Court of Appeal takes narrow approach to “same interest” requirement for representative actions
In Commission Recovery Ltd v Marks & Clerk LLP & Anor [2024] EWCA Civ 9 the Court of Appeal took a narrow approach to the issues that are suitable for determination by way of a representative action under CPR 19.8. At first instance, the High Court appeared to take a much broader approach to the “same interest” requirement for bringing a representative action which could potentially apply to claims even where there were differences between the class members or further information was required from them. The Court of Appeal upheld the decision to allow the claim to proceed as a representative action but took a narrower approach to the “same interest” requirement, indicating that the issue to be determined by the representative action should be a limited one, relating to only part of the case on liability.
The Court of Appeal still considered there to be value in this narrow issue being determined at an initial trial, with the other issues to be determined at a later stage, i.e. the ‘bifurcated’ approach to proceedings suggested by the Supreme Court in Lloyd v Google LLC [2021] UKSC 50.
The Court of Appeal’s judgment indicates that the CPR 19.8 procedure can only be used for issues which are common to all the class members and do not require individual circumstances to be considered.
Background and High Court decision
The background to the claim and the decision of the High Court are considered in detail in our previous blog post here. In brief, the claimant, Commission Recovery Limited (CRL), brought a claim against Marks & Clerk LLP (M&C LLP), an IP (intellectual property) law firm, and a company associated with it (LAR). The claim was brought in relation to an arrangement whereby M&C LLP referred its clients’ IP renewals to a third-party IP renewal service provider (CPA Global), in exchange for an undisclosed commission to be paid to LAR. The claimant sought the amount of the commission received by LAR on the basis that the defendants breached their fiduciary duties and/or were liable for the tort of bribery.
CRL sought to bring the claim under CPR 19.8 (previously 19.6) as a representative of M&C LLP’s current and former clients who had contracted on M&C LLP’s standard terms and in respect of which commission payments had been made to the defendants. CRL was never a client of M&C LLP. Rather, it was assigned claims against the defendants by one of M&C LLP’s clients (Bambach Europe), subsequently dissolved.
The defendants applied for an order that the claimant may not act as a representative because the “same interest” requirement in CPR 19.8 was not met. The High Court determined that, although there were differences between the claims (for example in relation to limitation issues and the amounts of commission) there was no conflict of interests between the claimant class, i.e. information and arguments advanced by one class member would not prejudice the interests of another. This lack of conflict was a crucial factor in the Court’s decision to permit the representative action to proceed. The defendants appealed.
Court of Appeal decision
The Court of Appeal noted that the only jurisdictional requirement for the application of CPR 19.8 is the “same interest” requirement and referred to the explanation of its meaning given by Lord Leggat in Lloyds v Google. It is enough that there is a common issue (or issues) such that the representative can be relied on to conduct the litigation in a way that will effectively promote and protect the interests of all members of the represented class. That is not possible where there is a conflict of interest between class members, but it is no impediment where class members merely have divergent interests (i.e. an issue may affect only some class members but advancing their case will not prejudice the position of others in the class).
In assessing whether this case fell within CPR 19.8, the Court of Appeal considered whether the claims of each member of the class raised a common issue and whether there was any relevant conflict of interest between them.
Nugee LJ held that there was a common issue in which all the class members had the same interest and which could suitably be determined on a representative basis at an initial trial, namely, whether the claimant’s core proposition was correct as a matter of law. The claimant’s core proposition was that a claimant would establish liability if they simply proved that they contracted with M&C LLP on its standard terms of business and that CPA paid commission to LAR in respect of renewal of their IP rights (subject to two potential defences of disclosure/informed consent and limitation which would need to be considered on an individual basis).The defendants disputed this core proposition as being too simplistic; their position was that M&C LLP’s duty and liability turned on the precise circumstances of M&C LLP’s retainer with each client, and/or the client’s knowledge of market practice.
Nugee LJ considered that if the claimant established its core proposition, the Court could make a declaration to that effect which would be equally beneficial to every class member. He noted that it is clear from Lloyds v Google that it is not an impediment to the use of a representative action that not all issues can be resolved on a class basis, even if those issues go to liability. Nugee LJ further held there was no relevant conflict between the members of the class.
Key Takeaways
The decision demonstrates how the representative action procedure is limited to common issues between the class but can be used even where the only common issue relates to a limited aspect of a case. The common issue identified by the Court of Appeal is a narrow one and it will not resolve the question of liability for the claimant class, let alone relief (although the Court noted that although the defences to liability would in principle require individual assessment, it was doubtful how significant this issue would be in practice). However, the Court of Appeal was clear that it did not matter that not all issues could be resolved on a class basis, nor how many members of a class would ultimately benefit from a declaration.
This claim is an example of the bifurcated procedure suggested in Lloyds v Google being used in a representative action, and we are seeing increasing use of this approach. For example, see this decision. The common issue is determined at an initial stage, with the remaining issues addressed later.
The Court of Appeal did not consider how the case will proceed beyond the initial stage or address the practical difficulties for the claimants and litigation funder in this type of bifurcated claim where the end goal is an award of damages. It did note that there may be difficulties ahead for the claimant, and commented that, “it is not immediately obvious how [the claimant] can obtain a money judgment on claims that do not belong to it. They belong to each member of the class, and it is not suggested that they have been assigned to [the claimant].” It remains to be seen how litigation funders will be able to secure a return on their investment in this type of case where individual claimants will need to come forward to advance their claim to damages but may not contract with the funder at that later stage.
Although the Court of Appeal noted the difficulties faced by the claimant, it rejected the defendants’ attempts to use these issues to prevent CRL bringing the representative claim. The defendants argued that CRL had put forward no plan as to how the litigation would be taken to a point where there are actually money judgments in favour of class members, who would each have to take steps to participate in the action. Nugee LJ noted that CRL had been established to advance the claims in this litigation and was being advised by a legal team and backed by a litigation funder and had evidently formed the view that there were sufficient prospects for successfully recovering substantial damages. He stated that while the Court does have discretion to prevent its resources being wasted on pointless litigation, “the Court should not in my judgement seek to second-guess CRL’s decision that it is commercially worth its while to continue with the litigation unless it can clearly see that the exercise is futile.”