Gutmann v Apple Inc & Ors

Factual and Procedural Background

This appeal is pursued by the defendants (referred to collectively as "Apple") against the class representative ("CR") in collective proceedings before the Competition Appeal Tribunal ("CAT"). The appeal concerns two grounds relating to funding issues following the CAT's judgment dated 12 March 2024. The proceedings arise after the CAT certified the collective action on 1 November 2023, subject to review of the litigation funding agreement ("LFA") in light of the Supreme Court decision in PACCAR [2023] UKSC 28. The LFA was revised accordingly and the revised terms were considered by the CAT in the judgment under appeal.

The appeal challenges the CAT’s jurisdiction to order payment of the funder's fee or return out of damages awarded to the class in priority to the class members and whether the LFA creates perverse incentives that disqualify the CR from acting fairly for the class. The CAT granted permission to appeal on these grounds, and the appeal was heard with other related appeals.

Legal Issues Presented

1. Whether the Competition Appeal Tribunal has jurisdiction to order that the funder's fee or return be paid out of the damages awarded to the class in priority to the class members.
2. Whether a class representative can properly enter into a litigation funding agreement that contemplates payment of the funder's fee in priority to the class and whether such an agreement creates conflicts of interest that prevent the CR from acting fairly and adequately for the class.

Arguments of the Parties

Appellant's Arguments

• The CAT lacks jurisdiction under section 47C of the Competition Act 1998 ("CA 1998") and the CAT Rules to certify proceedings where the LFA permits the funder to be paid in priority to the class.
• The LFA is contrary to statute and unenforceable.
• The damages award must be paid to the CR or an authorised person on trust for the class, and there is no statutory basis for paying the funder directly from damages in priority to the class.
• The funder bears the commercial risk of payment only from undistributed damages, and the statutory scheme envisages payment to the funder only after class members have claimed their damages.
• The CR has no right to contractually alienate part of the damages to the funder, making him unsuitable as a fiduciary.
• The LFA creates perverse incentives requiring the CR to act against the interests of the class by prioritising payment to the funder.
• The statutory provisions, rules, and government guidance support a scheme focused on compensation to class members, not funders receiving priority payments.
• There is no procedural mechanism for the class to be heard regarding payment to the funder prior to distribution.
• The distinction between settlements and damages awards justifies different treatment, with broader CAT discretion in settlement cases.

Appellee's Arguments

• The CAT has broad jurisdiction under section 47C(3)(a) and (b) CA 1998 and the CAT Rules to order payment of the funder's fee or return out of damages awarded to the class, including in priority to the class.
• The CR acts on behalf of the class and binds the class when entering into LFAs; thus, payments to funders from damages are made "on behalf of the class".
• Payments to funders and lawyers from damages awards are consistent with commercial realities and necessary for access to justice in complex collective proceedings.
• The supervisory jurisdiction of the CAT ensures that funder returns and fees are reasonable and proportionate.
• The statutory provisions concerning undistributed damages (sections 47C(5) and (6)) address a distinct issue from payment of costs and fees from the damages award itself.
• The distinction between settlements and damages awards is artificial; in both cases, the CAT has jurisdiction to approve payments to funders and lawyers out of the overall sum.
• The CR’s obligations under the LFA require acting fairly and justly in the best interests of the class, and the CAT’s supervisory role mitigates conflicts of interest.
• Precedent and practice confirm that the CAT has exercised broad case management powers to approve payments to funders and lawyers prior to distribution to the class.
• The CR in the present case is experienced and has sought independent legal advice, distinguishing this case from others where CR independence was questioned.

Table of Precedents Cited

Court's Reasoning and Analysis

The Court began by examining the statutory framework under section 47C of the Competition Act 1998 and the relevant CAT Rules, focusing on the powers of the CAT to order payment of damages and associated costs. It concluded that the CAT has wide and unrestricted powers under section 47C(3)(a) and (b) to order damages to be paid to the CR or to any other person the CAT thinks fit, including litigation funders and lawyers. The statute does not restrict these powers to payments only after class members have claimed damages or to undistributed damages.

The Court rejected the appellants' argument that the CR cannot bind the class to pay the funder, holding that the CR acts on behalf of the class and has authority to enter into LFAs that bind the class. The Court found that the CAT's supervisory jurisdiction ensures that any payment to funders or lawyers is subject to scrutiny for reasonableness and proportionality.

The Court distinguished the statutory provisions addressing undistributed damages as dealing with a separate issue from the payment of funders' fees and costs from the damages award itself. It also rejected the appellants' attempt to draw a principled distinction between settlements and damages awards, concluding that the CAT’s jurisdiction to approve payments to funders and lawyers applies equally in both contexts.

The Court considered the risk of conflicts of interest inherent in LFAs but found that the safeguards in the LFA and the CAT’s supervisory role adequately protect the interests of the class. It rejected the contention that the CR was unsuitable or acting against the class interests, noting the CR’s obligation to act fairly and justly and the availability of independent advice.

Overall, the Court upheld the CAT’s conclusion that it has jurisdiction to order payment of the funder's fee or return out of damages in priority to the class and that the CR may enter into LFAs contemplating such arrangements without fettering the class's entitlement.

Holding and Implications

The appeal is dismissed.

The Court affirmed the CAT’s jurisdiction to order payment of litigation funders’ fees or returns out of damages awarded to the class in priority to class members, subject to the CAT’s supervisory jurisdiction ensuring reasonableness and fairness. It confirmed that a class representative may enter into litigation funding agreements contemplating such payments without breaching fiduciary duties to the class. The decision clarifies that the statutory and procedural framework provides broad powers to the CAT to manage distribution of damages and associated costs, including payments to funders and lawyers, and rejects a narrow interpretation limiting funder payments to undistributed damages only.

No new precedent was established beyond confirming the CAT’s existing broad jurisdiction and supervisory role. The ruling supports the commercial viability of collective proceedings by recognizing funders' entitlement to reasonable returns and the CR's representative capacity to bind the class in funding arrangements.