Court of Appeal to rule on first post-PACCAR funding agreement

Playstation: Conclusive ruling on LFAs needed

The Court of Appeal is set to rule on whether a litigation funding agreement (LFA) that was amended to take account of the Supreme Court ruling in PACCAR is valid.

The Competition Appeal Tribunal (CAT) said a “conclusive” decision was needed so as end the uncertainty about how best to address PACCAR.

It has given electronics giant Sony permission to appeal its decision in November that a new provision in the LFA allowing the funder to take a percentage of the damages only once it was “enforceable and permitted by applicable law” did not fall foul of PACCAR.

The CAT has certified Alex Neill as the class representative in collective proceedings being brought against Sony over how it controlled the distribution of Playstation games made by third-party developers.

Nearly nine million people who were allegedly overcharged as a result are potentially in the class, with the claim worth up to £5bn. Milberg is acting for Ms Neill and Woodsford is funding her.

The CAT refused Sony leave to appeal on the specific points where it said the ruling – the first since PACCAR – was wrong, finding they had no real prospect of success.

But there was “a compelling other reason” to grant permission. It explained: “We recognise that the decision in PACCAR has resulted in funders and class representatives in a number of collective proceedings amending their funding arrangements so as to avoid the consequences of that decision, which in turn has led to those amended funding arrangements being challenged by defendants in those cases.

“This is creating uncertainty and consuming the resources of the tribunal and the parties, and that is unlikely to cease until there has been a conclusive decision on these points by the Court of Appeal.”

The CAT said it was likely that permission would be granted in other similar cases “and it would be expedient for those to be dealt with together in any hearing in the Court of Appeal”.

Meanwhile, a different CAT panel – although both were chaired by solicitor Ben Tidswell – has approved LFAs for both opt-in and opt-out collective proceedings being brought against Mastercard and Visa in relation to interchange fees.

Last summer, the CAT declined to grant the proposed class representatives’ (PCRs) applications for collective proceedings orders, staying the proceedings so they could be revised.

Ahead of the hearing to consider the amended applications, the CAT was asked to look at the LFAs, it being common ground that the original versions were not unenforceable as a result of PACCAR.

The opt-out LFAs had replaced the reference to payment of a percentage with a clause providing that the total fee was to be determined by reference to amounts expended by the funder and the after-the-event (ATE) insurers, together with a multiple of the amounts expended by the funder. The multiple was 200%, increasing by 50% each January and July.

They also provided that the total fee would not exceed the portion of the proceeds that have not been distributed to class members.

The opt-in LFAs were structurally different. The parties were the funder and the solicitors (Harcus Parker) because the solicitors have entered into a damages-based agreement (DBA) with the PCR, under which they were entitled to 32% of the damages and costs.

Among the changes were the reference to the funder receiving a “share” of the amount received by the solicitors instead being simply a “payment” and making each clause of the agreement on payment priorities subject to it being “enforceable and/or permitted by applicable law”.

In the event they were not, the multiples approach of the opt-out LFAs would be used instead.

The CAT rejected the defendants’ challenges to the agreements and also the ATE: “We consider that, as a matter of substance, the funding arrangements… do not have the character of a DBA, as defined.

“They are all firmly and primarily based on a determination of the funder’s fee by reference to a multiple of outlay by the funder (or insurer), and not by reference to sharing in a percentage or other proportion of the amount of financial benefit received by the PCRs (the opt-out arrangements), the solicitors (the opt-in arrangements) or the insurers (the ATE arrangements).

“The fact that other factors (apart from the multiple calculation) might affect the actual fee in certain circumstances does not change that analysis.”

The government has tabled an amendment to the Digital Markets, Competition and Consumer Bill to tackle the impact of the ruling on LFAs for opt-out collective proceedings in the CAT only. The bill is being debated in the House of Lords this week.

Last month, it acknowledged concerns that this did not go far enough but said a solution that covered all LFAs would need to wait for another legislative vehicle.

Lord Chancellor Alex Chalk has since reiterated the intention to act in the wake of the publicity around the Post Office scandal, as the backing of a litigation funder was crucial to the group action that effectively blew open the wrongdoing.

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