Is the door re-opening for US-style class actions in England and Wales?

The High Court has re-considered the test for representative proceedings in England.  This decision departs from recent authorities by emphasising access to justice and downplaying some of the procedural and economic barriers to such claims. Global businesses should continue to monitor closely the English class actions regime, which continues to evolve as claimant lawyers and litigation funders seek to broaden it in the mould of the more liberal North American and Australian models, testing the boundaries of collective litigation in England and Wales.

In Commission Recovery Limited v Marks & Clerk LLP and Long Acre Renewals¹, the High Court permitted a claim seeking the recovery of secret commissions to proceed as a representative action under CPR 19.6 on an “opt-out” basis.

CPR 19.6(1) provides that a claim may be pursued by one or more persons as representative(s) of any other persons with whom they have the same interest (the “same interest” requirement).

CPR 19.6(2) provides that the court may direct that a person may not act as a representative.

The test as to the suitability of a representative action is therefore a two-staged one: first, the Court must consider whether the same interest requirement has been met and, second, the Court must decide in its discretion whether the claim should be allowed to proceed, having regard to the overriding objective of the Civil Procedure Rules (i.e., to deal with cases justly and at proportionate cost).

Background

The First Defendant is a firm of patent and trademark attorneys. The Claimant is an assignee of the claims of Bambach Saddle Seat (Europe) Limited (Bambach) and Fire Angel, clients of the First Defendant. The Claimant brought proceedings as a representative of current and former clients of the First Defendant against the two Defendants, alleging they had received secret commissions for referring clients of the First Defendant to a third-party provider of intellectual property rights renewal services, CPA Global Limited (CPA).

The Defendants applied to the Court for an order pursuant to CPR 19.6(2) that the Claimant may not act as representative under CPR 19.6(1) (i) because the same interest requirement in CPR 19.6(1) was not satisfied; or (ii) alternatively, the Court should refuse to exercise its discretion to permit the Claimant to act as representative.

The Court considered the Defendants’ arguments in light of previous authorities on the application of CPR 19.6(1), in particular the 2021 Supreme Court decision in Lloyd v Google². The Court dismissed the Defendants’ application on the basis that:

• despite differences in the individual class members’ factual and legal positions, there was no evident conflict of interest between their respective claims. Accordingly, the same interest requirement had been met; and

• given the focus of the claim on the recovery of secret commissions, rather than damages requiring individualised assessment, the Court considered it appropriate to allow the claim to proceed as a representative action.

The same interest requirement

The Defendants argued that the same interest requirement had not been satisfied because (in summary):

• the claims being advanced were not sufficiently factually similar. They did not arise from the same events at the same time and were based on separate contracts entered into with the First Defendant at different times;

• there were conflicts of interest between the Claimant and members of the class and as between members of the class. Specifically, (i) some class members might be in a position to rely on facts (e.g., the First Defendant’s failure to disclose the commission payments) that others might not; (ii) some class members might have claims that fell wholly or partly outside the class period and would not be able to pursue those claims in the present proceedings; (iii) the Claimant sought the recovery of secret commission as a remedy, but some class members might prefer to pursue alternative remedies if successful; (iv) appropriate tracing remedies might differ between class members; and (v) there may be a conflict of interest between the Claimant, on the one hand, and the class members, on the other, as to the level of fees and financial return to be provided to the Claimant and an entity connected with it for alleged consultancy services provided to the Claimant;
  
  
• the claims of certain class members might be statute-barred. The Claimant had intimated in pre-action correspondence that it would resist a limitation defence on the basis of deliberate concealment by the Defendants, but this would require an assessment of the state of knowledge of individual class members; and
  
  
• the class was defined with reference to matters that were in issue and was conceptually and practically uncertain. For example, the class definition referred to clients who had a direct contractual relationship with the First Defendant, which would require the Court to adjudicate on the meaning of “client” and “direct contractual relationship”.

In deciding whether the same interest requirement had been met, the Court held (following the approach taken in Lloyd v Google) that the key question was whether the issues identified by the Defendants meant that advancing the claims of some class members would prejudice the position of others. In the Court’s view, none of the issues raised by the Defendants had this effect.

In addressing the Defendants’ arguments, the Court made the following comments:

• the dates and terms of the class members’ contracts with the First Defendant might differ, but those details could be ascertained and did not affect suitability for representative proceedings;
  
  
• while the class was only intended to comprise those clients of the First Defendant to whom the commissions were not disclosed, there was sufficient evidential basis for non-disclosure being the starting point for the position of all class members. Even if it later transpired that commissions had in fact been disclosed to certain class members, those class members were not in a position of conflict with those to whom there was no disclosure;
  
  
• while the points identified by the Defendants might increase or reduce the eventual size of the class, in the present case there was no limit to the Defendants’ total liability, such that success or recovery by one client would not prejudice the interests of another;
  
  
• in respect of the Claimant’s proposed focus on the recovery of commission (rather than other potentially available remedies), there was no evidence that the class members were in fact at odds over the remedy sought or that this would deprive class members of other remedies;
  
  
• the Court accepted that the Defendants might raise a defence of limitation in respect of some class members in due course, which might require individual arrangements to be made outside of CPR 19.6. However, this would not prejudice those class members unaffected by the limitation defence. Nor did it mean that there would need to be an individualised assessment of every single class member (in contrast with the position in Lloyd v Google); and
  
  
• the Court acknowledged that if the claim were allowed to proceed as a representative action it would be necessary to rely on the Claimant and its lawyers to pursue vigorously lines of argument not directly applicable to the Claimant’s individual case. However, it was realistic to assume that they would do so, because none of those lines of argument was likely to involve a conflict of interest. In particular, the Claimant seeking a declaration of entitlement to one or more remedies was likely to assist all class members.

The Court ultimately concluded that, while the points raised by the Defendants would require careful stewardship of the litigation by the Claimant and its lawyers, they were all capable of resolution. None meant that the class members did not have the same interest.

Exercise of the Court’s discretion

The Court also considered the points raised by the Defendants in relation to the same interest requirement in the exercise of its discretion under CPR 19.6(2), along with the Defendants’ further arguments as to the appropriateness of representative proceedings and other material circumstances.

The Defendants’ key arguments against the Claimant acting as representative were that:

• the definition of the class meant that the present proceedings would not necessarily resolve all possible claims, leaving the Defendants with the possibility of being vexed with other similar claims;
  
  
• the pursuit of the claim by the Claimant and its funder was commercially motivated. Other than Bambach and Fire Angel, other clients of the First Defendant had not intimated any desire to pursue claims against the Defendants; and
  
  
• if the claim were to proceed, the First Defendant might be required to disclose confidential information regarding its clients and former clients in respect of which (i) the Claimant had no legitimate interest; and (ii) the sole director and shareholder of the Claimant, Mr Peter Rouse, might have a conflict of interest due to his commercial interests in a company which sought to act as a broker with renewals services providers in competition with CPA.

Taking into account Lord Leggatt’s comments in Lloyd v Google on discretion, the Court found that:

• it was not a requirement of CPR 19.6 that representative proceedings would necessarily resolve all possible claims. If a representative action assisted the advancement of some claims, that was better than none at all, and it was in the Defendants’ gift to mitigate the possibility of follow-on claims by providing more information about those potential claims;
  
  
• based on the available evidence, it was not clear (as the Defendants had asserted) that the class members (other than Bambach and Fire Angel) were aware of the payment of commission to the Defendants and had no desire to pursue claims;
  
  
• a claim for undisclosed or secret commission was likely to be a reasonable example of a claim where an entitlement could be calculated on a basis common to all members of the class. At the least, in the present proceedings there were some advantages in terms of justice and efficiency in adopting a bifurcated process where (i) common issues of law or fact are decided through a representative claim; and (ii) issues requiring individual determination are decided at a subsequent stage of the proceedings (as per Lloyd v Google at [81]);
  
  
• it was realistic and appropriate for the Court to accept the Claimant’s focus on the recovery of secret commission. Although the Defendants argued that this meant class members would be deprived of alternative remedies, the true alternative would in practice likely be no claim at all rather than a claim for an alternative remedy; and
  
  
• the nature of a claim for secret commission meant that the need for disclosure from individual class members was likely to be limited, the disclosure burden falling more heavily on the Defendants. Whilst some limited disclosure might be required from individual class members on the issues of limitation and knowledge of commission payments, this was not a decisive point in the exercise of the Court’s discretion.

On the question of “opt-in” versus “opt-out”, the Court anticipated that further information from, or an election to pursue their claim by, the class members might be desirable later in the litigation, but equally recognised that to impose such a requirement risked the litigation breaking down if the class members turned out to be unresponsive, resulting in the parties’ costs and the Court’s resources being wasted. Ultimately, however, the Court decided that, on balance, it was appropriate to allow the claim to proceed as a representative action on an “opt-out” basis because “if the choice is this or nothing, then better this”.

As to (what appears to have been) ancillary submissions by the Defendant regarding the deduction of sums (including success fees) from any recovery by the Claimant, the Court noted the Defendants’ argument that it could not direct that sums paid by a defendant to a representative be paid otherwise than to the persons whose cause of action had been established. The Court was reluctant to address this question in full as the Defendants’ argument had been limited and without full reference to authority. Instead, the Court limited itself to observing that (i) this was ultimately a matter for the Claimant and its funder to worry about as it did not increase liability on the part of the Defendants; (ii) it was a question that should be capable of being resolved at a later stage in the proceedings; and (iii) it might be within the Court’s powers and appropriate to allow the reasonable costs of recovery to be paid before disbursement to the class members (i.e., a similar approach to paying insolvency practitioners’ costs out of assets recovered in liquidation or administration).

Finally, the Court noted that it would be prepared, on the Defendants’ request, to authorise a suitable “opt-out” communication to be sent by the Defendants’ solicitors to clients of the First Defendant. The clients’ responses (or lack thereof) might further inform the overall picture, and it was open to the Defendants to ask the Court to re-consider the appropriateness of the litigation continuing as an opt-out representative action later down the line. CPR 19.6(2) was not a “once and for all time” provision; instead, the suitability of a representative action was a question of continuing relevance which may be re-examined where appropriate.

Comment

Historically, representative actions have not been a commonly used vehicle for class actions in England and Wales due to the Courts’ conservative approach to applying the same interest requirement. This judgment represents a departure from the approach adopted in previous cases where the Courts have held that a representative action was not appropriate due to the size of the class being contingent on issues to be determined by the Court, the remedies pursued being unequally beneficial to members of the class, or the need for certain issues to be determined on an individual basis. Significantly, in the present case, the Court held that such matters were not decisive to the question of whether the same interest requirement was satisfied, so long as they did not give rise to conflicts between class members.

Litigation funders have invested significantly in class actions in the ESG, consumer protection and competition space in recent years. Such actions have typically been brought pursuant to a Group Litigation Order, although representative actions are arguably more attractive to funders as they can operate on an “opt-out” basis (which increases the size of the class and the potential return). Funders will therefore be encouraged by the positive implications of this judgment for the ease of bringing representative actions. They will also have taken note of the Court’s tentative suggestion that they may be able to obtain payment out of recoveries without the prior consent of class members, though it remains to be seen whether success fees can be characterised as being part of the “reasonable costs of recovery”.  

It is too early to say for certain whether this judgment is indicative of an increased appetite on the part of the English courts for representative claims. The endnote to the judgment does remark, however, that whilst we are “still […] in the foothills” of the use of the representative action procedure, “[i]n a complex world, the demand for legal systems to offer means of collective redress will increase not reduce”. Should the Court of Appeal uphold the judgment (it being our understanding that the Defendants have applied for permission to appeal), we may see a considerable expansion in the volume of funded group litigation being brought on a representative basis.  

More broadly, this judgment illustrates the on-going challenges for bringing class actions in England and Wales.  It also highlights the tension in the English judiciary over its willingness to open the door fully to representative actions.  Bearing in mind the Brown Government’s commitment to introducing enhanced class action procedures in 2009 and the establishment of a pan-European class actions system, it is possible that, as Lord Leggatt called for in Lloyd v Google, there may be a push for legislative intervention to clarify the precise parameters for this category of litigation in the medium term.

 

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¹ [2023] EWHC 398 Comm.
² [2021] UKSC 50.