Commission Recovery v Marks & Clerk

The emergence of claims relating to the alleged non-disclosure of commission arrangements between lenders and brokers, across a range of sectors including motor finance and mortgage finance, is likely to continue to dominate the litigation landscape in 2024. Individually, each of these claims might be of low value, but if pursued on a cumulative and inclusive basis, the value naturally increases, and so will the appeal of pursuing this type of mass claim to claimant litigation firms and litigation funders. 

On 18 January 2024, the Court of Appeal in Commission Recovery Ltd v Marks & Clerk LLP & Long Acre Renewals (A firm) [2024] EWCA Civ 9 unanimously upheld a High Court decision to permit a claim relating to so-called “secret commission” arrangements for IP renewal services, to proceed as a representative action pursuant to CPR 19.8, that is, on an “opt-out” basis.

As this is the first commercially funded claim issued pursuant to CPR 19.8 that has been allowed to proceed, the judgment will be viewed with interest, from both a claimant and defendant perspective. Going forward, attempts for other secret commission claims to be pursued on a similar basis should be expected.

 

Background

The Claimant issued proceedings as a representative claimant pursuant to CPR 19.6 (now CPR 19.8), against the two defendants in respect of alleged secret commissions received upon successfully referring clients to a third-party provider of IP renewal services. 

The Claimant was assigned the right to bring the claim from a former customer and had been set up especially as a vehicle to bring these claims.

The claim involves allegations of bribery, secret commissions and breach of fiduciary duty. The claim alleges that the commission arrangements were not disclosed to customers and that the Defendants, whether by way of an account, or as equitable compensation, or damages for tort, or otherwise, were liable to customers for the amount of commission they received.

The Claimant made it clear that it was not only suing in its own capacity as an assignee of rights of one former client of the Defendants, but also as a representative of a class of current or former clients. The individual claim assigned to the Claimant was valued at approximately GBP6,000.

 

Issues before the Court of Appeal

The issues to be decided by the Court of Appeal were:

1. Does the case fall within CPR 19.8: does the Claimant have the “same interest” in the claim as those it is seeking to represent (the class)?
   1. Do the claims of each member of the class raise a common issue or issues?
   2. Is there any relevant conflict of interest between them in relation to the common issue or issues?
2. Should the Court nevertheless in its discretion direct that the Claimant may not act as a representative pursuant to CPR 19.8(2)?

In exploring each of these issues, Lord Justice Nugee made heavy reference to Lord Leggatt’s decision in Lloyd v Google LLC [2021] UKSC 50 [considered in our earlier article].

What does same interest mean?

It is sufficient that there is a single common issue, or common issues, between all of the members of the represented class, so that the designated representative can conduct the litigation in a manner that will both protect and promote their interests.

A “same interest” between the members of the represented class will not exist if there is a “conflict of interest”, whereby the interests of some members could only be advanced to the prejudice of others. But a “same interest” between the members of the represented class will exist even if there is a “divergence of interest”, whereby an issue in the case is advanced which only benefits some members of the class but will not prejudice the position of the others.

In this particular case, there was no conflict of interest between the class members in respect of the common issue. Each member had a vested interest in establishing the core proposition that the First Defendant owed a duty under its terms of business to act on a non-conflicted basis, which was breached by the receipt of commission.

What is the class?

The Claim Form and Particulars of Claim explained that the class is current or former clients of the First Defendant, where terms of business had been signed and a commission had been paid. The definition of this class was sufficiently certain and defined by objective facts.

What is the objective of representative proceedings?

Nugee LJ explained that a representative action is a convenient means to litigate a claim for declaratory relief, as the declaration can benefit the representative and all class members, and it matters not if it does not resolve all individual cases. In contrast, a representative action becomes “less straightforward” if the representative’s objective is a monetary remedy since any determination of the amount of monetary relief will necessarily require an examination of the individual circumstances of each member of the represented class.

The “bifurcated approach”

The Court of Appeal confirmed there is nothing wrong in principle with seeking to try to resolve common issues in a representative action, even if ultimately it could not lead to a conclusion as to liability or quantum. This approach could still conveniently resolve one or more issues that affect a large proportion of the class, which would be of benefit to the parties and to the effective operation of the courts.

This tacitly approves the “bifurcated approach” discussed in Lloyd v Google LLC, that is, a case where certain issues are dealt with on a representative basis, which then forms the basis for subsequent individual (non-representative) claims for redress.

 

Appeal dismissed

In the light of this analysis, the Court of Appeal concluded that the “same interest” test was satisfied and the case therefore did fall within CPR 19.8, and that the decision at first instance to allow the Claimant to act – “at least for the time being” – as a representative in bringing the claim was within the lower court’s discretion.

 

Conclusions

The representative action, especially for declaratory relief, is an attractive option to claimant parties and to the courts. For claimants, the scope of the litigation is significantly increased, and the courts consider it is a means to conveniently attend to mass-scale litigation without over-reliance upon court resource. From a defendant perspective, it may be less attractive, but this judgment may offer some comfort in re-affirming the difficulties that are likely to exist in pursuing a representative claim which seeks monetary relief. Whilst a bifurcated approach may be a useful solution in such claims, achieving clarity on the extent of the class and determinations on common issues on a representative basis, claimants will still be required to have their case on quantum individually assessed.

However, this approach presents a risk for prospective representatives, and in particular their funders: there is no guarantee that individual claimants will come forward, and until they do, no monetary judgment can be entered. Commercial funders are unlikely to have the appetite to pursue claims and incur the costs of representative litigation if there is a risk those incurred costs cannot be converted into a substantial recovery of money. The Court of Appeal did not offer any solution as to how the representative and its funder could resolve those commercial difficulties, but that is not the role of the courts. It will be for the Claimant and its funder to decide in this claim, now that it has been given the green light to proceed on a representative basis, how to tackle these potential difficulties. Further, it is a matter for claimant litigation firms and the litigation funding industry to address in any subsequent representative actions, including in other potential claims for non-disclosed commission arrangements.