By separate actions commenced in the Competition Appeal Tribunal (“CAT”), representatives of four classes of claimants brought collective proceedings against the defendants under the Competition Act 1998. To facilitate the bringing of proceedings, litigation funding agreements (“LFAs”) were entered into in each case. The agreements as originally drafted provided for a funder’s fee, calculated as a percentage of the proceeds which the class representative would recover if the proceedings were successful. A decision of the Supreme Court rendered each LFA a damages-based agreement (“DBA”) within the meaning of section 58AA of the Courts and Legal Services Act 1990, and thus unenforceable. The LFAs were subsequently revised to specify that the funder’s fee was instead to be calculated as a multiple or multiples of the funder’s outlay in the proceedings, paid out of the proceeds, but expressly or impliedly capped at the level of the proceeds recovered. In each case, the CAT determined that the revised LFAs were enforceable. The defendants appealed, submitting inter alia that agreements which provided for a funder to recover a multiple of their outlay, subject to an express or implied cap by reference to a certain percentage of the proceeds or undistributed damages, entailed the same set of contractual rights and obligations as an agreement that the funder should recover a percentage of the damages. Therefore, the fees were “determined by reference to the amount of the financial benefit obtained” within the meaning of section 58AA(3)(a)(ii) of the 1990 Act, and accordingly, the agreements were unenforceable DBAs.
On the defendants’ appeals—
Held, appeals dismissed. The words “determined by reference to the amount of the financial benefit obtained” under section 58AA(3)(a)(ii) of the Courts and Legal Services Act 1990 were focused on the primary contractual entitlement of the funder, which in the present cases was to a multiple of its outlay in each case. The fact that their entitlement was subject to adjustment depending on the amount of damages recovered or at the discretion of the CAT did not alter the character of that entitlement, and did not mean their entitlement was determined or calculated by reference to the amount of proceeds or damages recovered. Although the source of the funders’ fees were the damages subsequently awarded, and there was an upper limit or cap on the fees recoverable by reference to the amount of damages recovered, that did not turn the LFAs into DBAs. Their fees were still calculated or determined by reference to the amount of funding provided. Accordingly, the LFAs were enforceable (paras 116–120, 123, 130, 131, 132).
Daniel Piccinin KC and Gayatri Sarathy (instructed by Linklaters LLP, Millbank LLP, Freshfields LLP, Gibson, Dunn & Crutcher UK LLP and Covington & Burling LLP) for the defendants.
Nicholas Bacon KC, Daniel Saoul KC and Richard Hoyle (instructed by Milberg London LLP, Harcus Parker Ltd, Hausfeld & Co LLP and Charles Lyndon Ltd) for the class representatives.