CAT’s out the bag: Landmark UK class action settlement deal

19 Oct 2023

Upon its introduction in 2015, the Consumer Rights Act promised to “allow consumers and businesses to easily achieve redress for losses they have suffered as a result of breaches of competition law”. However, eight years later, the regime is yet to witness a settlement or final resolution at trial.

DRD’s Dulcie Brennan explores why a landmark settlement deal agreed last week may be about to turn the tide for class actions in the UK.

The settlement deal

In a watershed moment for the Competition Appeal Tribunal’s (CAT) collective actions regime, the first ever settlement agreement in an opt-out class action has been reached in the UK.

The class action concerns an alleged price-fixing cartel among major shipping companies, impacting consumers who purchased vehicles from major car manufacturers including Ford, Volkswagen, and Nissan, between 2006 and 2015.

The settlement agreement was reached between Chilean carrier Compañía Sudamericana de Vapores SA (“CSAV”) and consumer advocate Mark McLaren, represented by global law firm Scott + Scott, who is bringing the claim on behalf of affected consumers.

CSAV, the smallest of the five defendant groups, with just 1.7% market share in the alleged cartel, has agreed to pay £1.5 million under a settlement agreement which will be put before the CAT for approval on 6 December 2023.

All eyes on the CAT

Since its inception in 2015, the UK’s collective actions regime, established to facilitate mass redress for consumers in the UK, has not witnessed any settlements or conclusive resolutions at trial.

So, all eyes will now be on the CAT as it prepares to scrutinise the deal. Given this is the first agreed settlement of its kind, the Tribunal’s decision will lay the groundwork for handling any future settlement requests.

The parties will have to justify the settlement to the Tribunal and give evidence to support it. The CAT will then assess whether the proposed terms are “just and reasonable” for class members. It is currently unclear whether this includes a requirement that the deal be in the best interests of the class.

Factors under consideration include the importance of class member views and the degree of evidence required from applicants. The CAT must also determine the settlement fund’s distribution arrangements, a mechanism which will be closely scrutinised. For this deal, McLaren has proposed to keep the funds in escrow until the claims against the other defendant groups conclude.

This means considering whether the third-party funding arrangements in place are enforceable in light of the UK Supreme Court’s recent decision in PACCAR Inc. Here the Court ruled that funding agreements which allow funders to recover a percentage of damages constitute Damages-Based Agreements, meaning they are unenforceable unless they comply with the relevant regulatory regime for DBAs.

Lawyers and third-party funders alike will be watching closely to see how the CAT reflects the interests of litigation funder, Woodsford, in any settlement terms.

This deal will shine a light on the UK’s evolving class action landscape, setting a precedent for how settlements in collective actions may be negotiated, justified to the CAT, and approved under this regime - all factors which currently sit in uncharted territory for the Tribunal.

Dulcie Brennan, DRD Partnership

Implications for the UK’s collective actions regime

While the monetary value of the settlement agreement is minimal, its implications for the wider collective regime are significant. This deal will shine a light on the UK’s evolving class action landscape, setting a precedent for how settlements in collective actions may be negotiated, justified to the CAT, and approved under this regime – all factors which currently sit in uncharted territory for the Tribunal.

Whether the agreement is approved or not, the CAT’s approach towards this settlement will create a blueprint for handling future settlement applications, and will be closely watched by legal practitioners, litigation funders, claimants, and defendants alike.

If the agreement is approved, the real prospect of achieving a settlement is also likely to see an increase in the role of communications, given the importance of non-legal factors in influencing settlement decisions.