{"id":471,"date":"2024-05-29T13:20:10","date_gmt":"2024-05-29T13:20:10","guid":{"rendered":"https:\/\/jovial-goldwasser.51-11-181-233.plesk.page\/?page_id=471"},"modified":"2025-07-21T15:49:34","modified_gmt":"2025-07-21T15:49:34","slug":"settling-opt-out-competition-claims","status":"publish","type":"page","link":"https:\/\/disputeresolutionyearbook.traverssmith.com\/yearbook-2025\/settling-opt-out-competition-claims\/","title":{"rendered":"Do the parties know best? Settling opt-out competition claims"},"content":{"rendered":"\n
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Introduction<\/h3>\n\n\n\n

In the 2024 edition of the Dispute Resolution Yearbook, we discussed the relative effectiveness of the main ways of bringing mass claims in England and Wales. The Collective Proceedings Order (“CPO”<\/strong>) mechanism available in the Competition Appeal Tribunal (the “CAT<\/strong>“), which will have its ten-year anniversary this year, remains the most viable means of bringing a true ‘class action’, albeit only in respect of competition claims.<\/p>\n\n\n\n

Most CPOs are brought on an ‘opt-out’ basis, where individuals are automatically included in the class unless they choose not to be (you can read more about this trend in our recent article originally published in Thomson Reuters Practical Law, available here<\/a>). Settlements of opt-out CPOs require the CAT’s approval (because the class members who may have suffered the relevant losses are not involved in negotiating the settlement), which considers whether the settlement reached between the defendant(s) and class representative is “just and reasonable”. At the time of writing, five such settlements have been approved: in Gutmann v Stagecoach South Western Trains Limited <\/em>(Boundary Fares<\/em>)[1]<\/a>; in Merricks v Mastercard Incorporated and others <\/em>(Interchange Fees<\/em>)[2]<\/a>; and three of the defendants in McClaren v MOL and others (Maritime Car Carriers<\/em>) have also settled.[3]<\/a><\/p>\n\n\n\n

In this article, we identify three key themes emerging from these settlements which underpin the effectiveness of the regime, and how any continuing difficulties or uncertainties might be resolved going forwards.<\/p>\n<\/div>\n<\/div>\n\n\n\n

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Theme 1: When will a settlement not be ‘good enough’?<\/h3>\n<\/div>\n<\/div>\n\n\n\n
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When approving settlements, the CAT will scrutinise the value of the settlement sum against the initial purported claim value. Given the number of varied and complex factors which inform when and at what price a party may wish to settle, in what circumstances should the CAT determine that the class representative has not got a good enough deal for the class such that the settlement cannot be said to be “just and reasonable”?[4]<\/a><\/h5>\n\n\n\n

Unsurprisingly, the CAT is yet to exercise its discretion to reject a proposed settlement. During the approval hearing for the Merricks<\/em> settlement, the CAT noted that a settlement of \u00a3200 million, in the context of a claim initially valued at \u00a314 billion, was a “very disappointing outcome”<\/em>. Yet, the CAT concluded that it had “no doubt”<\/em> that the settlement sum was just and reasonable, informed by findings of preliminary issues trials already heard in the case and privileged merits advice provided by the settling parties.[5]<\/a> The result in Merricks <\/em>is consistent with the theme emerging from other decisions that the CAT will not attempt to reach its own view of the merits (and likely quantum) of a claim, in place of the parties’ views on the merits, but will test whether the parties’ views are reasonable, with particular scrutiny of the process adopted by the class representative in forming their assessment.<\/p>\n\n\n\n

One way that parties have sought to provide the CAT with additional comfort is through third-party evidence on the merits of the claim. The parties procured such evidence in the Maritime Car Carriers<\/em> and Boundary Fares<\/em> settlements, but not in Merricks<\/em>. The absence of such evidence in Merricks<\/em> did not prevent the approval of the settlement, the Tribunal noting that this was not a requirement. However, in doing so it cited the specific circumstances of the case (including the many judgments already given on certain preliminary issues and the urgency of getting the settlement approved).[6]<\/a> Settling parties should therefore be cautious about not obtaining such evidence in other cases (particularly where they have settled at an early stage).<\/p>\n<\/div>\n\n\n\n

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Theme 2: Balancing the benefits between the class and other claimant-side stakeholders<\/h3>\n<\/div>\n<\/div>\n\n\n\n
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This has been the most scrutinised aspect of settlements approved by the CAT thus far. CPOs would not be brought without the investment of time and capital by litigation funders and advisers (including lawyers), who must be properly incentivised through the ability to secure a return on their investments (e.g. through success fees). At the same time, the class representative has a duty to obtain the best possible return for class members. These competing interests do not always sit easily with each other.<\/h5>\n\n\n\n

This potential for conflict arose in a very public way in Merricks<\/em>, where the funder opposed the settlement and commenced parallel arbitration proceedings against Mr Merricks (the class representative) for not having used his best endeavours to secure a better return for the funder.[7]<\/a> Whilst a key complaint of the funder was that the agreed settlement sum was too low (an argument the funder lost), issues were also raised on how the sum should be divided between the class and funders\/advisers.<\/p>\n\n\n\n

The main way in which settling parties have managed this issue is to ringfence specific portions of the settlement sum for the class, and others for funders\/advisers. Where funds have been clearly demarcated for one group or the other, the CAT’s interference with those pots has been relatively constrained. Where the CAT has intervened more is where there remains uncertainty around what might happen to certain proceeds, or where that is contingent on future events (e.g. the level of take up by the class). For example:<\/p>\n\n\n\n

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In the second and third settlements in Maritime Car Carriers<\/em>[8]<\/strong><\/a>, the CAT required amendments to the terms of the settlement in order to make clear that, if any guaranteed damages sums ringfenced for the class were not taken up by class members, these would go to charity or a cy-pr\u00e8s scheme (rather than there merely being an ‘intention’ on the part of the class representative that such sums would be applied in this way), accompanied by an undertaking from funders\/advisers that they would not stake a claim to these funds.<\/p>\n<\/div>\n<\/div>\n\n\n\n

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In the Boundary Fares<\/em> settlement, the settlement sum was divided across different pots, each requiring class members to produce a different level of evidence in order to claim from a certain pot. Following concerns about a mechanism whereby unclaimed amounts from each pot could revert to funders\/advisers (which might \u2013 at least in theory \u2013 disincentivise advisers from promoting the existence of the settlement), an amendment was proposed whereby unclaimed amounts within particular pots could be redistributed to other pots (thereby potentially making more funds available for class members).<\/p>\n<\/div>\n<\/div>\n\n\n\n

At the heart of the Tribunal’s consideration of these issues is the question of what constitutes a reasonable rate of return on the funder’s investment (“ROI<\/strong>“). Litigation Funding Agreements (“LFAs<\/strong>“) might provide for specific rates of return, but the ability of funders to realise these returns will, in the event of a settlement of an opt-out claim, always be subject to the approval of the CAT. This issue came under particular scrutiny in Merricks<\/em>. There, the Tribunal was of the view that a ROI of 1.5 times the funder’s \u00a345.5m outlay (i.e. a payment of \u00a368m, which constituted 34% of the settlement sum) was appropriate “recognising the significant risk [taken by the funder] but reflecting also the poor outcome<\/em>“.[9]<\/a> This was very significantly below the ROI multiple provided for in the LFA, and has been the subject of public criticism from some funders in the London market as likely to chill the funding market. However, that concern may to some extent by allayed by the Tribunal’s comment that the Merricks<\/em> settlement “should not be regarded as a guide for more positive settlements of cases that reflect better the public policy behind the introduction of collective proceedings”<\/em>.[10]<\/a><\/p>\n\n\n\n

It is also noteworthy that the Tribunal drew inspiration from Australian and Canadian jurisprudence in reaching its conclusions, given the relative novelty of these considerations to English law.<\/p>\n\n\n\n

One further observation made by the CAT is that funders will generally fund a portfolio of different claims, some of which may be successful, and some of which will be unsuccessful. The CAT noted in McLaren <\/em>and Merricks <\/em>that in considering what profit return or commission to allow a funder on settlement, it would be helpful to be provided with its rates of return (which were not disclosed in either case).[11]<\/a> Quite how the CAT would assess whether the return on a particular claim is “just and reasonable” when compared against such an average remains to be seen. In any event, the CAT made clear that the statutory test as to whether the settlement is just and reasonable focuses on the perspective of the class members, not the funder.[12]<\/a><\/p>\n<\/div>\n<\/div>\n<\/div>\n<\/div>\n<\/div>\n<\/div>\n<\/div>\n\n\n\n

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Theme 3: Addressing the uncertainty of how many class members will claim their share<\/h3>\n<\/div>\n<\/div>\n\n\n\n
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One variable that makes assessing what portion of the settlement sum should go to funders\/advisers difficult is the uncertainty surrounding the number of class members who will come forward to claim their share of the settlement monies, which, unsurprisingly, is likely to depend on the anticipated pay out per class member. In Merricks<\/em>, the parties’ position was that a realistic take up rate would be around 5%, consistent with comparable rates in the US, Canada and Australia, although a specific survey conducted of 5,000 potential class members in Merricks<\/em> suggested the rate could be as high as 10%.[13]<\/a> Assisted by this survey evidence, as well as the advice of Mr Merricks’ claims administrator, the Tribunal determined that the primary amount offered to each class members should be \u00a345 on the basis that that would likely lead to a take-up rate of around 5%.[14]<\/a><\/p>\n\n\n\n

Since the settlement in Merricks<\/em>, it has been revealed that the take up rate in Boundary Fares<\/em> has been very low indeed, with the class claiming a mere \u00a3216,485 of the \u00a325 million sum available, i.e. a take up rate of less than 1%.[15]<\/a> Some of this may be attributable to the novelty of the regime (Boundary Fares<\/em> being the first distribution of an opt-out settlement in the UK). However, the CAT will naturally be concerned about the perception of the opt-out regime’s ability to provide access to justice and will likely be even more focussed in future opt-out settlements on ways to increase take up, such as more effective means of advertising settlements and exploring alternative ways of putting money into consumers’ pockets (e.g. by providing ‘credit’ to affected customers where possible, rather than a cash sum). It also highlights the importance of conducting empirical analysis on likely take up rates which, in Boundary Fares<\/em>, was not done (because there was considered to be insufficient time to do so).<\/p>\n\n\n\n

Other jurisdictions have additional tools available to manage the uncertainties surrounding take up levels. For example, in Australia, there have been instances where the court has ordered a registration process prior to a mediation, so that the parties have greater certainty over the number of class members who may come forward and (therefore) the quantum that might be claimed; this is referred to as ‘soft class closure’, which allows for registration to be re-opened if no settlement is reached.<\/p>\n<\/div>\n\n\n\n

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The road ahead<\/h3>\n\n\n\n

The expectation that the CAT will grapple with these settlement issues ex post,<\/em> after a funder has decided to fund proceedings on specific terms, and after a settlement sum\/mechanism has been agreed, naturally gives rise to uncertainties for all stakeholders. For the reasons explored above, this is to some extent inevitable. One way to reduce that uncertainty might be for the CAT to scrutinise the funding arrangements at the certification stage more rigorously, although, as noted by the Tribunal itself in the Merricks <\/em>settlement hearing, there is a limit to how far certain issues can be pre-empted without the certification process becoming unwieldy.[16]<\/a><\/p>\n\n\n\n

The road ahead may also be influenced by the recommendations proposed for reforms to litigation funding by the Civil Justice Council (“CJC<\/strong>“) in June 2025. Those recommendations include: (i) overturning the Supreme Court’s decision in PACCAR, <\/em>thereby permitting a funder’s return under an LFA to be calculated by reference to the damages recovered by the class; and (ii) a new regulatory framework within which funders would operate, including rules designed to manage the types of conflicts of interest discussed above in Theme 2, and to prohibit a funder’s control over the litigation. Importantly, however, the CJC has not proposed placing caps on funder returns. It is therefore likely that the supervisory jurisdiction of the CAT over opt-out settlements will remain crucial, even if – depending on the extent to which the CJC’s recommendations are enacted – the way in which the specific interests of funders in an opt-out settlement are managed may begin to shift.   <\/p>\n\n\n\n

Notwithstanding the CPO regime’s ten-year anniversary this year, identifying the optimal approach to settling opt-out claims in the UK therefore remains a work in progress. Given the potential impact this issue may have on the appetite to bring such claims in the first place, it is something that will (rightly) continue to be scrutinised by the CAT and rule-makers alike.<\/p>\n<\/div>\n<\/div>\n\n\n\n

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Footnotes
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[1]<\/a>         [2024] CAT 32.<\/p>\n\n\n\n

[2]<\/a>         [2025] CAT 28.<\/p>\n\n\n\n

[3]<\/a>         [2023] CAT 75 and [2025] CAT 4.<\/p>\n\n\n\n

[4]<\/a>         See Rule 94 of the CAT Rules.<\/p>\n\n\n\n

[5]<\/a>         No comprehensive opinion from the class representative’s counsel was provided to the Tribunal. Whilst excused in this case, the Tribunal noted that this will ordinarily be expected \u2013 see [212] of [2025] CAT 28.<\/p>\n\n\n\n

[6]<\/a>         See [106], ibid<\/em>.<\/p>\n\n\n\n

[7]<\/a>         As part of the settlement agreement, MasterCard agreed to indemnify Mr Merricks for the costs and expenses of the funder’s arbitration proceedings against him up to the value of \u00a310 million.<\/p>\n\n\n\n

[8]<\/a>         [2025] CAT 4.<\/p>\n\n\n\n

[9]<\/a>         [2025] CAT 28 at [188]. The CAT acknowledged that it used the 34% figure as a “useful cross-check” in circumstances where, following the Supreme Court’s decision in PACCAR v Competition Appeal Tribunal <\/em>[2023] UKSC 28, funders of opt-out claims cannot currently conclude an LFA which provides for a percentage-based return.<\/p>\n\n\n\n

[10]<\/a>         See [208] of [2025] CAT 28.<\/p>\n\n\n\n

[11]<\/a>         See [185] of [2025] CAT 28 and [100] of [2025] CAT 4.<\/p>\n\n\n\n

[12]<\/a>         [2025] CAT 28 at [81].<\/p>\n\n\n\n

[13]<\/a>         [2025] CAT 28 at [74].<\/p>\n\n\n\n

[14]<\/a>         This amount would be reduced if a much greater number of class members submitted claims and would be increased (up to a cap of \u00a370) if less than 5% submitted a claim: see [129] of [2025] CAT 28. This approach is often referred to as the “US style approach” to distribution whereby a larger than per-capita individual payment is offered to class members in order to attract a greater uptake, with the possibility of some unclaimed monies going to charity: see [50] of the judgment.<\/p>\n\n\n\n

[15]<\/a>         [2025] CAT 38.<\/p>\n\n\n\n

[16]<\/a>         Day 3 transcript, page 150.<\/p>\n<\/details>\n\n\n\n

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Key contacts and authors<\/h3>\n\n\n\n
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\n \"Joseph\n
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Joseph Moore<\/p>\n

Partner, Dispute Resolution<\/p>\n <\/div>\n <\/div>\n<\/a>\t\t