In this podcast series, Deminor Litigation Funding interviews global professionals to share their perspectives on different aspects of dispute resolution and litigation funding.
Podcast Preface
In this interview, we speak with Rachael Machado (RM), an Antitrust and Competition Associate at Fieldfisher. In conversation with Namita Moorjani (NM), Rachael shares updates to the Competition Appeal Tribunal (CAT) and the legal landscape of UK Anti-competition actions.
Podcast Transcript
NM: I’m glad to be joined by Rachael Machado who is an Associate at Fieldfisher working in the Antitrust and Competition space. Rachael is here to share her insights on recent trends and practical challenges she’s observed in the Competition Appeal Tribunal (CAT) proceedings as well as how settlements are being approached in collective actions. Since CAT cases are still a relatively new and developing area in the UK, there’s a lot of interest in understanding how these claims are funded, managed, and ultimately resolved. Rachael’s experience working on some of these matters gives her a valuable perspective on how the Tribunal’s approach is evolving.
How have you seen the CAT assess and approve funding arrangements the CPO stage?
RM: The Tribunal scrutinises funding arrangements under what is known as the Authorisation Condition. The Tribunal must be satisfied that it is just and reasonable for the Proposed Class Representative (PCR) to act as the Class Representative in the Proceedings. While this provision relates to the suitability of the PCR, the Tribunal wants to ensure that the PCR will fairly represent the interests of the class and is sufficiently independent from the funder. There have been a few recent judgments arising out of CPO applications that have revealed trends in what the Tribunal focuses on when looking at funding arrangements.
For example, the Tribunal has been very clear that the funding terms need to be transparent.
In Riefa, a lack of transparency was one of the factors that led the Tribunal to refuse to certify the claim. This was a collective proceedings claim on behalf of UK Consumers against Apple and Amazon, alleging anti-competitive conduct in relation to the Apple App Store and the Amazon Marketplace. One of the Tribunal's concerns related to a clause in the Litigation Funding Agreement that prevented disclosure of the funder's financial return, including to class members. The Tribunal made it clear in that case that there is no justification in withholding the terms of the LFA from the scrutiny of the public and in particular the potential class members. For opt-out class actions, it is crucial that members have sufficient information to enable them to make an informed decision about whether to opt-out.
You can contrast this with Stephan and Hammond, which are two separate opt-out proceedings against Amazon that are being case managed together. The PCRs published the funding terms on their respective websites. The Tribunal was approving of this approach and specifically noted in its judgment that publishing the terms should now be standard practise in all opt-out proceedings.
The position is now clear that the terms of the LFA should be made available to the class. In practise, for consumer opt-out proceedings, the terms should be accessible by the general public although it may be permissible to redact the most sensitive terms and only provide them to class members that agree to confidentiality terms.
NM: That’s a really good point. It sounds like transparency has become a big focus for the Tribunal, especially in these opt-out cases. I can see why they’d want class members to actually understand how the funding works if they’re automatically included in a claim.
When it comes to the actual returns to funders, does the Tribunal look at those in detail during the CPO stage, or is that something that tends to be dealt with later on in the proceedings?
RM: The Tribunal generally leaves aside the actual question of the funder's return to a later stage in the proceedings, usually to when the outcome of proceedings is known. The Tribunal may intervene at an early stage when the funder's return is so clearly excessive so as to require calling out, but that's not generally something the Tribunal looks at closely at the CPO stage, particularly because the return stipulated in the funding agreement is not guaranteed Nevertheless, in Bulk Mail, which was certified earlier this year, the PCR commissioned independent analysis which set out how settlement or awards proceeds would be split between class members and other stakeholders in different scenarios. This was something it seemed the Tribunal looked on favourably.
One point that remains murky is the extent the Tribunal wants to know about negotiation of the funding terms and whether the class is getting a good deal. On one hand, in Riefa, the Tribunal said it was reluctant to assess the commerciality of the LFA terms unless they are sufficiently extreme to warrant calling out, but in Stephan and Hammond, the Tribunal suggested that it would be useful to include evidence of the steps taken by the PCR to secure funding on appropriate terms. This is a difficult ask for two reasons, firstly, those negotiations may be privileged and secondly, it’s often the case that claimants do not have strong negotiating power, in circumstances where it can take a long time to secure funding at all. It remains to be seen whether this is something the Tribunal is going to expect every time.
NM: That’s a really fair point. It does seem like a tough balance to make sure the class gets a fair deal without overstepping into the commercial realities of funding. We’ve talked a bit about funding arrangements and transparency, but what about the actual litigation costs?
How closely is the Tribunal looking at things like legal fees and overall cost management in these collective proceedings?
RM: In terms of litigation costs, the Tribunal has signalled in recent CPO judgments a focus on ensuring that there is oversight of legal fees.
In Bulk Mail and Stephan and Hammond it said that instructing costs lawyers should be the standard in collective proceedings. It wanted the PCR to hire a costs specialist to advise on legal fees, ensure that costs weren’t excessive or opaque, and to ensure the PCR understood the financial arrangements of the claim. This is contrary to what happens in reality where it is the lawyers and the funders that typically originate the claim, rather than the class representatives. This may be why the Tribunal considered this further safeguard was required to protect the interests of the class, but without referring to the burden of this.
Recent cases suggest that the Tribunal is increasingly focused on ensuring the PCR is able to robustly represent the interests of the class, not only in bringing the claim but everything around that, including exercising control of the litigation free from the influence of the funder and controlling costs, to ensure a fair deal for the class.
NM: It sounds like the Tribunal’s really pushing for greater accountability around costs, which makes sense given how complex and expensive these cases can be. Bringing in a costs lawyer seems like a sensible way to keep things transparent and fair for the class.
Shifting gears slightly, how have you seen the CAT assess and approve settlements in collective proceedings, particularly when it comes to the different stakeholders’ entitlements?
RM: I will firstly clarify that when speaking about stakeholders in collective proceedings, we are talking about the class but also the funder, the solicitors and counsel and the ATE insurer.
In opt-out proceedings, a settlement must be approved by the Tribunal for it to bind the class members. The Tribunal must be satisfied that the terms are "just and reasonable" considering factors such as: (i) the likelihood that a higher amount is achieved at trial; (ii) the duration and cost of the proceedings if they proceeded to trial; (iii) opinions by legal representatives and experts on the terms of the settlement; and (iv) the terms of the agreement in respect of unclaimed settlement monies (among other things).
NM: That’s quite a detailed assessment, how does the Tribunal actually go about applying those factors in practice?
RM: There have now been four collective settlement approval orders in the UK, two in the "Roll-on/Roll-off" shipping cartel case (RoRo), one in the Boundary fares case and one in the Merricks case. The formula is usually to separate the settlement into "pots" which are allocated to the class members, the class representative, the stakeholders and to charity. There is sometimes money set aside for the costs of distribution too.
In two cases, a dispute has arisen in respect of the money that goes to stakeholders and the Tribunal has been asked to rule on this.
The first dispute arose in Merricks where the Class Representative applied for approval of a settlement of £200 million to be divided into 3 Pots. Pot 1 provided a ring-fenced amount for class members, with any unclaimed residuals going to charity. Pot 2 was to cover the funder's investment (but without any profit). With Pot 3, the settling parties (rather unusually) presented a range of alternatives for the Tribunal to consider. It was intended to cover any return allowed to the funder but the parties also allowed for the possibility that the Tribunal might want some of the funds to go to the class and/or charity. In the end, the Tribunal decided that the funder should only get a 0.5X return (a little under half of Pot 3) because the litigation had not really been successful and that the rest should be added to Pot 1 or go to charity.
The funder in Merricks opposed the settlement in that case, as it felt entitled to a much larger share of the settlement proceeds, insisting that it should be paid part of Pot 1 as well as all of Pots 2 and 3. I should say here that the Tribunal ultimately has the power to determine the appropriate return for a funder taking into account, amongst other things, the size of the settlement (under s49A(5) of the Competition Act 1998), and this may not reflect what was provided for in the litigation funding agreement. This was exactly what the Tribunal did in Merricks and is expected to do in Boundary Fares.
The funder in Merricks is seeking a judicial review of the Tribunal's judgment. It wasn't a party to the proceedings and therefore can't appeal the decision in the normal way. It is essentially challenging the Tribunal's reasoning in setting the return for the funder out of the settlement. We are awaiting the outcome of that case.
The most recent development on this point was in Boundary Fares, where the Settlement Approval order was made in May 2024 and distribution to the class occurred in late 2024. The settlement provided for approximately £5m to be paid to the funders and lawyers in so-called "ringfenced costs" and up to £25m to be paid to class members. If class members claimed less than £25m then the residue was to be returned to the defendant save that if class members claimed less than £10.2m then the remainder of that £10.2m was to be available to pay "non-ringfenced costs" of the funders and lawyers. Much to everyone's surprise, the class only claimed approximately £200,000 of the settlement so there was £10m available to cover non-ringfenced costs. Crucially, this was subject to the approval of the Tribunal. The Tribunal was unhappy that the distribution to the class was so small and wanted some of the funds paid to charity. The class representative agreed and, in the end, all stakeholders agreed to a total of approximately £3.8m being paid to the Access to Justice Foundation in order to make up somewhat for the low level of distribution to the class. I should say, for transparency, that my colleague Richard Pike at Fieldfisher acted for the Access to Justice Foundation in this case.
Even after the payment to charity, there remained a total of a little over £6m available for non-ringfenced costs. This is where things got even more interesting. The funder argued that this should be paid and distributed in accordance with the Litigation Funding Agreement, i.e. honouring the contractual terms, with the result that all or most of it would go to the funder. It argued that the Tribunal had no jurisdiction to interfere in the terms of the contract. The lawyers, however, argued that the Tribunal could interfere and needed to ensure that the lawyers made some sort of recovery themselves.
Whilst the judgment is still pending, I wanted to point to some interesting comments the Tribunal made in that stakeholder entitlement hearing last month which are worth highlighting. Firstly, the Chair, Hodge Malek KC, seemed disappointed that the issue was before him at all. He described the collective actions regime as a "three-legged stool", meaning that for the regime to work, you needed the funder, who has an interest in getting an adequate rate of return, the lawyer who has an interest in getting fair remuneration for their work, and the class representative, who must be happy that the class is getting a good deal and that he or she is not personally exposed. Funders, class representatives and lawyers needed to work better together for the good of the regime overall, because these disputes can impact on future cases. So it's interesting to note these remarks, which amount to a warning of the direction of travel if these types of disputes can't be worked out.
The Department for Business and Trade has invited submissions for a review of the opt-out collective actions regime with responses due by 14 October. The questions in the Call for Evidence included questions directed at stakeholder entitlement and distribution of damages. Examples are:
- Do you consider the way litigation funders’ share of settlement sums or damages awards is approached currently to be fair and/or proportionate?
- What should happen to unclaimed funds from a settlement agreement?
- What should happen to unclaimed or residual damages?
DBT is now in the process of analysing responses to submissions which will inform proposals for change to the regime. The thrust of the remarks in the consultation document suggests that the government thinks the regime is currently tilted in favour of funders and lawyers rather than class members but that's not our perception at all. We can see a lot of sense in Hodge Malek's three-legged stool metaphor. The regime won't work unless all parties can get a fair return.
NM: It’ll be really interesting to see where that review lands especially if it leads to any concrete changes in how settlements and stakeholder entitlements are handled. Thank you for insights Rachael.
Podcast Speakers and Further Information:
Thanks for joining Deminor's Litigation Funding Podcast Series as we dive deep into core topics in funding litigation.
Keep a lookout for our upcoming conversations as the Deminor team speaks with several more experts to get their insights into different aspects of litigation funding.
If you would like to connect with either Rachael or Namita on LinkedIn, please click on the links below:
Rachael Machado, Associate at Fieldfisher – https://www.linkedin.com/in/rachael-machado-4b563b89/
Namita Moorjani, Financial Planning and Investment Manager at Deminor – https://www.linkedin.com/in/namita-moorjani/
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