applications in other contexts), such that the Tribunal is cognisant of factors which might weigh against approval.

In determining whether a settlement of certified opt-out collective proceedings is just and reasonable, the Tribunal is required to assess the likelihood of the class representative obtaining judgment for an amount significantly in excess of the settlement amount – r.94(9)(c). To some extent, the Tribunal is therefore required to assess the merits of the claim when evaluating the reasonableness of a proposed settlement; it is baked into the process.

In this case the Tribunal was willing to accept the proposed settlement on the basis that the "merits of the claim are not manifestly and strongly in favour of the CR". However, the Tribunal indicated that in "a case where the merits are evidently stronger than in this case", the Tribunal may not be satisfied by a settlement where the damages paid by the defendant are limited to the amounts ultimately claimed from the settlement pot by class members, with no residual payment made to charity; in such a case "it may be more appropriate, if an ‘up to’ settlement figure and potentially low take up is all that is on offer, to let the matter to go to trial".

Where, as in this case, not all the defendants agree to settle with the class representative, any expression by the Tribunal of a view on the merits will inevitably have a bearing on the appetite of the class representative and the non-settling defendant(s) to progress to trial (assuming the claims advanced against the non-settling defendant(s) are the same or similar to the claims compromised with the settling defendant(s)).^[4] It will also help to inform those parties' understanding of the type and shape of any further settlement that the Tribunal might approve.

An interesting hypothetical, which has not arisen to date, is if the Tribunal were to reject a proposed settlement on the basis that the damages payable by the settling defendant(s) are insufficient, given the merits of the underlying claim. It is perfectly conceivable in such a scenario, given the unpredictability of litigation and the difficulties that the Tribunal has in assessing the merits of a claim at an interim stage, that the class representative could progress the claim to trial (perhaps before a differently constituted Tribunal) and lose. This is, no doubt, a concern that any Tribunal will have firmly in mind, before taking such a step.

The Tribunal's judgment has helped to shape the nascent collective settlements regime. Plainly, the Tribunal will not wave through a settlement of collective proceedings, even where it has been endorsed by an independent expert. It will exercise independent scrutiny, and parties should expect that they may need to meet concerns that the Tribunal has, and possibly agree adjustments to their settlement, in a short timeframe, to secure approval.

The judgment is particularly salient in respect of settlements which make the damages payable by the defendant contingent on take-up by the class. The Tribunal will, understandably, be keen to ensure in its scrutiny of such a settlement that the parties have carefully evaluated and evidenced the anticipated take-up. The Tribunal has proffered valuable guidance on the type of evidence it will expect to see.

It is also clear that, particularly where payouts to individual class members are low, the Tribunal will rigorously scrutinise the evidential barriers that might frustrate or disincentivise claims; parties should anticipate that this is likely to be an area of concern.