Representative actions: Court of Appeal decision gives go ahead for secret commissions claim, but suggests only limited issues may be dealt with on "opt-out" basis

The Court of Appeal has upheld the High Court's decision that a claim in respect of secret commissions for referrals to an IP renewal services provider can proceed as an "opt-out" representative action under CPR 19.8: Commission Recovery Ltd v Marks & Clerk LLP [2024] EWCA Civ 9. It seems, however, that the case may proceed on a more orthodox basis than the High Court's decision (considered here) had appeared to suggest.

The High Court seemed to adopt a very liberal approach to the “same interest” requirement for bringing a representative action, as it allowed the claim to proceed under CPR 19.8 despite recognising that some elements might depend on class members’ individual circumstances and require information from them. However, it is now clear that the parties accept that the CPR 19.8 procedure can only be used to determine issues that are truly common to the class, in the sense that they do not require consideration of claimants' individual circumstances. Accordingly, there will be a "bifurcated" approach to the claim, of the sort envisaged by Lord Leggatt in the Supreme Court's landmark decision in Lloyd v Google [2021] UKSC 50 (considered here), with common issues addressed at an initial trial and individual issues left to be determined at a later stage.

The Court of Appeal's decision suggests that the only truly common issue in the present case, so as to justify the CPR 19.8 procedure, is whether the claimant is correct that class members will establish liability if they prove merely that they contracted with the defendant on standard terms and the defendant received relevant renewal commissions (subject to potential defences of disclosure/informed consent and limitation) - or whether, as the defendant contends, the scope and content of its duty depends on the particular circumstances of its retainer with each client.

On any basis, this is a narrow issue, and even if the claimant succeeds in obtaining a declaration to that effect it will not amount to a decision on liability in any individual case. Nonetheless, the Court of Appeal was satisfied that a determination of the issue in question would benefit class members. And it was not persuaded by the defendant's argument that the court should not allow the claim to proceed, as a matter of discretion, since the court could not award monetary relief unless individual class members participated in the further stages of the claim, and there was no real evidence they would do so. While the court accepted it had a discretion to prevent its resources being wasted on pointless litigation, the decision suggests that it will be slow to exercise that discretion save in clear cases.

The Court of Appeal's decision does not address in any detail the question of how the case will proceed if the claimant succeeds at the initial stage. The potential for running bifurcated claims has been clear since Lloyd v Google, but the obvious difficulty for funders looking to back such cases has been how they would be paid: a declaration on common issues will not in itself result in a pot of damages for the funder to share in, and there is no guarantee that class members will contract with that funder for the later stage of the case and therefore share their damages with them.

At first instance, the court suggested (somewhat tentatively) that there might be a way to allow a funder to be paid out of recoveries before distribution to class members, without the need for their consent, similar to the court’s jurisdiction to allow an insolvency practitioner to be paid out of assets recovered. The Court of Appeal does not comment directly on this point, but does say it is "not immediately obvious" how the claimant could obtain a money judgment on claims that do not belong to it (as they belong to each individual class member). That may be seen as an obvious distinction with the position of an insolvency practitioner recovering assets for an insolvent estate. We will have to wait and see how these issues play out, but the decision does not suggest a simple solution for claimants and funders seeking to run such claims.

Background

The claimant brought proceedings against two defendants, a firm of patent and trademark attorneys (M&C) and a partnership associated with it (LAR) in respect of alleged secret commissions for referring clients of M&C to a third party provider of IP renewal services (CPA). The claimant was not a client of M&C but sued as the assignee of claims of a client (Bambach Europe).

The claimant issued the proceedings as a representative under what was then CPR 19.6 (now CPR 19.8). The particulars of claim (as amended) defined the represented class as all current and former clients of M&C: (i) that had a direct contractual relationship with M&C; (ii) that were subject to M&C’s standard terms of business; and (iii) in respect of the renewal of whose IP rights CPA made payments to the defendants in the relevant period.

The claimant alleged that, in arranging to be paid secret commissions by CPA, the defendants acted in breach of their fiduciary duties and were also liable for the tort of bribery, and were therefore liable for the amount of the commissions received (whether by way of an account, or as equitable compensation, or damages for tort, or otherwise).

The defendants applied to strike out the claim on the basis that it did not plead the facts and matters that would constitute a cause of action on the part of each member of the class. It also sought a direction that the claimant could not act as a representative because the “same interest” requirement was not met, or alternatively the court should refuse to exercise its discretion to permit the claimant to act in that capacity.

The High Court (Mr Justice Robin Knowles CBE) dismissed the strike-out application and held that the claim could proceed as a representative action. The defendants appealed.

By the time of the appeal, the judge had approved a list of issues put forward by the claimant for what was referred to as the "Main Trial", but providing that each party might invite further consideration and refinement of the issues at a second case management conference, which has been listed for 26 January.

Decision

The Court of Appeal dismissed the appeal. Lord Justice Nugee gave the leading judgment, with which Lord Justice Snowden and Sir Geoffrey Vos, Master of the Rolls, agreed.

Nugee LJ noted that the only jurisdictional requirement under CPR 19.8 is that the representative and the represented parties have "the same interest in the claim". What this means in practice, as explained by Lord Leggatt in Lloyd v Google, is that it is sufficient if there is a common issue (or issues) such that the representative can be relied on to conduct the litigation in the interests of all class members. That is not possible if there is a conflict of interest, but divergent interests are not a problem so long as they do not conflict.

The simplest application of the representative action procedure, Nugee LJ explained, is a claim for declaratory relief, since the declaration can be worded so as to benefit all members of the class. It is less straightforward in claims for damages or other monetary relief. This is in part because such claims will generally require individual assessment and the participation of individual class members, for which the representative action is "not a suitable vehicle". Further, while a declaration will have the same effect whether granted for the benefit of one claimant or many, a claim for damages is different. The claimant's own claim (as assignee of Bambach Europe) is for around £6,627 plus interest, whereas the claims of all class members would run into millions. But, as Nugee LJ put it, "it is not immediately obvious how [the claimant] can obtain a money judgment on claims that do not belong to it".

Despite these issues, in Lloyd v Google, Lord Leggatt contemplated that there might be scope for damages claims to be brought as representative actions by adopting a "bifurcated" approach, deciding common issues through a representative basis and leaving any individual issues to be dealt with at a subsequent stage.

In the present case, the claimant's "core proposition" was that, in order to establish liability, whether for breach of fiduciary duty or the tort of bribery, class members need only prove that they contracted on M&C's standard terms and that M&C received commissions in respect of the renewal of their IP rights (subject to issues of disclosure/informed consent and limitation, which will need to be looked at individually). The defendants argued that that was too simplistic a view. The scope and content of the duty would depend on the particular circumstances of each case (such as whether a particular client reposed trust and confidence in M&C in respect of its instruction of CPA), and an individual client's knowledge of the market practice of paying commissions would also be relevant to liability.

Nugee LJ said that, although the Court of Appeal had heard some limited argument on those issues, it was not invited to come to any conclusion on them. What they showed, he said, was that there was indeed a common issue in which all class members had the same interest, namely whether the claimant's "core proposition" was correct as a matter of law - in other words, whether the claimant was correct that (subject to the potential defences of disclosure/informed consent and limitation) class members need only prove that they contracted on M&C's standard terms and M&C received relevant renewal commissions.

If the claimant established its core proposition, the court could make a declaration to that effect, which would be equally beneficial to each class member. In Nugee LJ's judgment, it did not matter that this would not resolve all the issues in the case, even on liability, as issues would remain to be determined on the disclosure/informed consent and limitation defences (as well as questions of relief). However, Nugee LJ pointed out, these issues may not be so significant in practice as in many cases there may be no basis for the defendants to assert a defence on grounds of either disclosure/informed consent or limitation. And in any event, it was clear from Lloyd v Google that the need for some issues to be determined individually was not a bar to resolving common issues through a representative action.

Nugee LJ was satisfied that there was no conflict of interest between class members in relation to the common issue identified. It followed that they had the "same interest" in the claim for the purposes of CPR 19.8, and the judge had not erred in that respect.

Nugee LJ also rejected the defendants' argument that the claimant's particulars of claim should be struck out for failure to set out the facts and matters necessary to establish the cause of action of each class member. At this stage of the proceedings, he said, it was not necessary to have any individualised pleading of each class member's claim. The extent to which individualised pleading were required would depend on whether the claimant succeeded in its "core proposition" and what issues remained to be decided at that stage.

As for the court's discretion whether to permit a claim to proceed as a representative action, Nugee LJ was not persuaded that the judge should have directed that the claimant could not act as representative, or at least he considered that the judge's decision was "not outside the generous ambit of his discretion".

Nugee LJ noted the defendants' submission that the court should not have allowed the claim to proceed on a representative basis because, essentially, the court could not grant monetary relief unless individual class members participated in the action, and there was no real evidence that class members would do so. Accordingly, the defendants argued, it would be a waste of court resources to try the common issues. Nugee LJ accepted that the court has a discretion to prevent its resources being wasted on pointless litigation, but said the court should be slow to prevent an arguable case going forward on that basis, save in clear cases. He stated:

"There may indeed be difficulties ahead for [the claimant], but the Court should not in my judgement seek to second-guess [the claimant's] decision that it is commercially worth its while to continue with the litigation unless it can clearly see that the exercise is futile. I do not think that can be said."

Finally, Nugee LJ said, the court was not hearing an appeal about the judge's order as to which issues should be heard at the Main Trial, or being asked to decide whether there should be an adjustment to the list. In suggesting the core issue that he considered could suitably be determined on a representative basis, he did not mean to prevent the parties and the judge from refining that issue or deciding that other issues can also sensibly be tried. Those matters would be for the judge at the forthcoming CMC, with the benefit of the Court of Appeal's guidance.

Note: The Supreme Court has refused permission to appeal against this decision.