On 28 October 2019 the CAT handed down judgment on discrete funding and authorisation challenges brought against the Road Haulage Association ("RHA") and its application for a Collective Proceedings Order ("CPO"). 

The RHA seeks to act for more than 10,000 claimants in opt-in collective proceedings in connection with the European Commission's 2016 Trucks cartel decision.  The proceedings are currently stayed pending the Supreme Court's determination of the appeal in the Merricks v MasterCard Inc proposed collective proceedings.

The Proposed Defendants in the RHA claim sought to challenge the RHA's funding and after-the-event insurance position:

• firstly, that the Litigation Funding Agreement ("LFA") entered into by the RHA was unlawful on the basis that it was a Damages Based Agreement ("DBA") which did not comply with the requirements of the Damages Based Agreement Regulations rendering it unenforceable;
• secondly, that the RHA's funding and after-the-event insurance arrangements were inadequate and provided reasons in themselves on which to refuse the authorisation of the RHA's application for a CPO.

Neither challenge found favour with the CAT, which unanimously dismissed the Proposed Defendants' arguments. 

DBA issue

The crux of the argument against that the RHA's LFA stems from the interpretation of "claims management services" within s. 58AA Courts and Legal Services Act 1990 ("CLSA").  S. 58AA CLSA provides that a DBA is an agreement between a person providing "advocacy services, litigation services or claims management services and the recipient of those services…" which provides for payment by the recipient on receipt of a specified financial benefit, determined by reference to the amount of the financial benefit obtained.  Where a DBA does not comply with the provisions of s. 58AA CLSA it will be unenforceable.

"Claims management services" is further defined in s. 4 Compensation Act 2006 (and S.419A Financial Services and Markets Act 2000) as "advice or other services in relation to the making of a claim" and further, the provision of services includes "the provision of financial services or assistance". It was argued against the RHA that the provision of funding under the RHA's LFA constitutes the provision of financial assistance in relation to the making of a claim, and therefore claims management services within s. 58AA CLSA. It was common ground that the LFA – which was not intended as a DBA – did not comply with the provisions of s. 58AA CLSA.

The CAT carefully considered the legislative chronology – and in particular the mischief at which the Compensation Act was aimed - in reaching its unanimous decision that s. 58AA CLSA does not apply to litigation funding agreements with litigation funders.  At paragraph 41 the CAT held:

We consider that, having regard to the mischief at which this part of the [Competition Act] was directed, Mr Kirby was therefore correct in his submission that the reference in s.4(2) read with s.4(3)(a) [Competition Act] to “the provision of financial services or assistance” “in relation to the making of a claim” is to be interpreted as applying in the context of the management of a claim. This gives effect to the fact that the term employed in the statute, which is the subject of the definition, is “claims management services” and avoids the undesirable result discussed above. Litigation funders, by contrast, are engaged in the funding of a claim, not the management of the making of a claim. On that basis, since litigation funders are not engaged in providing “claims management services”, a LFA will not come within the definition of a DBA in s.58AA(3) CLSA. 

Adequacy of the RHA's funding arrangements

The CAT may only grant a CPO where, amongst other things, it is satisfied that it is 'just and reasonable' for the proposed class representative to so act in the proceedings.  In considering the 'just and reasonable' requirement, the CAT must consider whether the proposed class representative would act fairly and adequately in the interests of class members (which in turn requires consideration of the arrangements entered into for costs, fees and disbursements) and whether the proposed class representative will be able to pay the defendant's recoverable costs if ordered to do so. 

The proposed defendants contended that the CAT should refuse to authorise the RHA as a class representative because of its funding arrangements, in particular it was argued that:

• certain provisions with the LFA rendered the arrangements inadequate;
• the RHA's funding of £27 million was inadequate for the full resolution of collective and individual issues;
• the RHA's After-The-Event insurance of £20 million was inadequate both because of certain provisions with the policy and because the level of cover was not sufficient. 

The arguments advanced by the proposed defendants were comprehensively rejected insofar as the RHA is concerned.  

Any well-founded concerns around particular clauses of the LFA were addressed by the RHA via amendments, which were accepted by the CAT.  As to the remaining issues, the following points are noteworthy from the judgment:

• A CPO application does not involve a full costs budgeting exercise.  It was quite impossible to find, at this stage, that the RHA's costs budget was unrealistic or that the very large sums currently secured by funding were inadequate.  If, at a later stage, more funding is required, commercial reality dictates that there is a reasonable prospect that the RHA would be able to secure appropriate funding. 
• It is not a requirement under the CAT Rules that the Tribunal must determine the likely costs of the proposed class representative to the end of trial and be satisfied that sufficient funding had been secured to cover those costs.  Rather, the Tribunal must take into account the estimated costs and arrangements which the proposed class representative has made.
• In addressing the question of the proposed class representative's ability to pay the defendant's costs, the CAT is not required to adopt an identical approach as on a security for costs application (for which there is a separate and distinct power).
• Insistence on ATE insurance of the magnitude in these proceedings being provided on a joint and several basis might make the obtaining of cover extremely difficult and serve to stifle a bona fide claim.
• Rule 78(2)(d) – i.e. the ability to pay the defendant's recoverable costs if ordered to do so – is not a mandatory provision, such that unless the Tribunal finds the proposed class representative can pay the defendant's costs to the end of trial (if ordered to do so), the CAT cannot find that it is 'just and reasonable' for that person to act as the class representative.  The factors set out in rule 78(2) are significant, but complete satisfaction of each factor is not a condition for satisfying the 'just and reasonable' requirement.
• The enumerated factors under rule 78(2) are not necessarily of equal weight.  That does not mean that the question of adequacy of adverse costs cover is of little weight or should only lightly be scrutinised. 
• Where the CAT finds that there is no other reason to refuse the authorisation of a class representative, the proper approach to such a very high costs case is to determine that the class representative has at the outset the ability to pay a substantial level of adverse costs cover which should be sufficient for at least a significant part of the proceedings.  Authorisation should not then be refused on the basis that this may prove insufficient to the end of trial. 

Comment

This is an important judgment in a number of respects.  

It provides welcome clarity on the scope of s. 58AA CLSA insofar as it is now clear that it does not apply to litigation funding agreements; this is particularly significant given the evidence proffered that if the proposed defendants' proposition had been correct, the finding would have invalidated most, if not all, LFAs agreed since litigation funding began.

Further, in relation to the collective proceedings regime, the judgment provides important guidance on the authorisation criteria for class representatives in what remains a novel regime in this jurisdiction.  The CAT's approach is sensible and indeed makes clear that it "seeks to facilitate the access to justice for claimants achieved by properly constituted collective proceedings" which is welcome news, at least for prospective claimants. 

Addleshaw Goddard act alongside Backhouse Jones for the Road Haulage Association in its application for a collective proceedings order.