No “Default Deferral” of Litigation Funder Return Scrutiny at CPO Certification: CAT’s Supervisory Control and a “Realistic Prospect” Threshold for Intra-Class Conflict

1. Introduction

Stephan v Amazon.com Inc & Ors [2026] EWCA Civ 183 concerns two applications by Amazon for permission to appeal the Competition Appeal Tribunal’s (“CAT”) decision to make two collective proceedings orders (“CPOs”) under s.47B Competition Act 1998. Both sets of proceedings allege that Amazon abused a dominant position contrary to the Chapter II prohibition (s.18 CA 1998) and, for the pre‑31 December 2020 period, Article 102 TFEU.

The claims relate to practices in Amazon’s online store. One claim is brought on behalf of consumers (class representative: Robert Hammond). The other is brought on behalf of third‑party sellers (class representative: Professor Andreas Stephan). Both were certified on an opt‑out basis.

Amazon’s challenges were narrow and procedural in character: (i) in the consumer claim, Amazon attacked the CAT’s approach at certification to the litigation funding agreement (“LFA”) and the funder’s potential return; (ii) in the sellers’ claim, Amazon asserted an actual or potential conflict of interest within the seller class (between “FBA” and “FBM” sellers). The Court of Appeal (Civil Division) refused permission in both cases, emphasising the high threshold for appellate intervention in discretionary, specialist case‑management decisions.

2. Summary of the Judgment

  1. Hammond (consumer) proceedings: The Court of Appeal held there was no arguable error of law in the CAT’s decision not to determine at certification whether the funder’s potential return was “wholly unreasonable”. The CAT did not apply a “default rule” deferring scrutiny to the end; rather, it permissibly recognised that the funder’s return is always subject to the CAT’s supervisory jurisdiction and that fuller information is typically available at judgment/settlement/distribution.
  2. Stephan (seller) proceedings: The Court of Appeal found no realistic prospect of successfully challenging the CAT’s conclusion that there was no realistic intra‑class conflict disabling Professor Stephan from representing the whole class at the certification stage. The CAT was entitled to proceed on the evidence (notably Dr Houpis’ analysis) and could revisit conflict management later; if necessary, mechanisms such as separate teams (as contemplated in UK Trucks Claim Ltd v Stellantis [2023] EWCA Civ 875) could address emergent tensions.

3. Analysis

3.1 Precedents Cited

(A) Funding scrutiny and CAT supervisory jurisdiction

  • Gutmann v Apple Inc [2025] EWCA Civ 459
    This was the central reference point. The Court of Appeal in Stephan clarified what Gutmann does—and does not—stand for. Amazon argued the CAT misread Gutmann as endorsing a default position that reasonableness of a funder’s return should be left until the end absent “exceptional circumstances”. The Court rejected that characterisation: the key endorsed proposition is that funder returns are subject to the CAT’s “broad overarching powers” and can be reviewed “at any stage”, including at settlement/judgment/distribution. The sentence in Gutmann that issues “are to be addressed at the time of distribution” was treated as fact‑specific (addressing an argument about fettering class entitlements), not a rigid procedural rule.
  • Merricks v Mastercard, Inc [2025] CAT 28
    Used as an example of the CAT’s discretion in practice: the CAT, at the end of proceedings, allowed the funder less than the LFA provided in circumstances of a poor result. This supported the CAT’s (and the Court of Appeal’s) view that end‑stage scrutiny may be better informed and effective.
  • Gormsen v Meta Platforms Inc [2024] CAT 11
    Mentioned in the discussion of how the CAT has viewed its supervisory role in controlling costs and funder returns, particularly on settlement or judgment. It formed part of the background to the approach recorded in Gutmann.
  • Money Max Int Pty Ltd (Trustee) v QBE Insurance Group Ltd [2016] FCAFC 148
    Cited to support the institutional logic of deferring approval of a funding commission to a later stage when “more probative and more complete information” is available—typically at settlement approval or distribution. The Court of Appeal accepted the CAT’s reliance on this reasoning as a legitimate factor in exercising discretion at certification.
  • R (PACCAR Inc) v Competition Appeal Tribunal [2023] UKSC 28; [2023] 1 WLR 2594
    Cited to explain why funder returns cannot be structured in certain ways (the judgment notes that a return cannot be “fixed by reference to the damages recovered”). This forms part of the background risk that LFAs may generate incentive misalignments around settlement.

(B) Intra-class conflict and conflict management

  • UK Trucks Claim Ltd v Stellantis [2023] EWCA Civ 875
    Used to illustrate that even where some divergence of interest emerges within an opt‑out class, the CAT may manage it through structural and procedural protections (e.g., separate legal teams/experts/funding). The Court of Appeal treated this as an available “toolkit” rather than an all‑or‑nothing certification issue.
  • [2024] CAT 8 (carriage dispute in Hammond’s case)
    Mentioned as procedural background on the choice of class representative (with permission to appeal refused). It contextualises the later funding arrangements and Amazon’s suggestion that post‑carriage the representative should “re‑test” the market for funding.
  • [2025] CAT 6, [2025] CAT 42, [2025] CAT 66
    These are referenced as stages at which the CAT (and the refusal of permission to appeal) accepted or proceeded consistently with the evidence that FBA sellers’ losses from overcharges could outweigh any gains from diverted sales, undermining the claimed intra‑class conflict.

3.2 Legal Reasoning

(A) Hammond: certification-stage scrutiny of funder return

The Court of Appeal framed the appeal through the lens of Rule 78 of the Competition Appeal Tribunal Rules 2015, stressing that certification is discretionary and evaluative (“just and reasonable”), and that appeals against such specialist case‑management decisions face a “particularly high hurdle”. The funding point was only one factor within that broad judgment.

Crucially, the Court distinguished two funding-related questions:

  • Ability to meet adverse costs (Rule 78(2)(d)): the CAT recorded £15m ATE cover and Amazon did not appeal that finding.
  • Terms of the LFA and potential funder return: Amazon’s complaint was that the return could be “exceptionally high” and should have been evaluated—and potentially rejected—at certification.

The Court upheld the CAT’s approach for three connected reasons:

  1. No legal misdirection from Gutmann: The Court held it was not arguable that the CAT misunderstood Gutmann as creating a default rule of deferral. The CAT’s phrase “at the end of the day” was interpreted as “ultimately/always”, i.e., that the return is always subject to scrutiny and approval, not that scrutiny must wait until the end.
  2. Certification-stage caution was rational and permissible: The CAT identified practical limits at certification: it cannot properly inquire into funder risk assessment, privileged materials, or the content of funding negotiations; those evidential barriers may be reduced at judgment/settlement (as illustrated by Merricks). Deferral was therefore a defensible case‑management choice.
  3. Incentives/conflict were addressed at the correct level: The Court acknowledged that, especially post‑PACCAR, LFAs may create misaligned incentives around settlement. But the legally material question at certification was whether the LFA contained sufficient protections on settlement and control (the CAT had considered termination/settlement/cost controls and concluded protections were adequate). The CAT’s not additionally tying that analysis to the “potentially excessive” return did not amount to an arguable error of law.

The Court also rejected Amazon’s “market retesting” argument (that the LFA was struck during a carriage dispute and should be renegotiated after it ended). The Court reasoned that: (i) the CAT did have that factor in mind and balanced it against delay; (ii) in any event, the eventual question is not whether the deal was “competitive” but whether the return is reasonable in all the circumstances, which the CAT is not bound to accept merely because it appears in a contract.

Finally, the Court declined to treat broader policy debates (including Department for Business and Trade consultation responses) as a “compelling reason” to grant permission where no arguable legal error existed.

(B) Stephan: intra-class conflict and the “realistic possibility” threshold

Amazon’s conflict argument focused on alleged divergence between: FBA sellers (Fulfilment by Amazon), FBM sellers (Fulfilled by Merchant), and mixed sellers. It turned on how “diversion” of sales between FBM and FBA would (i) affect aggregate damages calculations and (ii) later affect distribution.

The Court accepted the CAT’s key evaluative conclusion: on the evidence available at certification, there was no realistic possibility of a disabling conflict. The reasoning was evidence-driven:

  • The aggregate claim was primarily framed around indirect effects (overcharges in fulfilment and marketplace fees), not a simple “one seller’s lost profit equals another’s gained profit” model.
  • Although diversion rate might matter in two circumstances (sales lost to overseas FBA sellers outside the class; and differing margins), Amazon adduced no evidence undermining Dr Houpis’ analysis that FBA sellers’ losses from alleged overcharges would outweigh any gains from diverted sales.
  • In those circumstances, the CAT was entitled at this stage to accept the proposition that (if diversion mattered) FBA sellers would not realistically be incentivised to argue for a lower diversion rate later.

The Court emphasised the CAT’s continuing supervisory role: if evidence develops such that conflicts become real (e.g., competing positions on diversion at distribution), the CAT can revisit the issue and adopt management measures—potentially including segregated teams as contemplated in UK Trucks Claim Ltd v Stellantis [2023] EWCA Civ 875. The Court also rejected the suggestion that the CAT had created categories of “direct” versus “indirect” conflicts as a matter of law; “direct” was simply a factual descriptor of the fundamental conflict in Trucks.

3.3 Impact

  • Funding challenges at certification will be harder to run as defendant “satellite litigation”: While defendants may raise LFA issues, this decision underlines that disputes about the reasonableness of a funder’s return will often be treated as better addressed when the CAT can see outcomes, proportionality, and (if necessary) more material—reinforcing the CAT’s supervisory jurisdiction rather than importing a rigid timing rule.
  • Clarification of Gutmann’s meaning in practice: The Court of Appeal read Gutmann as recognising broad CAT power to intervene, not as mandating “end-stage only” review. That reduces the prospect of parties characterising Gutmann as a procedural straightjacket either way.
  • Conflict objections must be evidenced and realistic: For opt‑out collective proceedings, “conflict” will not be accepted as an abstract possibility. Where the CAT has a rational evidential basis to find no realistic prospect of disabling conflict at certification, the Court of Appeal will be slow to interfere.
  • Reinforcement of the CAT’s managerial “toolkit”: The judgment signals that certification is not the only moment to address class tensions; the CAT can adapt governance, representation arrangements, and (where appropriate) the use of separate teams as the case evolves.

4. Complex Concepts Simplified

  • CPO (Collective Proceedings Order): The CAT’s order allowing a claim to proceed on a collective basis for a defined class.
  • Opt-out collective proceedings: Class members are included unless they actively opt out (making conflict management and tribunal supervision especially important because individual consent cannot practically be obtained).
  • Rule 78 “just and reasonable” certification: A discretionary assessment of whether the proposed class representative is suitable, including fairness, absence of material conflict, and funding/costs capacity.
  • LFA (Litigation Funding Agreement): A contract under which a third-party funder finances litigation in return for a fee/return, subject (in collective proceedings) to the CAT’s supervisory control.
  • ATE insurance: “After the event” insurance, commonly used to cover adverse costs exposure if the claim fails.
  • Aggregate damages and distribution: The CAT may assess total class-wide damages first; later, a separate stage determines how that pot is distributed among class members.
  • FBA / FBM and “diversion rate”: In the seller claim, “diversion” refers to sales allegedly shifting from FBM to FBA due to Amazon’s practices; the “diversion rate” is the estimated proportion of that shift, relevant to some elements of loss and potentially to distribution.

5. Conclusion

Stephan v Amazon.com Inc & Ors [2026] EWCA Civ 183 reinforces two practical propositions in UK competition collective proceedings. First, challenges to a funder’s potential return at certification will rarely succeed absent a clear legal misdirection: the CAT is entitled to defer detailed reasonableness scrutiny where it has rational case‑management reasons, because funder returns remain subject to its supervisory jurisdiction and can be revisited when outcomes and proportionality are clearer. Second, alleged intra‑class conflicts must be grounded in a realistic evidential prospect; where the CAT can rationally conclude no such prospect exists at certification, permission to appeal will be refused—while preserving the CAT’s ability to revisit and manage conflicts dynamically as the case develops.