*Lucy Rigby is Partner and Luke Grimes is an Associate in the London office.
UK Competition Appeal Tribunal adopts practical approach to realities of collective actions funding
A recent judgment by the UK Competition Appeal Tribunal (the “Tribunal”) in the Trucks collective actions regarding funding and adverse costs arrangements is welcome news for class claimants and undoubtedly positive for the development of the UK’s young collective actions regime. The judgment demonstrates a flexible and sensible approach by the Tribunal to the practical realities of funding collective claims.
Since the entry into force of the UK Consumer Rights Act 2015, it has been possible to bring opt-out, collective claims – akin to US-style class actions - for breaches of competition law only in the Tribunal. The UK’s new collective actions procedure has, however, faced a somewhat stilted start, with all opt-out claims at present stayed pending a judgment from the Supreme Court in the Merricks litigation as to the correct test to be applied at the certification stage.
The judgment that is the subject matter of this article concerns two applicants, the Road Haulage Association (the “RHA”) and UK Trucks Claim Limited (“UKTC”), for certification of their follow-on damages claims based upon the European Commission’s Trucks decision (together, the “Claims”). The Tribunal had sought to deal with the defendants’ arguments as to the inadequacy of the proposed class representatives’ funding and insurance arrangements by way of a preliminary issue.
In broad terms, the truck manufacturer defendants (the “OEMs”) argued that the Tribunal should refuse to authorise UKTC and the RHA as representatives in the respective claims, based on the supposed inadequacy of both of their funding and insurance arrangements.
First, the OEMs sought to argue that the applicants’ funding agreements constituted damages-based agreements, meaning that they were unlawful and unenforceable. The Tribunal however rejected the OEMs’ arguments on this point, holding that the funding agreements are not damages-based agreements, and therefore are not unlawful. The Tribunal’s rejection of the OEMs’ submissions on this issue was expected but nevertheless welcome.
The OEMs also argued that the Claims were not backed by sufficient own-side funding, and that the representatives had an inadequate degree of adverse costs cover. UKTC’s claim also met with specific criticisms from the OEMs as to its funder’s ability to fund the litigation, or to meet any order for costs.
Insofar as the RHA’s claim was concerned, the OEMs argued that there was no evidence as to how the RHA’s funder, a Jersey-incorporated entity, acquired their funds, and a lack of clarity as to their status for the purposes of obligations relating to the Association of Litigation Funders’ Code. Addressing this argument, the Tribunal stated that whilst the Code is voluntary and non-binding, it is “wholly unrealistic to suppose that a leading litigation funder that is commercially active in this field would not honour these commitments to the Association of which it is a founder member, and thus place at risk the whole regime of self-regulation.”
The OEMs also raised arguments as to the specific wording of the RHA’s funding agreement whereby the funder previously had sole discretion to extend further tranches of funding to the RHA. However, in the course of the hearing on these points, the RHA had sought to amend its agreement and the amendments resolved the Tribunal’s concern on this point (the OEMs did not argue to the contrary).
The Tribunal also applied this relative flexibility of approach to UKTC’s claim. The OEMs argued that little reliance could be placed upon UKTC’s funder, Yarcombe’s, contractual commitment to fund the litigation, given Yarcombe’s status as a Guernsey-incorporated SPV set up specifically for this claim. In response, UKTC placed reliance on Yarcombe’s relationship to Calunius, a UK-based ALF member. However, whilst Calunius had asserted that Yarcombe was an “associated entity” for the purposes of the Code, the Tribunal found that “there is no evidence that either has access to the necessary funding (i.e. £24 million) “immediately within their control””. This issue was ultimately resolved by way of a witness statement indicating that, if the claim were certified and any appeals exhausted, Yarcombe would deposit the remaining balance of the claim funding into an escrow account.
Importantly, in the course of commenting upon UKTC’s arrangements, the Tribunal acknowledged why a flexible approach to funding structures was required:
“The regime of collective proceedings introduced into the CA [Competition Act] for competition claims by the Consumer Rights Act 2015 is dependent on TPF [third-party funding] for its success since there will be few cases where the class members will themselves be able to fund their claims.” The Tribunal continued: “There are different models of commercial litigation funding now adopted by members of the ALF … and it would be wrong for the Tribunal to seek to place TPF for the purpose of collective proceedings under the CA into a straightjacket [sic]. On the contrary, the Tribunal seeks to facilitate the access to justice for claimants achieved by properly constituted collective proceedings. In that regard, the concern of the Tribunal when reviewing a [litigation funding agreement] is (a) that the terms of the funding agreement do not impair the ability of the class representative to act fairly and adequately in the interests of the class members, and (b) that adequate funding has been arranged to pursue the litigation effectively in the interests of the class members.”
Nature of the After-The-Event ("ATE") insurance policies
With regard to arrangements for adverse costs, the RHA has its own ATE policy providing up to £20 million of cover. UKTC’s cover is provided by an indemnity from the funder (contained in the litigation funding agreement) and two ATE policies totalling £12 million. The OEMs challenged the applicants’ insurance arrangements on a variety of grounds.
First, the OEMs contended that, as the RHA’s insurance policy wording included an exclusion of cover if the class representative, any sub-class representative or claimant has “fraudulently, deliberately or recklessly” breached their duty to make a fair presentation of the risks to the insurers. This gave the insurer a right of termination. However, the Tribunal held that these provisions nevertheless satisfy the concerns articulated in the relevant authorities, and disposed of the OEMs’ submissions on this point.
The OEMs further argued that the RHA’s ATE policy ought not to be sufficient security because it excluded the rights of third parties to enforce the policy. However, the Tribunal held that there was no basis to suggest that the RHA would not claim under the policy and furthermore that, should the RHA become insolvent, the OEMs would in fact have the benefit of the Third Parties (Rights against Insurers) Act 2010 (the “2010 Act”) and the RHA’s rights under the policy would vest in the insurers.
In relation to UKTC’s arrangements, the OEMs sought to argue that, as SPVs with no assets, there would be no reason for the proposed representative or the funder to make a claim under the policy. The Tribunal regarded these concerns as “completely unrealistic” declaring it “fanciful” to suggest that the directors of UKTC, in the event of a costs order, would choose to default on their liability rather than enforce its contractual right.  However, the Tribunal did acknowledge the OEMs’ concern that, should Yarcombe go into liquidation, no one would claim under the policy, which would leave the OEMs without protection from the 2010 Act (due to Yarcombe being incorporated in Guernsey). UKTC therefore proposed an endorsement to its policy, agreed in principle by the insurers, which would exclude a right of the insurers to avoid other than for fraud, stipulating that the terms of the policy may be enforced by the OEMs and indeed that pay-out would be made directly to the OEMs. The Tribunal was of the view that the endorsement should resolve the issue at hand, and also dismissed the OEMs’ concerns as to when the endorsements should take effect.
However, the Tribunal was less sympathetic to UKTC’s contention that the fact of its ATE policies only providing cover for two OEMs ought to be dealt with at a later point: if certification were to be granted, it would be “inevitable” that other OEMs (other parties to the cartel and addressees of the European Commission’s Trucks decision) would be joined to the claim. It made sense, therefore, for the UKTC policies to be amended to reflect the fact that cover extended to the costs of all addressees of the decision who were added to the litigation as contribution defendants.
Level of cover
Insofar as the level of adverse costs available to the proposed representatives was concerned, the Tribunal ultimately considered the RHA’s £20 million of cover and the UKTC’s existing £12 million, with a promised top-up of £8 million, to be sufficient. The Tribunal indicated that it would be willing, in due course, to certify the UKTC claim, conditional upon UKTC’s obtaining the top-up amount. In reaching this view, the Tribunal rejected the submission that – unless the Tribunal found that an applicant would be able to pay the defendant’s recoverable costs to the end of trial if ordered to do so – the Tribunal could not find that it was just and reasonable (as required by the procedural rules) for that person to act as the class representative.
Importantly, the Tribunal stated that it would “resist an approach whereby it is only “just and reasonable” to authorise someone to act as the class representative if that person has adverse costs insurance at a level which may make the obtaining of such cover prohibitive.” The right approach to a very high costs case (and in the absence of any other reason to deny authorisation), the Tribunal said, is to determine that the class representative has at the outset the ability to pay a “substantial” level of adverse costs cover which should be sufficient for “at least a significant part of the proceedings”. Authorisation of the class representative should not be refused on the basis that such “substantial” cover may later not be sufficient to last for the duration of the proceedings and the issue could be revisited as the proceedings advanced.
While the Tribunal’s finding as to the damages-based agreements point is subject to appeal, the Tribunal’s rejection of many of the defendants’ arguments against the adequacy of the applicants’ funding and insurance arrangements is undoubtedly positive for class representatives and those on whose behalf they seek redress. Equally positive was the Tribunal’s practical and proportionate approach towards permitting representatives to amend their funding and insurance arrangements during the course of proceedings.
Looking ahead, the judgment offers applicants greater clarity as to how the Tribunal will interpret the relevant requirements for authorisation in a context where, should the bar be set too high, the legislative intent behind the collective regime in the UK would be defeated and meritorious claims could not be brought.
  Competition Appeal Tribunal 26 (28 October 2019).
 Prior to this, opt-out claims were in theory permitted by virtue of the England and Wales Civil Procedure Rule 19.6, albeit the Courts of England & Wales have generally interpreted the circumstances in which this mechanism can be used narrowly.
 Merricks v Mastercard Incorporated and Others  EWCA Civ 674.
 1282/7/7/18 UK Trucks Claim Limited v Fiat Chrysler Automobiles N.V. and Others.
 1289/7/7/18 Road Haulage Association Limited v Man SE and Others.
 Whilst one of the OEMs sought to appeal this particular finding, the Tribunal did not give permission to appeal, commenting that the appeal would have no real prospect of succeeding. We note that permission has now been sought from the Court of Appeal, the outcome of which may not be known for a few months (Court of Appeal case reference C3/2020/0060).
 UKTC’s litigation funder is Yarcombe Ltd, a Guernsey-incorporated SPV set up specifically for this claim.
 This code sets out the standard to be met by all funders who are members of the Association of Litigation Funders in the UK.
 Supra , paragraph 54
 Id., paragraph 55
 Ibid, paragraph 61.
 Id., paragraph 63
 Id., paragraph 65-66
 Id., paragraph 84. The Tribunal also rebuffed the OEMs’ submissions that the participating insurers’ liability is not joint and several (but rather, only several), holding that as all of the insurers are A-rated, and that it is common practice for large claims for there to be several liability, the likelihood of insolvency is “accordingly very low” (see Ruling, paragraph 85).
 The Tribunal continued at id. paragraph 89: “Although for a claim funded by a third party funder with ATE insurance cover against an adverse costs order it may be more usual to have the claimant as the insured, we do not see that an arrangement where the funder is the insured and assumes an obligation to pay the claimant’s liability for adverse costs is in and of itself objectionable”.
 Id., paragraph 90.
 Id. paragraph 96. The enforceability of the terms by the OEMs was proposed following further argument from the OEMs that this was required.
 Id., paragraphs 99 – 102.
 Id., paragraph 103
 Id., paragraph 108.
 Id., paragraph 109 – the Tribunal specifically made reference to being able to vary or revoke the terms of a Collective Proceedings Order.