CAT approves first settlement in car shipping cartel case
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|Case name and reference
|Mark McLaren Class Representative Ltd v MOL (Europe Africa) Ltd and Ors, 1339/7/7/20, 6 December 2023
|UK Competition Appeal Tribunal
|Mark McLaren, Compañia Sudamericana de Vapores
|Cause of action
|Anticompetitive cartel conduct
The UK Competition Appeal Tribunal (CAT) has approved a first-of-its-kind collective settlement under the collective proceedings regime. The settlement is part of an opt-out claim made by class representative Mark McLaren about the deep-sea carriage of new motor vehicles. It follows a 2018 European Commission decision that the defendants had infringed competition law and manipulated market prices. The approved settlement is between McLaren and one of the 12 defendants to the claim, Compañia Sudamericana de Vapores (CSAV).
McLaren and CSAV had agreed that the latter was responsible for 1.7% of the value of commerce that was subject to anticompetitive behaviour. The settlement amount was £1.2 million in damages and £380,000 in costs.
McLaren estimated that millions of consumers were entitled to the damages. Accordingly, the tribunal agreed that the sum did not have to be distributed to class members just yet.
Before approving the settlement, the CAT considered the following issues.
- Was the settlement sum within a reasonable range?
- Was the split between damages and costs proper?
- Should the other defendants be prevented from making contribution claims against CSAV?
- Would undistributed sums revert back to CSAV?
Under Section 49A of the Competition Act 1998 and Rule 94 of the CAT Rules 2015, the tribunal will only approve a settlement if it is just and reasonable. The rules require the CAT to take various factors into account to determine this, including:
- the amount and terms of the settlement;
- the likelihood of obtaining a judgment for an amount that significantly exceeds the settlement; and
- the likely duration and cost of proceeding to trial.
The tribunal refused to be drawn into a detailed consideration of the settlement amount or to conduct a mini trial – it held that the settlement amount was within the normal range, given the uncertainties of litigation. The CAT deferred to the fact that the parties, independent counsel and McLaren’s economics expert had all concluded that the settlement was reasonable.
The tribunal maintained that proceeding to trial would be a costly and lengthy process. It considered that removing CSAV from proceedings would benefit all parties – “[t]he fewer parties you have, the less costs, the less complexity, and the shorter hearings”.
The CAT was also satisfied that £280,000 for McLaren’s cost of proceedings and an additional £100,000 for the cost of the settlement application was reasonable in the context of the £1.2 million damages sum.
McLaren and CSAV also sought a barring order, which would make their agreement binding on the other defendants.
The tribunal’s approach was characterised by a desire to facilitate the settlement agreed between the parties. This appears to be based on a policy objective to ensure that collective proceedings are settleable. The rationale behind this is clear: collective actions can be legally, procedurally and logistically complex, which is a great burden on the tribunal as well as the parties.
Agreement to settle
The parties agreed that CSAV was responsible for 1.7% of the market share affected by the shipping cartel. As a natural result of the settlement, McLaren agreed not to pursue the other defendants for that 1.7% of the market.
McLaren also asked the CAT to prevent other defendants from arguing that CSAV had a greater market share than 1.7% and that they should pay less to McLaren as a result. Likewise, CSAV asked the tribunal to prevent the other defendants from seeking to claim against it for the difference.
The applicants argued that the tribunal has the power to make such an order under Section 2(2) of the Civil Liability (Contribution) Act 1978, which provides that “the court shall have power in any [proceedings for contribution under Section 1] to exempt any person from liability to make contributions”.
However, there was a dispute about whether this could apply here, since the other defendants had not yet issued a contribution claim against CSAV. The CAT avoided deciding on this matter. Instead, it recognised that the question was a difficult one and urged the parties to reach an agreement to avoid the matter going to the Court of Appeal. The CAT appears to have been concerned that an appeal about a small part of the litigation may cause delay to the rest.
Risks and challenges
Ultimately, McLaren agreed to risk CSAV having a larger market share than 1.7%, by forgoing any damages that could be obtained by the other defendants if they could prove this to be the case. In turn, the other defendants agreed not to claim against CSAV.
The judgment did not address the CAT’s power to make the originally sought orders. While the economics in this instance meant that it could be resolved with the consent of the parties, this will not always be the case.
If the defendants cannot obtain barring orders, this will be a significant hurdle for class representatives to overcome in any attempts to settle. Further, it is difficult to see how such an order could be fair to defendants that are not party to a settlement agreement, unless the class representative agrees to take the risk as McLaren did in this case.
In the absence of a settlement, there is currently no express provision in the collective proceedings regime that allows settlement sums to revert to defendants. If a claim goes to trial and a defendant is ordered to pay damages, unclaimed sums will be paid to the designated charity – this is currently the Access to Justice Foundation.
By contrast, Rule 94(9)(g) states that the CAT should take account of provisions in a settlement that reverts unclaimed balances to defendants.
The problem with undistributed sums
McLaren and CSAV agreed that any undistributed sums would revert to CSAV, which would have priority over any other settling defendants. Accordingly, if the other defendants settled as well, CSAV would be entitled to be repaid its whole £1.2 million (if at least that amount remained undistributed).
The CAT held that the terms of the settlement agreement were reasonable, although this appears to have been because those terms are expressly subject to the tribunal approving them when it orders any distribution. Thus far, the CAT has refused to decide whether it would order the reversion, delaying the decision until there is a distribution plan.
The tribunal’s reluctance to approve the reversion is understandable. The statutory purpose of the collective proceedings regime is to provide effective access to justice for claimants. That purpose cannot be achieved if class members are denied a fair opportunity to make their claims before the sums revert to CSAV. As the tribunal said, there is no distribution plan and there has been no decision about how damages will be allocated or assessed. This is bound to make it difficult for the CAT to give class members a fair opportunity to claim.
However, until the treatment of undistributed damages is clarified, CSAV will be uncertain about how its settlement will work economically. If the reversion mechanism is upheld – and the claimants win at trial – it seems very likely that CSAV will get all or at least a substantial portion of its damages back. If other defendants also settle, then the amount CSAV receives will largely depend on whether its reversion is given priority over the other defendants’ reversions.
This is a landmark decision – but further clarity is needed
To price settlement offers, defendants will need clarity about the approach that the CAT will take to undistributed sums.
Whether reversion mechanisms are upheld is likely to completely change the economics of settlements. If the tribunal encourages parties to settle, as indicated by its approach to assessing the reasonableness of the deal, it should seek to give clarity to defendants so that they can price their offers appropriately.
Ensuring that class members have a fair opportunity to claim for distributions is also an entirely valid objective. The need for the CAT to monitor and regulate the distribution process is made particularly stark because, after damages have been awarded, litigation funders’ economic interests will no longer align with the class’s economic interests.
However, these are issues that can be resolved by the class representative, its solicitors, and by the tribunal ensuring that communications with class members and the distribution plan are sufficiently robust. It does not justify a lack of transparency about how much settlements will cost defendants.