On the right track? The Tribunal approves the second collective settlement

14 May 2024

In December 2023, we wrote about the first collective settlement since the UK opt-out class action regime came into force, in the McLaren proceedings (see our blog “A drop in the ocean: Tribunal gives green light to small collective settlement in car shipping class action”).

In May 2024, the Tribunal published its second judgment approving a collective settlement, this time in one of the so-called “boundary fares” collective actions. This judgment is perhaps more significant than the first judgment, as the amounts involved are substantially higher, and the Tribunal engaged in a more detailed analysis of the collective settlement regime and review of the proposed distribution plan. 

By way of background, this application for a collective settlement approval order (CSAO) was made in a claim brought by Justin Gutmann (the class representative) against (1) First MTR South Western Trains Limited (First MTR) and (2) Stagecoach South Western Trains Limited (SSWT). The case is a standalone opt-out claim brought on behalf of rail passengers who it is alleged effectively had to pay twice for sections of their train journeys because the defendants abused their dominant positions by not making “boundary fares” or “extension tickets” (i.e. onward tickets from the edge of a travelcard boundary) sufficiently available and/or failing to ensure that there was general awareness to enable customers to buy an appropriate fare. The claim was certified in October 2021 and appeals against certification were dismissed by the Court of Appeal in July 2022 (our previous articles on the certification and Court of Appeal judgments discuss these judgments in more detail). Three sequential trials have been ordered, starting with a trial on the issue of abuse listed for next month.

The application for a CSAO was made jointly by Mr Gutmann and the second defendant (SSWT), and was supported by a “great deal of evidence” as the previous McLaren CSAO application had been. Whilst the settlement in the McLaren proceedings was for around £1.5m, the SSWT CSAO application was for “up to” £25m, which is around two-thirds of Mr Gutmann’s estimate of SSWT’s share of liability. Unlike in McLaren (where distribution of the settlement sum was deferred), a detailed distribution plan was provided with the application, with the £25m split between three “pots”, each with a different evidential threshold required for eligible class members to make a valid claim for payment. 

The Tribunal approved the CSAO, and there are some key points of interest arising from this decision.

  • The Tribunal expressly noted the conflicting interests of the class members, as compared with the class representative’s legal team and funders. It noted in particular that the class representative’s lawyers and funders “have an interest in there being as few valid claims as possible”, since the more funds left unclaimed, the more funds that would be available to pay the lawyers and funders. The Tribunal stressed that these inherent conflicts mean that “it is all the more important that the settlement is properly and carefully scrutinised by the Tribunal, and that the settling parties, the [class representative] in particular, put all relevant facts and considerations before the Tribunal.” 
  • In this light, the Tribunal had expressed concerns before and during the hearing which led the parties to amend their proposal to (1) make the £25m more readily transferable between or within the three ‘pots’ in the event that take-up for a given “pot” (or sub-pot) is low, and (2) put a £10.2m cap on the sums available post-distribution in respect of Mr Gutmann’s costs, fees and disbursements (over and above a £4.75m amount that was ringfenced pre-distribution for this purpose). Furthermore, although the Tribunal considered it important that a decision was made quickly in this case given that brief fees would imminently be incurred for Counsel instructed on the upcoming trial, it stressed the importance in future of parties providing (1) more detailed, empirical research into the likely uptake by class members at the distribution stage, and (2) based on that likely uptake, a “clear picture” of how much of the settlement value could go to the class representative’s lawyers and funders: “It is noted that the [class representative] gives the range of 10 to 20% takeup based on North American experience but, quite frankly, no one knows for sure what that is likely to be”. 
  • The Tribunal’s assessment of the merits of the case and, therefore, the settlement was informed by evidence from an independent expert (barrister), albeit the Tribunal accepted that it could not form a “firm view” on this: “we do not regard this as a wholly speculative claim with a low prospect of success, but we do not regard it as an overwhelming case either, and, at trial, there is a real possibility that the [class representative] may lose…this case could easily go either way”.
  • The settlement sum will not be paid into an escrow account pending claims from eligible class members. Instead, the funds will be retained by SSWT until they are claimed and, if funds remain following distribution and the payment of non-ringfenced costs, those funds can be retained by SSWT. In McLaren, by contrast, the settling defendant paid the settlement sum to the class representative upfront, and a “reverter” mechanism was put in place to return sums only in the event that any money is left after the distribution stage. The ability of defendants to recover residual amounts under collective settlement arrangements is to be contrasted with the position under opt-out damages awards (i.e. following trial), where such sums go to charity.

The claim will continue against the other defendant, First MTR – there can be no overlap in the liabilities of the defendants because they operated the South Western franchise at different times. In the meantime, future CSAO applications will need to pay close heed to the detailed guidance on the operation and interpretation of the collective settlement regime set out in this judgment.