Dentons has successfully advised on the first major settlement in a collective (“class”) action in the UK courts in the landmark case of Justin Gutmann v. First MTR South Western Trains Limited and Stagecoach South Western Trains Limited. The case concerns so-called “boundary fares” and alleged that it was an abuse of dominance in breach of competition law, if customers who held Travelcards valid for travel in Transport for London (TfL) zones and could have bought a niche ticket called Boundary Fares that would extend the validity of their Travelcard, did not do so because such fares were allegedly not made sufficiently available. Essentially, this was a consumer claim packaged as a competition claim in order to access the opt-out collective action regime before the UK’s Competition Appeal Tribunal (the Tribunal). The settlement, which was without any admission of liability, had to be approved by the Tribunal. In doing so, it grappled with novel issues and set out helpful guidance for future collective settlements. The circumstances of the claim presented particular, but not unique, challenges and the Tribunal’s judgment will provide important pointers for future cases.

The alleged infringing conduct in this case occurred almost a decade ago. The alleged loss to each class member per journey is relatively modest. Therefore, one significant challenge in approaching settlement in this case was to identify a mechanism for distribution that would provide some compensation to class members who no longer had evidence of the journeys taken or tickets purchased as well as fully compensating those who could fully evidence their alleged loss whilst avoiding fraudulent claims. In order to address this, the parties provided for class members with differing levels of documentation (including no evidence at all) to be able to claim gradated amounts from distinct pots of money. The Tribunal initially expressed dissatisfaction with elements of the proposed settlement structure whilst providing useful guidance on what would be acceptable, prompting the parties to amend it, principally to make more funds available to those who cannot provide any evidence to prove their claim where the pot requiring partial evidence proves undersubscribed. The modified settlement was ultimately approved, with the Tribunal providing key guidance for future settlements:

• Settlement amount and merits of the case: The Tribunal will consider the merits of the case when assessing the settlement amount (including both the size of the total settlement pot and expected actual take-up). In a case where the merits are strongly in favour of the Class Representative (the CR) – which was not the case here – the Tribunal may not be satisfied by a settlement that may lead to the defendant paying out a relatively modest amount in damages.
• Empirical evidence for take-up rates: Future applications should include properly reasoned and researched estimates of the likely take-up rate by class members, ideally involving empirical research based on class members. This was because the Tribunal considered the likely take-up (as well as the merits of the claim) to be relevant as to whether or not to grant approval. How such a survey would be conducted confidentially in the course of a settlement process, without causing significant delay and on a scale substantial enough to be representative, remains to be seen.
• Disposal of unclaimed balance: The provisions regarding the disposal of any unclaimed balance will also be relevant. The Tribunal considered different options for the disposal of unclaimed sums, including reversion to the settling defendant and payment to a charity. The Tribunal acknowledged that, unlike damages awards after trial, there is no requirement for unclaimed balances to be paid to a charity in collective settlements, and there may be grounds, as in this case, for an alternative arrangement to be proposed by the settling parties.
• Conflict of interest: The Tribunal noted that there can be potential conflicts of interest, particularly when settlements have structures that may incentivise fewer claims to increase the sums available for the CR’s lawyers and funders and a potential reversion to the defendant. The Tribunal will scrutinise these conflicts to ensure the settlement is in the best interests of the class members.
• Distribution plan: The distribution plan must be well advertised, user-friendly and encourage rather than deter claims. The settlement scheme needs to be designed to compensate all genuine claims without discriminating against those who cannot provide evidence.
• Views of class members: The absence of submissions from class members reinforced the need for the Tribunal to be provided with comprehensive information to be able to assess whether the settlement would provide sufficient funds for class members who make valid claims and offer a reasonable chance for all class members to make claims.
• Public interest in settlement: There is a public interest in encouraging settlements to avoid overburdening the courts, provided settlements are just and reasonable for the class members.

The Tribunal rules on their face provide for a binary approach – a settlement is either approved or rejected. What is clear from this case is that, in practice, the Tribunal is prepared to engage with the parties – indeed, the Tribunal in this instance went so far as to indicate what sorts of arrangements might be acceptable. It then invited the parties to talk to one another and, if they could reach agreement, return the following day (when the Tribunal was not scheduled to sit in this case) with a revised settlement deal.

The Tribunal is currently faced with some 48 collective claims, including some 113 defendants. Until now, the only settlement was that of Compañia Sudamericana de Vapores (CSAV) in the case of Mark McLaren Class Representative Ltd v. MOL (Europe Africa) Ltd and Ors 1339/7/7/20, where CSAV was a very minor player, with a pre-existing finding of liability as to its conduct and settled for a small sum. The Tribunal had little hesitation in approving this settlement.

The Tribunal’s comments on charitable donations will give potential settling parties pause for thought. In a case where the merits are more clearly in favour of the CR (including follow-on claims where a competition authority has already established the infringement), it may well be that the parties should give consideration to a voluntary donation to a relevant charity, perhaps if take-up is below the expected level (based on the evidence put before the Tribunal). This is unfamiliar territory but it may be that a donation is a price worth paying to obtain approval of the settlement.

The Gutmann settlement breaks new ground in that it involved a standalone claim (on a novel, fiercely contested, legal basis which has not yet been properly tested at trial) and settlement for a potentially significant sum of money without any admission of liability. It was also only some seven weeks away from the start of the first (of three) trials. Had the Tribunal not approved the settlement, it would doubtless have had a significant chilling effect on potential settlements, leaving the Tribunal to cope with the vast challenge of dealing with the collective claims already before it. On the other hand, it might also have deterred some future claims, as funders’ expectations of an early exit would have been reduced. Given that these claims, irrespective of their merits, will each give rise to costs in the tens of millions (and, in some cases, considerably more than that), it is clearly in the interests of the regime, and the public that it ultimately serves, for settlement to be achievable. Future settling parties now have a much clearer route to settlement in light of the Tribunal’s guidance.

Dentons advised Stagecoach South Western Trains on the litigation and this innovative settlement. The team comprised competition litigators Catriona Munro, Cansin Karga and Ellen Curran, who led on the settlement and litigation, with support from senior litigator Tom Hanson and colleagues Christina Rocher and Callum MacKinnon. Dentons is also delighted to announce the arrival into its six-partner Competition law practice of partner, Laura Whyatt, who will lead the growing Competition Litigation practice going forward.