Collective actions in the Competition Appeal Tribunal (the “CAT”) have been beset by challenges to funding agreements on the grounds that: (i) it is impermissible for funders (and lawyers) to be paid from aggregate damages before distribution to the class; and (ii) by agreeing to funding agreements (“LFAs”) that provide for payment to funders before the class, the Proposed Class Representative is not acting in the interests of the class.
By a judgment handed down on 16 April 2025 in Gutmann v Apple [2025] EWCA Civ 459, the Court of Appeal has confirmed in emphatic terms that these challenges are misplaced, as: (i) payment of the funder’s fees and lawyer’s fees from damages prior to payment of the class is “clearly permitted” under the Competition Act 1998 (“CA 1998”); and (ii) there is “absolutely nothing wrong” with a Proposed Class Representative agreeing to an LFA in those terms.
The Court of Appeal’s reasoning is that:
- 47C(3)(a) and (b) of CA 1998 confer wide unrestricted powers on the CAT, and do not prescribe what the Class Representative (or a third party) must do with damages which are paid to them on behalf of the class.
- Payment to the funder or the lawyers would be “on behalf of the class” because the Class Representative acts on behalf of the class and any agreements they make with funders or lawyers are made on behalf of the class.
- There is nothing surprising or unusual about the CAT ordering payment to funders or lawyers from the damages in priority to the class. Successful outcomes are only possible because funders have been prepared to fund them.
- The supervisory jurisdiction of the CAT will ensure that what is paid to funders and lawyers is not excessive.
- The wide powers in s. 47C(3) of CA 1998 are reflected in the CAT Rules, particularly Rule 2, 4 and 93. These rules give the CAT broad overarching powers to ensure that costs and expenses are dealt with fairly and proportionately and in accordance with the principles of justice. Those powers are not fettered by s.47C(6) of CA 1998, which deal with a separate issue, namely what happens to residual unclaimed damages.
- The Defendant’s case gave rise to obvious anomalies, which would be difficult to justify. In particular: (i) there would be “unthinkable” differences between distribution pursuant to settlement and post-judgment; and (ii) opt-in and opt-out claims would be treated differently.
- Once it is recognised that the CAT has a jurisdiction to order payment to a funder before the class, it is “hopeless” to suggest that there is something wrong with a Class Representative entering into a LFA that makes provision for that to happen. The Class Representative has not fettered the class’s entitlement to agreeing to the terms of the LFA, and issues as to the reasonableness of the funder’s return are to be addressed at the time of distribution.
This judgment should enable more collective actions to be brought and reduce the challenges made to LFAs and Proposed Class Representatives. In particular, had the Defendant’s appeal been allowed, then it would have been extremely difficult if not impossible to obtain funding for cases where the uptake by class members is expected to be very high (such as where the defendant has an ongoing relationship with the class and can make payment by direct credit).
Nicholas Bacon KC of 4 New Square Chambers acted for the successful Class Representative and George McDonald of 4 New Square Chambers advised the Balance Legal Capital LLP.
A link to the judgment is here.
This case note was produced by George McDonald.
