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Commentary

Reframed Claims Spell Danger

Elizabeth Coleman, Partner at Eversheds Sutherland, considers the rise in ESG-related class actions being heard at the UK’s Competition Appeal Tribunal.

As the UK’s Competition and Markets Authority (CMA) increases its focus on ESG, and the number of US-style ‘class actions’ being brought in the Competition Appeal Tribunal (CAT) surges, it is time that investors became aware that these suits now have a home to be heard in.

Recently, the CMA has been taking a clear interest in ESG.

It has explored how competition law applies to arrangements under which competitors collaborate in relation to ESG initiatives, published guidance in the area, issued its second informal opinion in March 2024 in relation to an environmentally-driven industry initiative in the groceries sector, and conducted investigations into the green credentials of consumer goods.

This continues to evolve with ongoing proposals to increase the CMA’s enforcement powers in this area, including by raising fines without the need to go through the courts.

While these issues are being considered by competition authorities globally, the UK’s CMA is particularly proactive.

Class actions and the CAT

Against that background, investors should be aware of the rising risk of US-style class actions which are being brought in the UK’s specialist court for claims relating to breaches of competition law: the CAT.

The nearly 50 active class actions in the CAT have an alleged combined value of over £100 billion, with commentators predicting that the number and value of those claims will increase significantly in the coming years, driven by claimant law firms and litigation funders.

The CAT is currently the only court in the UK in which large scale opt-out class actions are viable. However, the CAT will only hear damages actions in cases relating to alleged breaches of competition law.

Accordingly, class representatives (who often seek to represent very large numbers of people or businesses affected by an issue) are seeking to ‘reframe’ damages claims, which might traditionally be thought to relate to consumer or environmental law issues, as breaches of competition law.

There are examples of this in class actions brought in the CAT earlier this year against UK water companies in relation to alleged failures to provide their regulators with accurate information in relation to the number of sewerage discharge incidents on their networks which allegedly allowed them to charge customers higher prices.

The class representative in those claims argues that this alleged conduct, which many would consider to relate to environmental regulatory issues, represents an abuse of dominance, which is a breach of UK competition law.

Those claims are brought on behalf of 20 million customers, and seek £800 million in damages.

There are also a number of other group actions where the underlying conduct has arguably been reframed as a breach of competition law to avail of the class action system.

Potential liability

When competition class actions are brought the potential liability for the defendant companies is significantly higher than it would be from regulatory intervention, not just arising from the value of the damages sought but also from defence costs (including legal, economists and other experts). As with investigations, these claims also take up significant management time, potentially restrict business from entering certain tenders, and ultimately impact on value and share prices.

This is an area to watch, as it seems more than likely that there will be increasing numbers of class actions brought in the UK’s CAT – including many which are ESG-related – and the potential or real threat of those claims may well inform investment decisions.

This article was written with support from Richard Bacon, Principal Associate at Eversheds Sutherland.

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