The Court of Appeal’s decision to allow this case to be brought on an opt-out basis is significant, paving the way for more class actions to be brought.

On July 25, in Evans v. Barclays Bank PLC,[1] the Court of Appeal of England and Wales ruled that an opt-out collective proceedings order was the appropriate order, thus allowing the collective proceedings to continue.

The decision reversed a March 31, 2022, decision by the Competition Appeal Tribunal‘s, or CAT,[2] in which it refused to certify the opt-out collective proceedings, ruling that opt-in collective proceedings were more suitable instead.

As the opt-out collective proceedings were chosen because the claimant had struggled to find enough eligible class members who were willing to opt in to a claim, the CAT’s decision effectively struck out the claim.

The Court of Appeal’s decision to allow this case to be brought on an opt-out basis is significant, paving the way for more class actions to be brought, and it will be welcomed by prospective claimants who have previously been unable to bring individual claims.

As Phillip Evans commented in his press release, “the opt-out approach is crucial to ensure that claims may be pursued on behalf of all affected individuals and businesses.”[3]

Background

On May 16, 2019, the European Commission determined that various banking groups[4] had infringed on Article 101 of the Treaty on the Functioning of the European Union and Article 53 of the Agreement on the European Economic Area by participating in a single and continuous infringement covering the whole EEA in foreign exchange spot trading of G10 currencies.[5]

Foreign exchange traders from these banks had been discussing sensitive information and coordinating their trading plans, thereby creating a cartel over the FX market.

Evans, former panel member and inquiry chair at the Competition and Markets Authority, sought to bring collective proceedings against the banks in the CAT on behalf of the alleged 40,000 claimants, who had suffered loss when trading FX instruments as a consequence of the infringements.

Pursuant to Section 47B(4) of the Competition Act 1998, collective proceedings may only be continued if the CAT makes a collective proceedings order, or CPO.

Further, pursuant to Section 47B(7)(c) of the Competition Act 1998, a CPO must specify whether the proceedings are opt-in collective proceedings or opt-out collective proceedings — both of which are defined in Sections 47B(10) and (11) respectively.

Opt-in collective proceedings require eligible class members to permit the proposed class representative, or PCR, to represent them in proceedings.

In contrast, class members in opt-out class proceedings are automatically represented and eligible for compensation. They would need to actively opt out of the same if they did not wish to partake.

In view of this, Evans made an application to the CAT in December 2019, seeking an opt-out CPO pursuant to Section 47B of the Competition Act 1998 with the intention of being the PCR, though not a class member himself.

The Competition Appeal Tribunal’s Decision 

The test for whether a claim is eligible for the opt-out procedure is set out in Rule 79(3) of the Competition Appeal Tribunal Rules 2015.

Notably, the CAT may have consideration to (1) the strength of the claims — the so-called strength test — and (2) whether it is practicable for the proceedings to be brought as opt-in collective proceedings, having regard to all the circumstances, including the estimated damages that individual class members may recover — the so-called practicability test.

The CAT itself had recognized that, in circumstances in which there were unlikely to be enough class members opting in, the proceedings would fail. This was not, therefore, a choice between opt-in and opt-out collective proceedings, but rather “between opt-out collective proceedings and no proceedings at all.”[6]

In respect of the strength test, the CAT found that the claim brought by Evans was so weak as pled that it should be struck out,[7] albeit the respondents had not made an application for the same. In particular, the claim had failed to particularize the harm suffered and the causation between the infringements and said harm.

The strength test was therefore not satisfied, and the CAT considered that this weighed heavily in favor of opt-in proceedings. However, the CAT did not explain why a weak case was more suited to opt-in collective proceedings than opt-out ones.

In respect of the practicability test, the CAT considered the efforts that Evans’ legal team had made over the previous four years to persuade class members to opt in to collective proceedings.

In circumstances in which only 14 advisory retainers had been obtained, the CAT inferred that the class members, who were mostly sophisticated corporate entities, simply did not want to litigate.

This was a crucial distinction because it meant that the CAT considered that the access to and administration of justice factor, which otherwise would have leant in favor of an opt-out collective proceeding, was not as important. Indeed, the CAT held that “access to justice should not be forced on an apparently unwilling class.”[8]

The CAT therefore concluded with a majority of 2 to 1 that the claim was not suitable for certification on the opt-out basis. The application for a CPO was stayed and Evans was given permission to submit a new application for an opt-in CPO.

The practical effect of this, of course, was that no new application could be brought as there would not be enough class members opting in to bring the proceedings.

However, Justice Paul Lomas dissented. He argued that a CPO should be granted on an opt-out basis.

While in agreement that the pleadings had been poorly defined, he felt that more weight should have been attributed to access to justice considerations.

Further, Justice Lomas considered the practicability test to have been misinterpreted and was critical of the majority’s speculation as to the class members’ reluctance to opt in, noting that there could be many factors, including risk and administrative costs, that had led to low engagement.

The Court of Appeal’s Decision 

Evans appealed the CAT’s decision to the Court of Appeal.[9]

The issues to be decided included the criteria the CAT used to determine whether the CPO should be certified on an opt-in or opt-out basis.

Evans argued that, inter alia, (1) there was inconsistency in the CAT’s analysis of the pleadings, (2) there was a failure to explain the linkage between opt-in proceedings and the merits of a case, and (3) the CAT had wrongly applied the practicability test.

The Court of Appeal agreed with the appellant that the CAT had erred in its decision making.

Firstly, in relation to the strength test, it held that it was illogical for the CAT to determine that the weak pleadings were reason enough to be a decisive factor to rule in favor of opt-in collective proceedings, yet was prepared to await amended pleadings before making a provisional view on the merits of the case.

Further, referencing the decision of the Court of Appeal on May 6, 2022, in BT Group PLC v. Le Patrourel, the court held the CAT had attributed too much weight to the strength test when it should be a neutral factor.

In respect of the practicability test, the court held that where there would not be enough class members to issue opt-in proceedings. This was a powerful factor in favor of an opt-out certification.

For the most part, Justice Lomas’ dissenting judgment was supported by the Court of Appeal on the basis that, inter alia, to disallow proceedings would be inconsistent with the statutory objectives of the collective action regime and that it would be wrong to take a “sliding scale” approach to the strength of a case, whereby weaker cases are deemed more suitable for opt-in certifications

The court concluded by ordering the CPO to be certified on an opt-out basis.

Significance and Future Considerations

The Court of Appeal’s decision has important implications for future collective proceedings.

It is evident that the interests of justice should be considered as one of, if not the most important considerations in favor of an opt-out CPO.

In circumstances in which, as in the Evans case, an opt-in CPO would effectively result in a strike out of proceedings, it is likely an opt-out CPO will be ordered.

PCRs can thus be less concerned with the reluctance of potential claimants to opt-in to collective proceedings.

Eligible class members who may for a variety of reasons, including reputational and commercial relationship concerns, be unwilling to join collective proceedings may still benefit from any compensation awarded.

Crucially, the court disagreed with the CAT’s interpretation of the strength test and the weight that should be attributed to the same.

It was held that the merits of a pled case at the point of a CPO application will not necessarily be a factor in favor of opt-in proceedings and may not even be a relevant consideration at all.

However, claimants should be alert to judicial discretion toward this.

If the CAT can explain how the merits of case make it more suitable to opt-in or opt-out proceedings, then more weight may be attributed to this. Relevant reasoning may include case management perspectives, judicial efficiency and vindication of claims.

The judgment is likely to significantly widen the scope of opt-out collective proceedings that can be brought. There are currently 11 collective proceedings issued in the CAT that are awaiting their CPO hearings. All 11 PCRs are seeking opt-out CPOs, and thus likely welcome the Evans judgment as they now may be more likely to receive opt-out certification than before.

Further, prospective claimants may take a more optimistic approach and be more willing to bring claims where they previously would have been concerned about their CPO certification.

Notwithstanding, PCRs should not automatically assume that they will receive opt-out certification. The CAT still has judicial discretion and there are other factors at play that, albeit not as relevant in Evans, may prevent other PCRs from achieving opt-out status. It will be interesting to see how the CAT will approach future collective proceedings in light of the Court of Appeal’s new guidance.

This article was first published by Law360 on August 24 2023.