Boyle: Cases like this are a substantial risk
Class action law firm Hausfeld has had to write off £14m in fees after the Competition Appeal Tribunal (CAT) approved a drop-hands settlement of a client’s collective action.
The firm and counsel have been paid nearly £18m but had £14m and £1m respectively on contingency, which they will now not receive.
The CAT said [1]: “There is a risk, in principle, that if acting for class representatives becomes economically unattractive, because fees are regularly deferred and not recovered, while acting for defendants offers greater certainty of payment, this could influence the allocation of legal expertise.
“So far that risk has not materialised before this tribunal. The quality of representation on both sides in this case has been high, and the written and oral advocacy reflects a consistently professional standard.”
In 2021, the Consumers Association, better known as Which?, launched a £480m claim against chipsets manufacturer Qualcomm, which it accused of abusing its dominant position and charging smartphone manufacturers inflated fees to use its technology, which were passed on to consumers buying Apple or Samsung 4G phones.
The decision to settle followed a five-week liability trial last autumn, judgment on which has been paused.
The CAT noted: “Both parties agree that the trial itself did not go well for [Which?] at least in relation to the question of abuse.”
Which? and Qualcomm jointly applied for approval of the ‘drop hands’ settlement, in which the proceedings would end with no admission of liability or fault, Qualcomm would make no payment, and each party would bear its own costs.
These were put at £44m for Qualcomm, which instructed City firm Norton Rose Fulbright and a variety of counsel.
Which? had £23m in adverse costs cover from a range of after-the-event (ATE) insurers and from its litigation funder, Augusta Ventures.
The CAT required the parties to revise the proposed settlement agreement over concerns that the claims being settled were too widely pitched but it was satisfied with the changes and approved it.
As part of the process, it considered the impact of the settlement on all the stakeholders.
The judges were satisfied that Which? acted throughout in the best interests of the class it was representing, and also viewed the settlement as “commercially rational” for Augusta.
The lawyers were “among those most significantly affected” by the settlement given the level of fees they had deferred.
Despite the risks of tensions between lawyers, funders and the class representative when it came to costs, “the tribunal has seen no evidence of such difficulties having a negative impact in this case”, it said.
“On the contrary, the parties appear to have worked together constructively throughout.”
Further, the lawyers had supported the settlement despite the “substantial financial loss” it would cause them.
“In the tribunal’s view, that supports the conclusion that their advice was not driven by improper incentives, but reflected a considered and objective assessment that the claim was unlikely to succeed.”
The ATE insurers were “the stakeholder which has, in practical terms, derived the most immediate financial benefit from these proceedings” – they received £7.5m in premiums (including taxes) and will not have to pay anything out.
The experts have been paid their fees of £4.7m in full.
The CAT said it did consider whether Which? should have tried harder to secure some payment from Qualcomm.
“However, having reviewed the material and heard from counsel for both [Which?] and Qualcomm in private – where each gave a frank account of their assessment and the course of negotiations – the tribunal concludes that any counterproposal would have been rejected.
“Qualcomm’s drop hands offer represented its final position. It was not prepared to pay any sum.”
Further, the risk of refusing the offer was that the liability trial judgment would follow “with negative costs consequences, which acceptance of the drop hands offer would avoid. Time was therefore a material consideration”.
Nicola Boyle, managing partner at Hausfeld in London and one of the lead partners representing Which?, commented: “This was a case in which both Which? and we invested significant time and commitment in the interests of pursuing the rights of the class.
“As is the nature of litigation – as also recognised by the settlement tribunal – despite the merits of the claim going into trial, it became clear post-trial that, in light of the evidence we were able to bring before the tribunal, the claim was not going to succeed.
“We supported the case initially on a partial risk basis and then later agreed to continue wholly on risk to preserve the budget for counsel/expert costs and because we were committed to continue supporting Which? and the consumers.
“For almost five years, the Hausfeld team worked extraordinarily hard to bring the claim. As a result, we invested £14m of our time which we cannot recover. Collective actions of this nature reflect the substantive risk which claimant lawyers often take to enable claims to be brought, a fact often ignored by the opponents of the regime.”