UK Court of Appeal confirms that litigation funders can receive a share of damages prior to distribution to class members

What is the background?

Competition class actions remain a continuing theme in the UK, with 56 active claims currently before the Competition Appeal Tribunal (“CAT”). Those claims have an estimated combined damages value in excess of £160 billion.

The expansion of the UK competition class actions regime has been driven in part by the availability of litigation funding. However, the funding arrangements for collective proceedings have been the subject of judicial scrutiny in a number of cases, most notably by the Supreme Court in its 2023 decision in PACCAR finding that certain litigation funding agreements are unenforceable in the context of opt-out collective proceedings. For more information, see our previous briefing here.

In Gutmann v Apple, the Court of Appeal considered two related questions in relation to the funding arrangements:

1. Can the CAT make an order that litigation funders are paid from a collective damages award before any damages are distributed to class members? If not, there is a risk that a high rate of member uptake could reduce the amount of undistributed damages available to provide the funder’s return on investment; and
2. Can the CAT authorise a class representative who enters into a litigation funding agreement (“LFA”) drafted on that basis? Or does an LFA drafted on that basis create “sufficiently perverse incentives that the CAT could not properly authorise him to act as the class representative because… the LFA requires [him] to argue against the interests of the class he represented in favour of paying extraordinary sums to the funder”?

What was the outcome?

The Court of Appeal held that:

1. The CAT does have the power to order that a litigation funder is paid from an award of damages, prior to distribution to the class. The Court of Appeal held that there is “nothing surprising or unusual” in such an order.
2. The Court then went on to say that there is, therefore, “absolutely nothing wrong” with a class representative entering into an LFA which is drafted on that basis.

Key to the Court of Appeal’s decision was the fact that, regardless of the terms of the LFA, the CAT has overriding supervisory powers to control the timing of and the amounts paid to a funder as a return on their investment.

What next?

The Defendant’s third ground of appeal, that the LFA is unenforceable in light of the Supreme Court’s decision in PACCAR, will be heard alongside a number of related cases in June 2025.