How do you settle collective proceedings in the CAT?

The framework is clear: once an opt-out claim has been certified, it can only be settled if the parties jointly apply to the CAT for judicial approval of the settlement through a collective settlement approval order (CSAO). The CAT will approve the settlement where it is satisfied that its terms are “just and reasonable”.

How that applies in practice is less clear: the crucial questions will be what “just and reasonable” means, and what process the CAT requires to satisfy itself that this standard has been met.

When deciding whether a settlement is “just and reasonable”, the CAT will take account of all relevant circumstances, including (amongst other things): (a) the value of the settlement, including any provisions as to costs/fees, (b) the likelihood of judgment being obtained for an amount significantly exceeding the settlement amount, (c) the views of the parties’ legal and expert advisers, (d) the number of people likely to be entitled to a share of the settlement, and (e) the provisions of the settlement regarding the ‘clawback’ by a defendant of any unclaimed settlement sums.

The CAT Guide provides some further colour, explaining that the CAT will “closely scrutinise” the proposed settlement, but “will not require the settlement to be perfect…there is likely to be a range of reasonable settlements which could be approved”. The CAT says that it will “adopt a broad brush assessment of the position, having regard to the prospect of success and estimated quantum of damages”. Its expectation appears to be that the application for settlement approval will be dealt with at a hearing, will contain supporting evidence explaining how the settlement sum has been calculated, accompanied by expert reports prepared for the purpose of settlement, a plan for distribution damages, and potentially an assessment by the parties’ lawyers of their chances of success at trial.

It remains to be seen how far, in practice, the CAT will be willing to suggest amendments to the proposed settlement scheme, how far it interrogates the views of the parties’ legal or economic experts, and what margin it ascribes to the range of reasonable settlements that it will approve. What is clear is that the settlement approval process in opt-out proceedings will be a dramatic departure from the confidential and flexible settlement process in non-collective proceedings in the CAT. In a multi-defendant claim where one defendant is settling, this open procedure provides the opportunity to gauge both the claimant’s and a defendant’s view on the merits of the case in so far as this can be inferred, for example, by the amount of the settlement (together with any supporting explanation). This is highly unusual – does it inform then how the claimant and other defendants go on to fight the claim; does it provide a framework for other settlements?

The Tribunal may well take account of authorities from Canada, the US and Australia, to guide its approach to applying its settlement approval power. These jurisdictions have analogous requirements for judicial approval of class settlements. While these may provide helpful guidance, they also present a cautionary tale of uncertainty, judicial rule-making and additional cost in seeking to navigate the respective approvals processes. Parties will pay close attention to the extent that these authorities are relied upon in the upcoming collective settlement hearing in the RoRo proceedings, where one of the five defendants has agreed a £1.5m settlement with the class representative in respect of its share of liability.

In cases where a settlement is reached before a claim is certified, a different procedure will be followed. Instead of certification, an application must be made for a collective settlement order (CSO), following which the parties may then apply for a CSAO meeting the same approval requirements set out above. Although the Government intended the CSO process to be enable businesses “to quickly and easily settle cases on a voluntary basis”, the requirements for a grant of a CSO are quite onerous and mirror the requirements for certification in a number of ways. As in the US, parties at an advanced stage of settlement negotiations before settlement may consider remaining neutral as to certification, rather than following the CSO process envisaged in legislation.

Finally, unlike opt-out collective actions, opt-in collective actions in the CAT can be settled without the CAT’s approval. The deadline for opting-in to the claim must have passed for such a settlement to be permitted.

Distribution and redress in collective settlements

When scrutinising a proposed settlement, the CAT will consider how the settlement funds will, in practice, be delivered to class members. The parties will need to submit a distribution plan as part of the CSAO process.

Here, the interests of the parties may differ. The settlement rules in the CAT specifically state that a settlement term allowing for unclaimed settlement sums to revert to a defendant will not itself be considered unreasonable. The possibility of ‘clawing back’ unclaimed settlement sums is an important incentive for defendants to settle, which is not available in relation to unclaimed damages post-trial (which will be distributed to charity in accordance with the cy-prės doctrine). Therefore, a settling defendant that has agreed a clawback provision may be content to see a large pool of unclaimed damages, if it has agreed that these can be clawed back as part of the settlement agreement.

To date, there has been limited consideration of distribution of damages in CAT collective proceedings. While some certification judgments have discussed distribution methods, the Supreme Court has recognised that the question of distribution is best addressed at a later stage, such as when the size of the class and a payment are known. Settlements are likely to provide an opportunity for class representatives to test innovative payment and distribution strategies

In multi-party claims, it may be that early settlements do not require a detailed distribution plan. For example, the proposed settlement agreed with one defendant in the RoRo claim details that the settlement money will be held in escrow until the litigation is resolved against the other defendants. But for other claims, the settlement proposal will need to contain detailed distribution mechanics, including means of supervising the distribution of funds to class members. Parties should look to the successful distribution mechanisms in FCA-sanctioned, ad hoc and insolvency redress schemes for guidance on redress.

Strategic and practical considerations – 9 key factors

Adopting a calculated and robust settlement strategy is crucial for any party involved in collective proceedings in the CAT. In view of the unique settlement approval requirements for these claims, we set out below key factors for parties to consider when approaching settlement in CAT collective proceedings.

1. Related litigation

By their nature, (alleged) infringements of competition law often give rise to claims from different angles, with claimants from different levels of the supply chain and in multiple jurisdictions. Consider how settlement of collective proceedings in the CAT might impact (or prompt) other related claims. Frame the terms of the settlement appropriately. Are there members of the class who have opted-out of the class action?

2. Publicity

Unlike traditional settlements, approved settlements in CAT collective proceedings may not be confidential. Absent an order from the CAT, the terms of the settlement will be discussed at a public hearing and attract media attention. Consider whether to seek confidentiality protection in respect of settlement materials, and means of pre-empting coverage, particularly in standalone claims where no infringement of competition law has been admitted.

3. Evidence-based settlement

The CAT may require an explanation of the proposed settlement figure and how it was arrived at, supported by expert/legal input. The CAT Guide says that “The Tribunal will wish to be satisfied that the class (or settlement) representative and its lawyers had sufficient information in order to assess the reasonableness of the settlement to the class members. Accordingly, it may be relevant to ascertain whether and to what extent the class (or settlement) representative has received disclosure from the settling defendant(s), either voluntarily as part of the negotiations or in the course of the collective proceedings”. If settlement is realistic at an early stage of proceedings, consider whether early disclosure (potentially on a without prejudice basis) may be fruitful as a means of satisfying the CAT that sufficient information has been made available to reach a reasonable settlement.

4. Ongoing proceedings

There may be a delay of some months between agreeing the terms of the settlement and receiving the CAT’s approval. Will the claim continue as usual during this period? This could be a particular issue in multi-party proceedings, or where important hearings/trial are upcoming (as in the RoRo settlement). Be prepared for the procedural hurdles of a pre-trial settlement in collective proceedings.

5. Applying costs pressure

In non-collective claims, specific rules enable without prejudice settlement offers to be made that attract specific costs consequences. These are known as Rule 45 offers in the CAT, and Part 36 offers in the High Court. Parties often use Part 36/Rule 45 offers as tactical devices to encourage settlement and/or provide costs protection if the claim goes to trial. However, settlement offers in collective proceedings in the CAT cannot be made under Part 36 or Rule 45. When exploring settlement in collective proceedings, consider how settlement offers are framed (for example, as without prejudice save as to costs Calderbank offers) and understand the potential costs consequences of doing so.

6. Understand stakeholder incentives

Within the unique collective actions settlement regime, the interests of the class representative, their funder, the class itself, and the defendant(s) diverge at important points. Close understanding of the CAT’s settlement provisions, as well as the likely costs/risks of fighting the claim through to trial, is invaluable in navigating, and exploiting, these competing interests to achieve successful litigation outcomes.

7. Get redress right

Early indications from the CAT and the Court of Appeal in Le Patourel and Trains suggest that adequate distribution mechanisms will be an important part of the settlement approval process. This reflects the approach taken in other jurisdictions. Parties settling collective proceedings will need to engage with different distribution mechanisms, drawing from the approaches adopted to ad hoc voluntary redress schemes.

8. Mind your communications (but don’t settle twice)

Defendants should be cautious to communicate using the right channels when settling a mixture of collective and non-collective proceedings. Communications with class members regarding settlement of potential claims within the scope of the collective proceedings requires the CAT’s prior permission. This is unlikely to be granted before certification. Think carefully before reaching out to individual members of the class for settlement discussions.

9. Consider contribution

In multi-party claims arising from loss or damages suffered before March 2017 (i.e. claims that are not covered by the UK’s Damages Directive implementing legislation), consider whether a CAT-approved settlement really is the final say. Even if the CAT approves a settlement proposal as “just and reasonable”, could contribution claims be brought under the Civil Liability (Contribution) Act 1978 for a “fair and equitable” contribution? Defendants should be careful to include appropriate wording in the settlement agreement to mitigate this risk.