Train case lawyers will be paid more if fewer people claim damages

Stagecoach South West Trains: Nothing for charity

The reasonable costs of a £25m class action settlement are “probably well in excess of £10m” but the lawyers and funder will only receive that if many of those entitled to damages do not claim them, the Competition Appeal Tribunal (CAT) has held.

In a ruling approving the settlement, the CAT also praised the role of litigation funders in opt-out collective actions, without whom many of them “will not be able to get off the ground”.

Justin Gutmann, the class representative (CR), alleges that various train companies unlawfully abused a dominant position by failing to make so-called boundary fares sufficiently available to consumers holding valid travelcards, meaning they were charged twice for part of the same journey.

He has settled the claim against Stagecoach South West Trains (SSWT) for up to £25m, with an estimated 1.4m rail passengers potentially eligible for a share. He had originally valued it at £39m.

The settlement, only the second under the CAT opt-out class action regime, was unusual in providing for “ringfenced costs” of £4.75m to be paid before the £25m was distributed.

Further, if less than £10.2m of the £25m is claimed by passengers, the CR will be able to take the balance up to that figure in further “un-ringfenced” costs, fees and disbursements, subject to the indemnity principle.

To the extent that anything above £10.2m goes unclaimed, SSWT will not have to pay it out to charity, which would be the case were the settlement for a fixed sum.

On the ringfenced costs, the CAT said: “The reasonable costs are probably well in excess of £10m, taking into account the uplifts or part of the uplifts on the CFAs. But certainly £4.75m is within a reasonable figure.”

The way the settlement was structured meant that the lawyers of Mr Gutmann, the funders and SSWT “all have an interest in there being as few valid claims as possible”, it continued.

“The tribunal is here to deal with those conflicts of interest and to satisfy itself that, despite those conflicts of interest, the proposed settlement is appropriate.”

It concluded that it was, saying “there is no question in our mind that, whilst there is a conflict, [the lawyers] have done their best to serve the interests of the class over and above their own interests”.

This was even though only a small percentage of affected consumers are expected to claim, given the very small amounts at stake for many.

Those with no evidence of buying tickets, for example because they used cash, can only claim £5 for each of up to six journeys. The bulk of the settlement is likely to go to those with season tickets.

The CAT said: “In this case there will be a substantial unclaimed amount which will, in all probability, go to the CR and funders up to the difference between the amount of the actual claims and £10.2m.

“Nothing is going to charity and the structure means, in real terms, SSWT is likely to pay significantly less than the £25m figure.

“However, as long as there is sufficient funds actually being made available for take-up by the class members and they all have a reasonable chance of making claims, we think that those points are not a reason for refusing this settlement, in the context where the tribunal has not reached the view that the merits are strongly in favour of the CR.”

The CAT said it may not have accepted the settlement had it considered that the merits were strongly in favour of the CR.

The CR suggested that 10-20% of those in the group would claim, based on the US experience, “but, quite frankly, no one knows for sure what that is likely to be”, the tribunal said, adding that it could well be “significantly lower” than 10%.

While the CAT rules provide that any unclaimed balance from a collective action has to go to the Access to Justice Foundation, there was “no prohibition” on undistributed damages reverting to the defendant following a settlement.

“In the submissions of the parties, with some exaggeration, it was asserted it would not be appropriate for any unclaimed balance to go to charity.

“We do not accept that. It may be appropriate, but it may not be necessary. We cannot require parties to pay anything to charity.”

The tribunal said that, without litigation funders, “many of the cases for collective settlement proceeding cases will not be able to get off the ground”.

It acknowledged that funders may want a higher return than would seem justified on an individual case to pay for unsuccessful cases in their portfolio.

The CAT said it recognised that “funders and funding are integral to the viability of the three claims being brought by the CR” on the train fare issue.

Mr Gutmann was represented by London litigation specialist Charles Lyndon, and counsel Philip Moser KC, Stefan Kuppen and Alexandra Littlewood, all of Monckton Chambers, and backed by funder Woodsford.

The case against the other three train operators has been split into three hearings, with the first – on the issue of abuse – starting later this month, with the hearing on causation and quantum scheduled for June 2025 and the hearing on market definition and dominance likely to be held in 2026.

The first approval hearing came last year in the car delivery charges class action, where one of the defendants settled for £1.5m.

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