UK CAT refuses payment to funders from damages awarded in settlement agreement prior to distribution – but door not closed for future cases

On 12 July 2024 the Competition Appeal Tribunal ("CAT") held that the class representative in the ongoing "Maritime Car Carriers" competition collective proceedings could not use the damages element of a settlement reached with one defendant to pay its litigation funder prior to distribution to class members or the conclusion of the proceedings against the other non-settling defendants.

The CAT held that it does – in principle - have jurisdiction to approve such payment from settlement damages under its broad case management powers. However, the judgment demonstrates that it will carefully consider whether to exercise its discretion to do so on a case-by-case basis, and it declined to do so in this case.

The CAT noted that the amount proposed to be paid to the funder was "relatively small" and would do "little to reduce the funder's exposure and duration risk" (given that proceedings are ongoing against the other 11 defendants, with a substantive trial scheduled for January 2025). It also held that in general "the best time to assess what sums should be paid to funders is once the outcome of […] proceedings is known".

The judgment emphasises that the payment of costs and expenses in collective competition proceedings is subject to close supervision by the CAT to balance the competing interests of class members and stakeholders such as funders, insurers, solicitors and counsel, whilst ensuring a workable collective proceedings regime. It provides useful analysis of different provisions of the CAT Rules under which the CAT may approve payment of costs and/or other expenses owed to stakeholders, illustrating the importance of correctly identifying the relevant rule under which an award of costs and/or expenses is sought.

It remains to be seen whether the CAT might take a different approach in other circumstances: for example, where a more substantial settlement was reached (such that the CAT could be confident that class members would still receive a significant amount, even if a payment to funders or other stakeholders was made at an interim stage), or if final determination of the proceedings was not likely to be until much further in the future.

Background

In February 2022 the CAT certified an opt-out competition collective action brought by Mark McLaren as class representative on behalf of purchasers of motor vehicles against “roll-on, roll-off” intercontinental car carriers, following on from the European Commission's 2018 decision imposing fines of EUR 346 million for participation in a price-fixing cartel. The certification judgment was upheld by the Court of Appeal in January 2023 and the substantive trial has been set down for a 10-week hearing commencing 13 January 2025.

In July 2023 an agreement in principle to settle the collective proceedings was reached with one of the defendants, CSAV. This settlement agreement required approval by the CAT, which granted a Collective Settlement Approval Order in December 2023 – the first time the CAT has made such an order under the collective proceedings regime. The settlement sum of £1.5m reflected the small market share (1.7%) of CSAV relative to the other defendants, and was split between £1.12 million in damages, £280,000 in respect of CSAV's share of the class representative's costs of the proceedings, and £100,000 by way of contribution to the costs of the Collective Settlement Approval Order application.

The litigation funding agreement required the class representative to make a Related Costs Application when requesting settlement approval, seeking to use part of any proceeds paid by a settling party to pay the class representative's costs, fees and disbursements. By the time this application was heard, it had been agreed that the class representative would only seek to recover costs, fees and disbursements at this stage in a way which was commensurate with the proportion of the collective proceedings which had been settled i.e. 1.7% of the total costs, fees and disbursements incurred to date (reflecting CSAV's market share).

The CAT's judgment on the Related Costs Application focusses on two key issues:

• Does the CAT have jurisdiction to order the payments of costs and expenses in favour of the funder, insurer, solicitors and counsel (referred to as the "Stakeholders"), and if so, on what basis?
• If the CAT does have jurisdiction, should it exercise its discretion in this case to permit the use of the damages paid by CSAV under the settlement agreement to pay costs and expenses of the Stakeholders at this stage in the proceedings, and if so, in what sum?

The basis of the CAT's jurisdiction to award payment to funders from damages

The class representative relied upon various different provisions of the CAT Rules 2015 in making the application for the Related Costs Order, and the CAT notes in its judgment that this "reflects an uncertainty on the part of the [class representative] at least as to which are properly applicable in this case."

The CAT considered each of the rules relied upon by the class representative in detail in its judgment. It ultimately rejected all of these as the basis for its jurisdiction except for the rule governing the CAT's general case management powers (rule 53(2)(n), which applies to collective proceedings and settlements by virtue of rule 74).

This rule empowers the CAT to give, at any time, such directions for "the award of costs or expenses" as it thinks fit "to secure that the proceedings are dealt with justly and at proportionate cost". This is a wide case management provision, which the CAT held should not be interpreted narrowly. It considered that this provision empowers it to permit the class representative "to pay third parties, like funders, without whom collective proceedings cannot be brought", on the basis that a payment to a funder does amount to an "expense", even if it does not amount to a "cost" in the same sense as in rule 104(1) (see below).

By way of brief summary of key points in the judgment concerning the other rules that the class representative sought to rely on:

• The CAT held that its power under rule 104(2) to make "any order it thinks fit in relation to the payment of costs in respect of the whole or part of the proceedings" was not applicable in this context: that power is expressly subject to rules 48 and 49 on settlements and also limited to recoverable costs(pursuant to rule 104(1)), which would not include many of the amounts said to be owed to the Stakeholders, including for example payment of the upfront ATE insurance premium, the funder's fee and solicitors' and counsel's success fees.
• The same limitations in respect of the definition of "costs" were also held to apply to the CAT's power to award costs to or against the class representative under Rule 98(1).
• The CAT recently held in Gutmann v Apple [2024] CAT 18 that a payment from damages could be made to funders under rule 93 at the conclusion of proceedings, prior to distribution of damages to class members. However, in the present case the CAT concluded that there is nothing in rule 93 that permits it to go one step further and allow such payment in circumstances where no damages have been awarded by the CAT (but rather have been paid by way of settlement). The CAT also expressed "an element of doubt" as to whether the wide interpretation of rule 93(1) to cover payments to third parties other than for the benefit of the class members is correct, noting that permission to appeal has been granted in Gutmann v Apple.
• Rule 94 empowers the CAT to approve the payment of costs, fees and disbursements contained in a settlement that it is being asked to approve under a Collective Settlement Approval Order. However, whilst this is sufficiently wide to include matters such as payments to ATE insurers and payments to funders, in this particular case the CAT held that the settlement agreement approved by the CAT in December 2023 did not extend to the Related Costs Application.

The CAT's refusal to award payment in this case

Although the CAT concluded that it did have jurisdiction to order payment to the Stakeholders out of the damages element of the settlement sum under its broad case management powers, in the circumstances of this particular case it declined to do so.

The total sums owed to the Stakeholders at the time of the application were stated to be just over £24 million. The CAT considered that payment of 1.7% of this amount (around £400,000) at this stage of the proceedings would do "little to reduce the funder's exposure and duration risk," given the relatively small sum and the fact that the proceedings are ongoing against the 11 other defendants. The CAT noted that the ultimate outcome of the proceedings should be known "in the not too distant future" (given the substantive trial scheduled for January 2025), and as a general rule "the best time to assess what sums should be paid to funders is once the outcome of these proceedings is known."

The CAT acknowledged that it is possible that the remaining defendants will succeed at trial. The damages sum available for distribution to class members from the settlement agreement with CSAV should therefore not be "eaten up" at this stage of the proceedings by being (partially) awarded to the Stakeholders.

The CAT therefore refused to permit the use of any part of the £1.12 million sum paid in damages under the settlement agreement to cover costs or expenses at this stage of proceedings. The award of costs and expenses will instead be dealt with further once the outcome of the proceedings is known.