Litigation Funding Priority in Collective Proceedings: Jurisdiction Under Section 47C(3)(b) of the Competition Act 1998

Introduction

Gutmann v Apple Inc & Ors ([2025] EWCA Civ 459) is an appeal against the Competition Appeal Tribunal’s (“CAT”) certification of a large-scale opt-out collective action brought by Mr Justin Gutmann on behalf of Apple device purchasers. Apple challenged the CAT’s decision on two funding-related grounds:

Whether the CAT lacked jurisdiction to order that a litigation funder’s fee or return be paid from the damages award in priority to class members.
Whether the Class Representative’s funding agreement created perverse incentives incompatible with his duty to act in the class’s best interests.

The Court of Appeal unanimously dismissed both grounds, confirming that under section 47C(3)(b) of the Competition Act 1998 the CAT has a broad power to direct that a proportion of damages be paid “on behalf of the represented persons” to a third party such as a funder, and that a Class Representative may validly enter into such an agreement subject to the CAT’s supervisory control.

Summary of the Judgment

The Court of Appeal held:

The CAT’s jurisdiction to award damages “on behalf of the class” to “such person other than a represented person as the Tribunal thinks fit” (s 47C(3)(b)) encompasses orders for payment of a funder’s return out of the award in priority to class members.
Rule 93 of the CAT Rules (distribution of awards) and Rules 2 and 4 (general case-management and proportionality principles) reinforce this power.
There is no statutory or common-law prohibition on a Class Representative entering a Funding Agreement that contemplates priority payment to the funder, so long as the CAT retains its supervisory role at distribution to scrutinise proportionality and fairness.
Apple’s arguments—that payment must be limited to “undistributed” damages under s 47C(6), that class members would have no contractual nexus with funders, and that funders should bear the full back-end risk—were rejected as inconsistent with the statutory scheme and with settled practice in settlement-approval cases.
Ground 3 also failed: the Funding Agreement’s safeguards (independent decision-making by the Representative and solicitor, disputes to an independent KC, and CAT oversight) ensured no impermissible conflict of interest.

Analysis

Precedents Cited

PACCAR ([2023] UKSC 28): Defined Litigation Funding Agreements as DBAs under s 58AA Courts and Legal Services Act 1990 and struck down returns linked to damages recoveries. It prompted LFAs to base returns on multiples of capital rather than percentages of damages.
London & South Eastern Railway v Gutmann ([2022] EWCA Civ 1077): Green LJ recognized the necessity of third-party funding but warned of perverse incentives, stressing CAT’s duty to control costs and returns.
Gormsen v Meta Platforms ([2024] CAT 11): Emphasised two funding risks—excessive take-out by funders and perverse incentives—and held that CAT should not micromanage commercial negotiations unless terms are “sufficiently extreme.”
Merricks v Mastercard ([2017] CAT 16): Interpreted s 47C CA 1998 purposively to include funders’ fees as “costs or expenses” payable out of unclaimed damages, confirming CAT’s power to award third-party costs.
BT Group v Le Patourel ([2022] EWCA Civ 593): Observed that CAT’s wide case-management discretion (r 98) could structure priorities so funders and representatives are paid before distribution to class members.
Christine Riefa v Apple ([2025] CAT 5): Outlined authorisation criteria for a Class Representative, requiring clear appreciation of funding-related conflicts and robust independence.
Mark McLaren v MOL Europe ([2024] & [2025] CAT judgments): Demonstrated CAT’s willingness—under broad case-management powers—to permit stakeholder payments (funder, ATE insurers, lawyers) prior to class distribution in both settlement and damages contexts.

Legal Reasoning

Central to the Court’s reasoning was section 47C of the Competition Act 1998, which provides:

“(3) Where the Tribunal makes an award of damages in opt-out collective proceedings, the Tribunal must make an order providing for the damages to be paid on behalf of the represented persons to—
(a) the representative; or
(b) such person other than a represented person as the Tribunal thinks fit.”

The appellants argued that “on behalf of” limits the CAT to appointing a trustee or claims administrator, and that substantive payment to funders must wait for unclaimed balances under subsections (5)–(6). The Court rejected this:

The plain wording of s 47C(3)(b) is broad and unqualified; “such person” includes funders or lawyers.
“On behalf of” refers to the Representative’s authority to bind the class by agreements made in the litigation—LFAs and CFAs are entered in that representative capacity.
Subsections (5)–(6) address a distinct issue—what to do with genuinely unclaimed damages—where no beneficiary exists, not the treatment of damages immediately on award.
Rule 93 of the CAT Rules mirrors s 47C(3)–(6), using “undistributed damages” in place of “not claimed” in subsection (6), and confirms the CAT’s broad discretion over distribution.
Rules 2 and 4 impose overarching principles of proportionality, fairness and justice in costs decisions, reinforcing the CAT’s supervisory power.
Settlement jurisprudence under Rule 94—where the CAT routinely approves stakeholder payments from settlement sums—demonstrates that there is no principled distinction between settlement and damages awards.

Impact

The decision has significant implications for the future of UK collective actions:

Affirms the viability of third-party funding by confirming that funders’ commercial returns can be secured out of damages awards, subject to CAT scrutiny.
Removes uncertainty about the timing of funders’ remuneration, reducing systemic risk and potentially lowering funding costs for class representatives.
Encourages competition in the litigation funding market by clarifying that priority-payment terms are lawful if proportionate and approved by the CAT.
Bolsters the CAT’s role as supervisory gatekeeper, ensuring funding arrangements do not impose undue conflicts or exploit class members.
Influences case-management practice: parties will need to make full, transparent disclosures of funding waterfalls and multiples to secure certification and distribution orders.

Complex Concepts Simplified

Opt-out vs Opt-in collective proceedings: Opt-out automatically includes all in the defined class unless they opt-out; opt-in requires individuals to register to join.
Damages-Based Agreements (DBAs): Fee arrangements where a lawyer or funder takes a percentage of the damages awarded; these are prohibited if they amount to “claims management services” under s 58AA Courts and Legal Services Act 1990.
Litigation Funding Agreement (LFA): A contract under which a third-party funder finances litigation costs in return for a multiple of committed capital, not a percentage of damages.
Aggregate damages: A single award covering the collective loss of the class, without individual assessment of each member’s claim.
Undistributed (or unclaimed) damages: Portions of an aggregate award that remain after a cut-off date because class members did not claim their share.
Account credit model: Distribution method where each class member receives a credit (e.g. vouchers, refunds) rather than cash payment, often boosting uptake.
CAT’s supervisory jurisdiction: The Tribunal’s ongoing power to review and adjust funding-related orders at certification, settlement approval, and final distribution to ensure fairness and proportionality.

Conclusion

Gutmann v Apple clarifies and solidifies a core principle of the UK collective actions regime: the CAT possesses a wide, unqualified power under section 47C(3)(b) and its Rules to order that litigation funders and other stakeholders be paid out of damages awards in priority to class members. This power arises from the express statutory language (“such person other than a represented person”) and is reinforced by the Rules’ general case-management and proportionality principles.

By confirming that Class Representatives may validly enter LFAs providing for priority waterfall payment—subject always to CAT oversight—the decision preserves access to justice for large classes of claimants while maintaining robust safeguards against excessive returns or conflicted incentives. Going forward, funding agreements must be negotiated and presented in a fully transparent manner, and the CAT’s supervisory role at both certification and distribution stages will remain the key check on fairness and proportionality in the collective actions ecosystem.