Commission Recovery Limited v Marks & Clerk LLP: the Court of Appeal leaves commercial litigation funders with a challenge
The representative proceedings mechanism codified in CPR r 19.8(1) allows a claimant to pursue an opt-out class action as the representative of a wider class, provided that they and all members of the class share the “same interest” in the claim. It is available for all causes of action, and so is a potentially powerful mechanism for bringing claims beyond the scope of the Collective Proceedings Order regime, which is restricted to competition claims.
In recent years, there have been several attempts to use the representative proceedings mechanism to bring opt-out class actions seeking a class-wide award of damages. These attempts have been led by claimant law firms and supported by commercial litigation funders. They have proved unsuccessful to date, albeit claimants are continuing to explore the use of this mechanism.
The latest development in this area is the Court of Appeal’s judgment, in Commission Recovery Limited v Marks & Clerk LLP[1] which authorised the use of the representative proceedings mechanism in that claim. This was the first time that the Court of Appeal had authorised use of this class mechanism since its decision in Lloyd v Google in 2019.[2] That headline point suggests that this is a major victory for claimant law firms and funders. However, not all victories are equal. In a blow for the funders, the Court of Appeal ruled in Commission Recovery Limited v Marks & Clerk LLP that the representative action mechanism was only suitable for one core element of assessing liability. Other elements will need to be assessed on an opt-in basis, following a “bifurcated” approach. This means the representative proceedings will not lead to a class-wide award of damages.
Litigation funders and claimant law firms want to be able to use the representative action mechanism for class-wide awards of damages without the need to persuade class members to opt in. Thus, a bifurcated approach will always be less attractive. In summary, this is a significant decision which demonstrates that the boundaries of this mechanism are continually being pushed, but it is not quite the outcome that funders are looking for. They will undoubtedly continue their efforts with other claims.
Background
Commission Recovery Limited (CRL) is backed by a commercial litigation funder. CRL was incorporated specifically to act as the claimant in these proceedings. It received an assignment of a £6,627 secret commission claim against the Defendants from one of the Defendants’ former clients. It then issued proceedings against the Defendants, both in its own right (as assignee) and as the representative of a wider class of the Defendants’ former clients who are also alleged to have secret commission claims against the Defendants. The wider class is understood to comprise thousands of former clients, with total damages running into the millions or tens of millions of pounds.
The Defendants applied for an order against CRL acting as representative, citing the court’s discretion under CPR r 19.8(2) to make such an order. The application was initially heard in the High Court, with judgment handed down last year (please see our Law-Now here). It was then referred to the Court of Appeal on appeal. We examine the judgment in more detail below.
The judgment
The Court of Appeal’s approach
The question on appeal was “whether this is an appropriate case for CRL to act as representative claimant under what is now CPR r 19.8”.[3]
The Court of Appeal divided this into sub-questions, which will form a useful reference point for courts considering similar applications in the future:
- Was the case within rule CPR r 19.8?
- Did the claims of each member of the class raise a common issue or issues?
- Was there any relevant conflict of interest between them?
- If the case was within the rule, should the court nevertheless in its discretion under CPR r 19.8(2) direct that CRL may not act as representative?
This approach was strongly influenced by the following points from the Supreme Court’s judgment in Lloyd v Google:[4]
- The only jurisdiction requirement for the application of CPR r 19.8 is the “same interest” requirement. This does not require members of the class to have technically the same causes of action. Rather, it requires that there is a common issue (or issues) such that the representative can be relied upon to conduct the litigation in a way that promotes and protects the interests of the represented class. There cannot be a conflict of interest between class members, i.e., an argument that would help some class members’ causes but prejudice the position of others.
- The court has a discretion under CPR r 19.8(2) whether to allow a claim to proceed as a representative action.
The Court of Appeal also observed that in Lloyd v Google, the Supreme Court recognised that the simplest application of representative actions will be in claims for declaratory relief. The Supreme Court identified that a particular challenge with seeking to use the representative mechanism for a class-wide award of damages is “the compensatory principle on which damages for a civil wrong are awarded”.[5] Class members are passive where opt-out class action mechanisms are used and so will not participate in proving their losses. Therefore, there is a small number of narrow categories where representative claims are suitable for an award of damages.
Relatedly, the Supreme Court mooted that some claims would lend themselves to a “bifurcated” approach in which certain issues are dealt with on a representative basis, with other issues then being progressed individually on an opt-in basis.
Was the case within CPR r 19.8?
Did the claims of each member of the class raise a common issue or issues?
The Court of Appeal determined that the claims of each member of the class did raise a common issue, but it was a narrow one. CRL’s core proposition was that class members would establish liability if they proved that they contracted with the Defendants on standard terms and that the Defendants received relevant renewal commissions. The Court of Appeal found it was a common issue whether this proposition was correct, i.e., that a declaration could be made on this issue on a representative basis. This was the only issue in the case that the Court of Appeal considered was suitable to progress as a common issue using the representative action mechanism. The court, and the parties, recognised that there were other issues that would need individual assessment, such as whether, in each case, the Defendants would be able to raise disclosure/informed consent or limitation as defences. Thus, although the Court of Appeal approved the use of the representative action mechanism, the approval was narrow and would result in subsequent opt-in claims using the “bifurcated” process.
Was there any relevant conflict of interest between them?
The Court of Appeal found this question straightforward: it was in the interests of all members of the class to establish CRL’s core proposition because it would make each of their claims easier to establish.
Should the court nevertheless in its discretion under CPR r 19.8(2) direct that CRL may not act as representative?
The Defendants submitted that, by itself, a declaration on CRL’s core proposition would not be of any value to the represented class. This was because no class member would get a money judgment unless it came forward and pursued its claim, and there was no evidence that class members were going to do so. The Defendants questioned whether the court should devote resources to deciding whether to make a declaration when it was unclear whether this would actually produce any money for anyone.
The Court of Appeal commented that, in general, it is a matter for a claimant to decide whether its claim is worth pursuing. Save in clear cases, the court will be slow to prevent a claimant with an arguable case from taking it forwards. The Court of Appeal recognised that there might be difficulties ahead for CRL but was not prepared to exercise its discretion against CRL acting as representative. CRL had the backing of a funder, and the benefit of solicitors and counsel, and the Court of Appeal would not second-guess its decision whether to continue with the litigation.
[1] [2024] EWCA Civ 9
[2] [2019] EWCA Civ 1599
[3] Paragraph 26
[4] [2021] UKSC 50
[5] Paragraph 80
