The Rule of Law, cartels and the CAT

The Rule of Law requires that a way is found to hold powerful commercial entities to account, when their pursuit of profit leads them to adopt unlawful business practices, to the detriment of large numbers of their customers. No commercial entity should be above the law, and no consumer should be unfairly disadvantaged by restrictions on the routes to justice.

A potentially effective approach to the requirement to bring commercial leviathans within the Rule of Law appeared in 2015, when collective redress was introduced to the English courts, with the Competition Appeals Tribunal (CAT) being given the power to hear collective proceedings and approve collective settlements of such claims, including Merricks v Mastercard, which was the first such collective settlement.

However, combining large numbers of harmed consumers in taking on big business is pointless if none of them has the wherewithal to fund the claim.

To solve this, litigation funding is used, allowing a class representative to be financially supported by a third party (subject to CAT approval) to bring a claim on behalf of consumers against the largest entities. Indeed, without litigation funding, collective actions before the CAT could not be pursued, and large entities could break the law with impunity.

Two notable recent cases

Two recent cases have threatened the effectiveness of the CAT’s ability to use the Rule of Law to bring the mightiest commercial undertakings to justice for anti-competitive behaviour that has cost their customers millions, if not, billions.

The first was the Supreme Court’s decision in PACCAR, which found that litigation funding agreements (LFAs) were unenforceable if the funder’s fee fell to be calculated as a percentage of the damages. This had been the method most commonly adopted by litigation funders, with the benefit that if damages were low, the funder’s fee was automatically reduced, aligning funder and claimant interests.

Opponents of litigation funding in the English courts have grown ever more vocal since PACCAR.  The US Chamber of Commerce, apparently believing that businesses large enough to belong to their organisation should be free from the Rule of Law, have gone into lobbying overdrive looking to promote opposition to litigation funding, and an attempt has been made in the CAT case of Neill v Sony to extend the PACCAR rule to make LFAs unenforceable where the funder’s fee is calculated as a multiple of the sums, which would almost certainly bring about the end of litigation funding as we have come to know it. 

The opponents of litigation funding have recently lost before a strong Court of Appeal (Sir Julian Flaux and Lord Justice Birss and Lord Justice Green), but the PACCAR Court of Appeal was equally strong and that did not stop the Supreme Court coming to the PACCAR decision, described by some as ‘judicial vandalism’. It is expected that an appeal to the Supreme Court will come in the Neill case and huge concern about what the Supreme Court might make of it. The PACCAR decision by the Supreme Court was described by Lady Rose in her dissenting judgment in that case as creating “significant problems for the administration of justice”.  One wonders what Her Ladyship might have to say if the Neill judgment by the Court of Appeal was to be reversed by the Supreme Court.

The second threat to litigation funding comes from the CAT itself and concerns its conduct in the case of Merricks v MasterCard. In the Merricks case, litigation funder Innsworth contested the £200 million settlement, agreed upon by Mastercard and the class representative who it funded it for seven years, Walter Merricks, as too low. Following the rubber stamping of that settlement by the CAT, Innsworth applied for judicial review of the Tribunal’s decision to reduce the funder’s return. 

Predictably, this resulted in Innsworth being labelled ‘greedy’, a headline-grabbing insult that was trotted out more than once in this topsy-turvy legal saga. This narrative is dangerously simplistic, threatening to drown out the true issues at the heart of the case. Without funders like Innsworth taking on huge financial risks, these cases wouldn’t happen at all. Litigation funding is not philanthropy, it is investment. If the prospect of a fair return is removed, the model collapses.

The judicial review application

The purpose behind Innsworth’s judicial review is not to prevail on the CAT to look again at the size of the settlement, that is a done deal. Rather, it seeks a review of the way the three pots of money from the £200 million will be distributed.

Innsworth argues that despite taking all of the risk, it would end up with less than a sixth of the £150 million or so in net proceeds. This is a return ‘far below anything contemplated’ in the litigation funding agreement. It points out that the Access to Justice Foundation stands to gain £30 million. Despite being an unconnected party, whose role has hitherto been thought to be limited to becoming the beneficiary of any undistributed damages, after the class and the funder had been paid their due, this intervention by the CAT would bring it substantially more than the profit available to Innsworth.

Innsworth also accuses the CAT of misstating the profitability of Innsworth’s investment as a 1.5 multiple by wrongly including the money it has invested as part of the profit when calculating Innsworth’s return on investment. Innsworth will actually receive a profit multiple of 0.5x. 

It is understood that the CAT is doubling down on its maths and rationale, senior panel members have told audiences at recent legal conferences as much. It appears to underline a strange view that funders should be grateful just to be involved in such significant cases.

The Civil Justice Council’s report

All this is happening while the Civil Justice Council, whose function is to help make civil justice more accessible, fair and efficient, has just published a report on litigation funding, in which its initial recommendation concerns PACCAR. It recommends the effect of the Supreme Court’s decision be reversed by legislation, which should be both retrospective and prospective in effect. 

There are real concerns that despite this strong recommendation, there will be reluctant responses from the Ministry of Justice. However, further delays will be dangerous. Collective redress is a cornerstone of modern justice. When corporations break the law, there must be meaningful consequences, without prohibitive cost to consumers or inordinate delays.

The CAT has the potential to become a powerful tool in the fight against cartels, but it can’t meet its policy aims if funders are driven away and class action claimants are left stranded. 

This is why the upcoming judicial review application is important beyond just the Merricks case. It may mean the Access to Justice Foundation will have less funds to deploy, but in terms of the bigger picture, it carries great importance. Without action to deal with the CAT’s future and work to resolve PACCAR, the UK’s collective redress regime could wither. And the next time a corporation like Mastercard breaks the rules, the consumer voice could be rendered all but silent.