Court of Appeal decision allows litigation funders to be paid first in collective proceedings

Two years on from the seminal 'PACCAR' judgment, the Court of Appeal has upheld the Competition Appeal Tribunal (CAT) decision in Gutmann v Apple [2024] CAT 18, that it has the power to order payment of a return to a litigation funder before any distribution of damages to members of the represented class. The CAT will need to exercise final control in each case over whether a litigation funder's return should be paid before distribution to the class, and the amount of that return.

Background

The Court of Appeal's judgment¹ arose out of opt-out collective proceedings against Apple pursued by Justin Gutmann on behalf of a class of around 26 million UK iPhone users. The claim relates to allegations surrounding issues with iPhone batteries and "throttling" of iPhone performance.

The CAT certified the collective proceedings in November 2023 subject to reviewing a revised Litigation Funding Agreement (LFA), which required amendment to take account of the Supreme Court's decision in PACCAR. However, the revised LFA contained terms which, in certain circumstances, provided for payment of a return to the funder before any distribution of damages to members of the represented class. Apple contended that the CAT had no jurisdiction under s.47C CA 1998 or the CAT rules (e.g. Rule 93) to permit the funder to be paid in priority to the class.

At first instance, the CAT rejected Apple's arguments. The CAT held that it has the power to permit payment to a funder to be made before distribution of damages to members of the class, and therefore that it is permissible for a class representative to enter into a LFA which contemplates this.

Apple appealed that decision (among other grounds), arguing that the CAT does not have the power to order that the funder's return be paid out of an award of damages prior to distribution to the class. It argued that low take-up was an accepted part of the regime and that in a situation where there was very high take up (e.g. account credits), that was a risk that Parliament had allocated to the funder. 

The Court of Appeal's decision

The Court of Appeal unanimously dismissed Apple's appeal, holding that the legislation underpinning the UK's collective action regime permits payment of the funder's return from an award of damages in priority to distribution to the class. Accordingly, the Court of Appeal held that it is permissible for class representatives to enter into LFAs which contemplate this.

At the Court of Appeal, Apple accepted that the CAT is able to order payment of a funder's return before distribution of any damages to class members in both opt-in collective proceedings, and in settlements made in opt-out collective proceedings. The Court of Appeal therefore considered it would be anomalous if the CAT did not have the same power following an award of damages.

The Court of Appeal also provided guidance that payment of a funder's return might be "particularly necessary" where the take up of damages by the class might be particularly high, for example if the CAT proposes to order distribution of damages by way of an account credit to members of the represented class. This reflected the obiter comments previously made by the Court of Appeal in BT Group v Le Patourel [2022] at [99].

However, the Court of Appeal emphasised that whether it is permissible for a payment of a funder's return to be made in collective proceedings before any distribution of damages to members of the represented class, and the amount of any funder's return, will always be subject to the control of the CAT under its supervisory jurisdiction.

The Court of Appeal also made clear that the decision allows the class representative to pay other costs, such as those of the lawyers, in advance of class.

Key takeaways

Funders and lawyers backing collective actions will take significant comfort from this decision, which will provide them with greater certainty that they can safely fund claims which are likely to see high take up rates and that in the right cases, they can make an application for their return to be paid in advance of distribution if the cases are successful.

At the certification stage, litigation funders can expect that LFAs which contemplate payment of their return before the represented class are likely to be considered permissible (although each LFA will still be scrutinised on its terms).

But PCRs and funders will want to very clearly articulate why on the facts in their case this term is appropriate. Following an award of damages, litigation funders can be confident that, at least in principle, PCR's can apply for a payment of their return can come from damages before distribution.     

Whether Apple seeks to appeal, and whether the Supreme Court is willing to hear any new appeals on funding collective actions, remains to be seen.

Note: The Court of Appeal is hearing the PACCAR-related appeal issues (including those arising in Neill v Sony, Apple v Kent, CICC II Ltd v Visa, CICC I v Mastercard, and a PACCAR-related ground of appeal in Gutmann v Apple) in June 2025.