August 16, 2022

English Court of Appeal dismisses appeal against certification of opt-out class based on aggregate liability

On July 27, 2022, the English Court of Appeal dismissed an appeal against the decision the Competition Appeal Tribunal dated October 19, 2021 to grant two applications by a proposed class representative to bring collective proceedings against two railroad operator defendants. 

In his applications to the CAT, brought pursuant to Section 18, Chapter 2, of the Competition Act 1998, Justin Gutmann claimed that the defendants, London & South Eastern Railway Limited and First MTR South Western Trains Limited & Stagecoach South Western Trains Limited, unlawfully abused a dominant position, essentially by failing to make certain special fares available to train passengers, resulting in those passengers paying doubly for one leg of their journeys out of London.  Base rail tickets, called Travelcards, are issued by Transport for London, and permit unlimited travel on lines in nine zones in the London metropolitan area.  The Travelcards cover the cost of travel to the stations furthest from central London on each of the relevant rail lines – the boundary stations; passengers who wish to travel beyond those stations must purchase an onward ticket from the boundary station to their destination (the boundary fare).  The applicant’s claim is that defendant railway companies failed to make boundary fare tickets available (or obscured the availability of such tickets) for onward passengers, forcing them to purchase tickets for their entire journey when in fact, one portion of the journey was already paid for in the cost of the Travelcard.  The applicant brought forward evidence suggesting that in over 90% of qualifying travel, boundary fares were not offered to travelers.

The CAT certified the plaintiff class on an opt-out basis, as composed of all persons residing in the UK who held Travelcards and paid full fare rather than a boundary fare for travel from within any of six Travelcard zones to destinations beyond the outer boundary of such a zone during the relevant period (approximately October 2015 to October 2021).  The CAT’s order set out a process for class members to opt out, should they choose to do so.

The defendants challenged the CAT’s decision on four grounds, claiming that:

  1. Section 47C(2) of the Competition Act 1998 does not permit issues relating to liability to be assessed on an aggregate top-down basis, in contrast to the CAT’s decision;
  2. The CAT erred in approving the methodology proposed by the class representative because it does not meet the test established in the Canadian case Pro-Sys Consultants Ltd v Microsoft Corp [2013] SCC 57 and later endorsed by the UK Supreme Court in Mastercard Inc v Merricks [2020] UKSC 51.  (The defendants raised several objections to the class representative’s methodology, but focused primarily on their concern that some class members would have suffered no discernible loss.);
  3. Since the CAT’s view of the cost/benefit assessment as slightly against issuing the collective proceeding orders, the tribunal erred in doing so;
  4. The CAT should have dismissed as unarguable the portion of the claim alleging abuse arising from either the failure of third party sellers to honor Travelcard fares, or the failure of the defendants to offer boundary fares in all cases.

Regarding the first ground — that Section 47C(2) does not permit liability to be assessed on an aggregate basis — the court looked to Merricks and other precedent, concluding that a substantial body of case law treats section 47C(2) this way.  The court added that the language of the statute is consistent with the CAT’s power to determine what is recoverable by applying an aggregate approach, and that interpreting the statute otherwise would impede the workability of the collective redress system.

After concluding that Section 47C(2) does permit the assessment of liability on an aggregate basis (meaning that the requirement to prove both causation and actual loss may be satisfied by reference to the class, and not necessarily by reference to the individual claimants), the court turned to the second issue, whether the methodology proposed by the class representative meets the Microsoft test.  In Microsoft, the Supreme Court of Canada held that even significant differences among class members would not preclude a finding of commonality sufficient to allow a collective proceeding to go forward.  The “Microsoft test” has been adopted by the UK courts through the Supreme Court’s decision in Merricks, and has come to represent the idea that “the expert methodology must be sufficiently credible or plausible to establish some basis in fact for the commonality requirement …[and must offer a realistic prospect of establishing loss on a classwide basis so that … there is a means by which to demonstrate that it is common to the class…” Merricks, paragraph 118.  One of the assumptions made by the class expert’s methodology was that no rational consumer would want to pay more than was necessary for a train ticket.  The CAT endorsed this as a valid starting point.  Noting that the CAT’s analysis of the proposed methodology was detailed, appropriate, and clear, and that the tribunal has the power to base its certification on “assumptions and common sense intuitions,” and may require subsequent adjustments to the proposed methodology, the court rejected the second ground of appeal.

The court made short order of the third ground of appeal, the alleged high cost and low benefit of the collective proceeding, saying that the CAT will supervise costs closely to ensure that they are proportionate, and that the tribunal has the ability to find creative ways of ensuring that an award, if made, will be distributed so as to maximize the benefit to affected consumers.

The fourth ground of appeal concerned the CAT’s refusal to strike the class claims in relation to indirect ticket sales by agents and the defendants’ failure to make boundary fares available for all ticket types.  In support of the CAT’s approach, the court pointed to the explicit inclusion of “directly or indirectly imposing ‘unfair’ prices or other ‘unfair’ trading conditions” in Section 18’s definition of abuse of a dominant position.  The court also cited European precedent holding that not all abuse of a dominant position centers on pricing; for example, the unfair intrusion into consumer rights may constitute abuse, as may a lack of transparency.  The court agreed with the CAT’s conclusion that the question of whether, to what extent, and in what form the abuse occurred is one for trial, and need not be decided at the certification stage.  Likewise, the question whether the third-party sellers were agents of the defendants is one for the trial, not for the collective proceeding certification stage.  The court thus concluded that “all of the various issues raised by the parties are arguable and need to be properly assessed at trial,” and held that the CAT was correct not to strike the class representative’s claims or grant reverse summary judgment.

Having addressed each of the defendants’ grounds of appeal, the court dismissed the appeal.  The case may now proceed to trial.

Final judgment