In this article, 4 New Square Chambers’ Teen Jui Chow explores the Court of Appeal’s judgment in Sony Interactive Entertainment Europe Limited & Anor v Alex Neill Class Representative Limited which is the latest episode on the correct interpretation of section 58AA of the Courts and Legal Services Act 1990.
Introduction
On 4 July 2025, the Court of Appeal handed down judgment in Sony Interactive Entertainment Europe Ltd v Alex Neill Class Representative Ltd [2025] EWCA Civ 841 (“Sony”) in which it considered four conjoined appeals from the Competition Appeal Tribunal (the “CAT”) concerning the enforceability of litigation funding agreements (“LFAs”) between various class representatives and litigation funders in collective proceedings before the CAT, namely Sony v Neill [2023] CAT 73, Visa v CICC [2024] CAT 3 (in which there was one LFA in each of the two opt-out claims against Visa and Mastercard and one LFA covering the opt-in claims against both Visa and Mastercard), Apple v Kent [2024] CAT 5, and Apple v Gutmann [2024] CAT 18. In each of these four sets of proceedings, the CAT held that the LFAs in question were enforceable. Interestingly, the CAT granted permission to appeal in each case on the basis that, although it considered that the appeal had no real prospect of success, there was a compelling reason to grant permission, namely that the continuing uncertainty regarding the issue of enforceability of the LFAs warranted consideration and resolution by the Court of Appeal. The Court of Appeal in a judgment given by Sir Julian Flaux C, with which Green LJ and Birss LJ agreed, dismissed each of the appeals.
Factual Background
In each of the four sets of proceedings, the LFAs under consideration were amended following the decision of the Supreme Court in R (PACCAR Inc) v Competition Appeal Tribunal [2023] UKSC 28; [2023] 1 WLR 2594 (“PACCAR”). To recall, in PACCAR, a majority of the Supreme Court had held that the LFAs in question were damages-based agreements (“DBAs”) under section 58AA of the Courts and Legal Services Act 1990 (the “CLSA”) since the litigation funder was providing “claims management services” within the meaning of that section, and the LFAs were therefore unenforceable as they did not comply with the conditions in section 58AA(4). The LFAs in PACCAR and the original LFAs in Sony provided that the funder’s fee was to be calculated as a percentage of the proceeds which the class representative would recover if the proceedings were successful. Post-PACCAR, the LFAs in Sony were amended to provide that the funder’s fee was to be calculated as a multiple of the funder’s outlay.
The Court of Appeal was faced with three issues:
- First, if the amount payable to a funder under the LFAs is payable from and/or capped by the proceeds of a successful outcome, is the amount of the payment “to be determined by reference to the amount of the financial benefit obtained” for the purposes of section 58AA(3)(a)(ii) of the CLSA?
- Secondly, if the LFAs provide that the funder is paid a percentage of the proceedings, “only to the extent enforceable and permitted by applicable law”, does that make it a DBA? This issue only arose in Sony v Neill and Visa v CICC.
- Thirdly, if the LFA is unenforceable and/or unlawful, can any parts of it be severed? This issue only arose in Sony v Neill.
Issue 1
The defendants/appellants had accepted that, if the funder’s fee were calculated by reference only to a multiple of its outlay, then its fee is not “determined by reference to the amount of the financial benefit obtained” within the meaning of section 58AA(3)(a)(ii) of the CLSA. However, the appellants argued that, where there is an express or implied cap on the funder’s return by reference to the amount of the proceeds, then the amount of the payment to the funder is “determined by reference to the amount of the financial benefit obtained”, making the LFA a DBA which is unenforceable (either generally, in opt-out proceedings, or unless it complies with the DBA Regulations 2013 in opt-in proceedings).
Flaux C recognised that since “the entire system of litigation funding is predicated upon the return which a funder makes being paid out of damages or the subset of undistributed damages, it is difficult to envisage in what scenarios, as a matter of practical reality, there would not be an implied cap even if there were no express one”. It followed that “the logical consequence of the appellants’ submission … is that it is difficult to see how any LFA could avoid being a DBA” and that “the effect of the appellants’ argument is to produce the absurd result that funding under LFAs in the CAT would become practically impossible save in those cases where the DBA Regulations could be complied with.” He further noted that “as the appellants accept, an LFA which provided for a funder’s return as a multiple of the outlay without any sort of cap as an outer limit, if that were practically possible, would be an enforceable LFA, the equally absurd result is reached on the appellants’ case, that a cap on the funder’s recovery, which by definition protects the class and the class representative from having to pay excessive amounts to the funder, renders the LFA an unenforceable DBA.”
In his view, the court should not interpret section 58AA(3)(a)(ii) of the CLSA so as to produce such an absurd result. The words “determined by reference to the amount of the financial benefit obtained” “should be focused on the primary contractual entitlement of the funder, which in the present cases is to a multiple of its outlay in each case, not to a percentage of damages as in PACCAR.” Just because a funder’s return is subject to an express or implied cap because it is limited by reference to the proceeds does not mean that it is determined or calculated by reference to the amount of those proceeds.
Issue 2
This issue only arose in relation to the LFAs in Sony v Neill and in the opt-in proceedings in Visa v CICC. In Visa v CICC, the opt-in LFA provided in clauses 2.1.3 and 2.1.4 that “subject to [these clauses] being enforceable and/or permitted by applicable law” the funder’s return would be calculated as a percentage of the proceeds but if those clauses were “unenforceable and/or not permitted by applicable law” then clauses 2.1.5 and 2.1.6 would apply under which the funder’s return would be calculated by reference to its outlay. In Sony v Neill, clause 11 of the LFA provided similarly.
According to Flaux C, the “short and clear answer to this issue is that, unless and until the law is changed either by the legislative reversal of PACCAR or in some other way, the percentage provision in the two LFAs is simply of no contractual effect” and that “a provision which is of no contractual effect cannot have the contractual consequence of rendering what is otherwise an enforceable agreement an unenforceable DBA. Section 58AA(3)(a)(ii) is simply not engaged.” On the appellants’ submission that the inclusion of such percentage provisions in the LFAs created perverse incentives for lawyers and funders to focus on the largest cases, he remarked that there was “a faint irony in the appellants using concern for the class representative as a basis for their argument that the percentage provision renders the LFA an unenforceable DBA”.
Flaux C also rejected the appellants’ submission that the inclusion of the percentage provision gave rise to an elevated risk of a conflict of interest between the funder and the class representative. Referring to his own judgment earlier this year in Apple v Gutmann [2025] EWCA Civ 459, he noted that there were safeguards within the legal framework of collective proceedings which minimise the risk of conflicts of interest.
Issue 3
This issue arose only in Sony v Neill. Clause 37 of the LFA in this case provided that, if any provision were held to be illegal, invalid or unenforceable, that provision shall be severable and that all other provisions would remain valid and unaffected. The question for the Court of Appeal was whether, if the LFA were unenforceable and/or unlawful, any parts of it could be severed.
However, having decided that the LFA in this case was not unenforceable, Issue 3 became academic. Flaux C held that it was therefore unnecessary to decide this issue.
Comment
The litigation funding industry can breathe a sigh of relief, at least for now. After a period of flux and uncertainty following the Supreme Court’s decision in PACCAR which caught many in the industry by surprise, the Court of Appeal’s decision in Sony provides some welcome clarification. For now, claimants can rest assured that the fact that a litigation funder’s returns under an LFA are to be paid out of the proceeds of a successful claim does not render the LFA a DBA.
It is interesting to compare and contrast the approach to statutory interpretation of the Supreme Court in PACCAR and the Court of Appeal in Sony. As noted above, Flaux C in Sony interpreted section 58AA(3)(a)(ii) of the CLSA so as to avoid the absurd results that would follow if the appellants’ approach were preferred. By contrast, the Supreme Court in PACCAR arrived at a more literalist interpretation of the phrase “claims management services” in that same section.
For some practitioners, it might be seen as slightly disappointing that the Court of Appeal in Sony declined to decide the severance question. There was full argument on this issue, and the court could have expressed a view, although Flaux C made it clear he was not prepared to do so given it would be strictly speaking obiter. A couple of fundamental questions therefore remain unanswered. For example, was Lexlaw Ltd v Zuberi [2021] EWCA Civ 16; [2021] 1 WLR 2729 (“Zuberi”) correct to hold that, when a LFA contains a percentage payment provision, only that percentage payment provision constitutes a DBA rather than rendering the whole LFA a DBA? And what does this mean for the enforceability of the other clauses? And how does one read Zuberi with Diag Human SE v Volterra Fietta [2023] EWCA Civ 1107; [2023] Costs L.R. 1511, where the Court of Appeal declined to permit severance of language which rendered a retainer an unenforceable CFA? These questions will have to await determination on another occasion.
Nicholas Bacon KC and Daniel Saoul KC (leading Richard Hoyle of Essex Court Chambers) represented the successful respondents, instructed by Milberg London LLP, Harcus Parker LLP, Hausfeld & Co LLP and Charles Lyndon Limited.
