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The Competition Appeal Tribunal (“CAT”) has refused to certify the proposed collective proceedings brought by David Alexander De Horne Rowntree, of British band Blur, against the Performing Right Society and PRS for Music (“PRS”). For only the third time, the CAT refused certification, and for the first time, the claim was struck out entirely at the certification stage.
Mr Rowntree alleged that PRS are acting in abuse of their dominant position in how they distribute certain “unmatched” royalty sums. These are public performance and broadcast royalties, colloquially referred to within the music industry as Black Box royalties, which cannot be readily attributed to a writer or publisher and so are distributed on a pro rata or market share basis. Mr Rowntree complained that Black Box royalties are distributed to writers and publishers in the same proportions as matched royalties, and this is unfair, because it was said that the proportion of writer royalties which are Black Box is greater than the proportion of publisher royalties which are Black Box. The proposed class included any writer members of the PRS during the claim period.
The CAT’s judgment1 examined the proposed defendants’ application for strike-out/summary judgment, the adequacy of the blueprint to trial, and the costs and benefits of the proceedings.
The issue at the heart of the strike-out/summary judgment application was whether writers as a class had a claim against the PRS, given that individual writers did not have claims against the PRS.
As a matter of principle, the CAT quoted the Court of Appeal in London & South Eastern Railway Limited v Gutmann [2022] EWCA Civ 1077 and reiterated that s47C(2) of the Competition Act 1998, which allows damages to be assessed on an aggregate basis, does not remove the need for liability to be established. Rather, the collective proceedings regime allows liability to be established by deploying top-down (i.e. class-wide) evidence. In determining quantum, the CAT will exclude any class members who fail at the liability stage and the methodology must “include a device for winnowing out no-loss members of the class”.
Applying these principles to the facts, the CAT found that the class was not drawn to only include people who were owed Black Box royalties, but included all writer members of the PRS. The class had to be crafted to consist only of members with individual claims. The failure to do so meant that the proposed defendants’ applications for summary judgment and strike out succeeded, and certification was refused.
The second key issue was whether a proper counterfactual had been described as to how Black Box royalties should be distributed (and would have been distributed absent the alleged abuse of dominance). A crucial contention in the claim was that writers are more likely to be impacted than publishers, so the counterfactual required an understanding of the extent to which Black Box royalties are owed to writers.
The CAT found that the expert report submitted by the proposed class representative (“PCR”) had not “even in general terms, identified a plausible approach to how it might estimate the sums that should be paid to writer members on the counterfactual”.
The CAT therefore declined to certify the claim for this additional reason. However, it stated that it may have given the PCR a further opportunity to formulate its counterfactual and ‘have another go’, had the strike-out/summary judgment application not succeeded (albeit it was not clear that the defects could be easily remedied).
The third issue which the CAT considered was the overall costs and benefits of the claim. The PCR had estimated a budget of around £18m, and had received funding from LCM. Whilst the CAT considered that the appropriateness of the funder’s fee was a matter to be decided at the time of any distribution, rather than at certification, it did consider this to be relevant to assessing the overall costs and benefits of the proceedings.
The CAT was not persuaded that the size of the damages outweighed the size of the costs. During the hearing, PRS had estimated the size of the damages to be the proportion of the £19.8m of Black Box royalties that had been distributed to publishers which should have gone to the proposed class, and later revised the Black Box royalties that had been distributed to publishers to £55m when directed by the CAT to adduce further evidence. The CAT were alert to the fact that the claim was initiated by lawyers, rather than members of the class, and therefore the revenue stream to lawyers and the funder may have been the principal incentive to bring the claim rather than benefits to the class.
An important additional factor was that the CAT viewed the class as suing itself, because it was not clear how the PRS could pay costs and damages other than by diverting its revenues away from its members. The CAT was doubtful that the costs and benefits of these proceedings favoured certification, because the class may find itself contributing to the costs of the litigation, making the funder and the legal advisors the principal beneficiaries of the proceedings, rather than the class.
So where does this leave us? While this judgment was fact-specific, it is important as the first time a claim has been struck out completely at the certification stage, and as such may signal a swinging of the pendulum at a time of significant change in the leadership of the CAT, in contrast to the previously very permissive approach to certification and parallel strike-out applications. In a similar vein, the close attention paid by the CAT to whether the proposed class members were likely to benefit from the litigation if it succeeded, and the crucial role played by lawyers and funders in initiating the claim, marks somewhat of a shift from the stance taken in previous cases. The judgment is also a helpful reminder to PCRs that the lack of an adequate blueprint to trial can have serious consequences, albeit that as previously the CAT has indicated that it might be willing to let PCRs have another go where they fall short.
There are a number of key judgments due from the CAT in the coming months, on certification, settlement and core liability issues, all set against the wider context of a call for evidence from the Department for Business and Trade regarding the future of the CAT’s opt-out collective action jurisdiction, which will together determine whether this judgment is the start of a significant change in approach or somewhat of an anomaly in the trends we have seen for the last few years.