Sony: Company’s appeal rejected
The Court of Appeal has upheld as enforceable litigation funding agreements (LFAs) which calculate funders’ return as a multiple of their investment, rather than a percentage of the damages.
The key decision also found no problem with an LFA providing that the funder could take a percentage once it was “enforceable and permitted by applicable law”.
The four conjoined cases involving Sony, Visa, Mastercard and Apple were all appeals from Competition Appeal Tribunal (CAT) rulings approving amended LFAs in light of the 2023 PACCAR ruling from the Supreme Court, which held that LFAs were impermissible damages-based agreements because the funder was providing ‘claims management services’ under section 58AA of the Courts and Legal Services Act 1990 (CLSA).
In each case, the CAT granted permission to appeal on the basis that, while it considered the appeal had no real prospect of success, there was another compelling reason to grant permission, namely that the continuing uncertainty regarding the issue of enforceability of the revised LFAs warranted resolution by the Court of Appeal.
They had been stayed pending the previous government’s attempt to overturn PACCAR through legislation but this fell because of the election and the Labour government deferred the decision until the Civil Justice Council’s finished its review of litigation funding.
The cases then proceeded, although the council reported last month – recommending that the legislation be reintroduced as a matter of urgency – just before the hearing.
It was accepted by the appellants that, if the funder’s fee was calculated by reference to a multiple of its outlay, then it was not caught by the CLSA, which banned it being “determined by reference to the amount of the financial benefit obtained”.
However, they argued that LFAs also provided, expressly or by implication, that the amount of the funder’s recovery was capped by the level of the proceeds recovered, meaning it contravened the CLSA.
The Chancellor of the High Court – Sir Julian Flaux – giving the unanimous ruling of the court rejected this: “It follows that the logical consequence of the appellants’ submission that any express or implied cap on the amount of the funder’s fee by reference to the damages recovered or a sub-set of them converts the LFA into a DBA is that it is difficult to see how any LFA could avoid being a DBA.”
Given that the government had recognised that collective proceedings in the CAT needed litigation funding, “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”.
It was similarly “absurd” that an LFA without a cap would be enforceable, whereas one with a cap – “which by definition protects the class and the class representative from having to pay excessive amounts to the funder” – would not be.
Sir Julian added that the fact the funder’s return was subject to an express or implied cap because it was limited by reference to the proceeds “does not mean that it is determined or calculated by reference to the amount of those proceeds”.
The provision providing for a percentage “to the extent enforceable or permissible by law” was “simply of no contractual effect”, the judge went on.
“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.”
There was, he explained, “no difference between catering in advance for the eventuality that the law might change… and the parties having in mind that if the law changed it might be necessary to enter into yet another amended LFA”.
Lord Justice Green and Lord Justice Birss agreed. It was recently announced that Birss LJ, the current deputy head of civil justice, will replace Sir Julian as Chancellor later in the year.
Leave a Comment