Tribunal adopts practical approach to realities of collective actions funding
The Competition Appeal Tribunal’s recent ruling in the Trucks collective actions demonstrates a flexible and sensible approach by the Tribunal to the practical realities of collective claims.
The Tribunal rejected many of the defendants’ arguments about the adequacy of the applicants’ funding arrangements and accepted the applicants’ proposed variations to their arangements to address other challenges. The ruling is welcome news for class claimants and undoubtedly positive for the development of the UK’s young class actions regime.
The Road Haulage Association (RHA) and UK Trucks Claim Limited (UKTC) each applied for a Collective Proceedings Order (CPO) for their follow-on damages claims based upon the European Commission’s Trucks decision (together, the Claims). The RHA is seeking to act as the class representative for opt-in proceedings; UKTC is seeking to act as the class representative for opt-out or opt-in proceedings in the alternative. Whilst the Claims are stayed pending the Supreme Court’s ruling in Merricks, the Tribunal sought to deal with the defendants’ arguments as to the inadequacy of the proposed class representatives’ funding and insurance arrangements by way of preliminary issue.
The exact nature of the applicants’ funding and insurance arrangements are central to the Ruling and therefore worth stating in full:
- The RHA entered into a litigation funding agreement (a LFA) with Therium Litigation Funding IC and Therium RHA IC, a SPV set up for the purposes of funding the RHA’s litigation (the Therium LFA entities). Both the Therium LFA entities are Jersey-incorporated companies and are in the Therium group. Both companies are also “associated entities” to the UK-based Therium Capital Management Ltd (TCML) for the purposes of the Association of Litigation Funders’ Code (the ALF Code). The funding available to the RHA pursuant to their LFA is £27 million and the RHA has its own ATE policy providing up to £20 million of cover.
- UKTC is a SPV set-up to pursue this action and it has two LFAs to cover either an opt-out or an opt-in scenario, depending on which type of action the Tribunal might certify. UKTC’s litigation funder is Yarcombe Ltd, a Guernsey-incorporated SPV set up specifically for this claim. Yarcombe is part of the Calunius Capital LLP (Calunius) group but the corporate structure of the Calunius group appeared to the Tribunal to be relatively opaque: Calunius is the sole investment advisor to three Calunius risk funds and the corporate director of those funds is an entity called Calunius GP3 (GP3). Yarcombe is wholly-controlled by GP3. Adverse costs cover is provided by an indemnity from Yarcombe (contained in the LFA) and two ATE policies. The first (executed) ATE policy applies in the event that an opt-in CPO is granted, and a second policy would be entered into if an opt-out CPO is made. The level of cover provided for is £12 million.
The truck manufacturer defendants (the OEMs) argued that the Tribunal should refuse to authorise both UKTC and the RHA as representatives, based on the supposed inadequacy of both representatives’ funding and insurance arrangements.
First, the OEMs sought to argue that the applicants’ LFAs constituted damages-based agreements (DBAs), meaning that they were unlawful and unenforceable. In this regard, the Tribunal held that the LFAs in the Claims are not DBAs within the terms of section 58AA of the Courts and Legal Services Act 1990 and, more broadly, s.58AA CLSA does not apply to LFAs with litigation funders. The Tribunal’s finding on this point might be considered an expression of common sense – indeed many had expected this outcome – but the Tribunal’s wholesale rejection of the OEMs’ submissions is nevertheless welcome.
The OEMs also argued that the Claims were not backed by sufficient own-side funding and nor did the representatives have an adequate degree of adverse costs cover such that each could meet the requirement to pay the OEMs’ recoverable costs. UKTC’s claim met with specific criticisms from the OEMs as to Yarcombe’s ability to fund the litigation and to meet any order for adverse costs.
Prior to dealing with the OEMs’ arguments as to the adequacy of the proposed class representatives’ arrangements for own-side costs, the Tribunal set out the context in which these issues ought to be viewed: in short, the Tribunal’s concern is for the potential class members, to ensure that the class has the benefit of effectively conducted proceedings. However, it was impossible to predict in advance every aspect of competition damages proceedings and the Tribunal appreciated that arrangements may need to be reviewed and revised over time.
Insofar as the RHA’s claim was concerned, the OEMs argued that there was no evidence as to how the Therium LFA entities acquired their funds and a lack of clarity as to their status as “associated entities” for the purposes of the ALF Code. The value of the entities being “associated entities” for the purposes of the ALF Code is such that TCML would accept responsibility to the ALF for the entities’ compliance with the Code and specifically that the entities will maintain their capacity to meet their funding obligations.
To this argument, the Tribunal stated that whilst the ALF Code is voluntary and non-binding, it is “wholly unrealistic to suppose that a leading litigation funder that is commercially active in this field would not honour these commitments to the Association of which it is a founder member, and thus place at risk the whole regime of self-regulation.” The Tribunal on this basis accepted the adequacy of the structure of the RHA’s funding arrangements.
The second point raised by the OEMs as to the RHA’s funding arrangements went to specific wording of the RHA’s LFA whereby Therium had previously had sole discretion to extend further tranches of funding to the RHA. However, in the course of the hearing on these points, the RHA had sought to amend their LFA such that Therium’s right to terminate funding was contingent upon their ceasing to be satisfied as to the merits of the claim or that it was commercially viable, based on advice from an independent QC. Therium’s amendments resolved the Tribunal’s concern on this point and the OEMs did not argue to the contrary. Similarly, whilst the OEMs had expressed concern as to wording in the LFA which theoretically may have allowed Therium the potential to transfer their obligations to a party not bound by the ALF Code, the Tribunal was satisfied by an amendment to the LFA which limited the right of assignment to companies within the Therium group.
The Tribunal also applied this flexibility of approach to UKTC’s claim. The OEMs argued that little reliance could be placed upon Yarcombe’s contractual commitment to fund the litigation, given Yarcombe’s status. In response, UKTC placed reliance on Calunius’ membership of the ALF and on the corresponding ALF Code obligations. However, whilst Calunius’ Chairman Leslie Perrin had asserted in his witness statement that GP3 and Yarcombe were both “associated entities” for the purposes of the Code, the Tribunal found that “there is no evidence that either has access to the necessary funding (i.e. £24 million) “immediately within their control””. This issue was ultimately resolved by way of a witness statement from Mr Perrin indicating that, if an opt-out CPO was granted and any appeals exhausted, Yarcombe would deposit the remaining balance of the claim funding into an escrow account.
The OEMs sought to add further conditions to Yarcombe’s commitment (notably regarding the fact of the sum increasing as more claim funding is required) but these submissions were rejected by the Tribunal. In so doing, the Tribunal acknowledged why a flexible approach to funding structures was required: “The regime of collective proceedings introduced into the CA [Competition Act] for competition claims by the Consumer Rights Act 2015 is dependent on TPF [third-party funding] for its success since there will be few cases where the class members will themselves be able to fund their claims.” The Tribunal continued: “There are different models of commercial litigation funding now adopted by members of the ALF … and it would be wrong for the Tribunal to seek to place TPF for the purpose of collective proceedings under the CA into a straightjacket [sic]. On the contrary, the Tribunal seeks to facilitate the access to justice for claimants achieved by properly constituted collective proceedings. In that regard, the concern of the Tribunal when reviewing a LFA is (a) that the terms of the funding agreement do not impair the ability of the class representative to act fairly and adequately in the interests of the class members, and (b) that adequate funding has been arranged to pursue the litigation effectively in the interests of the class members.“
The Tribunal ruled that whilst it was not satisfied at the time of the hearing as to UKTC’s arrangements, it now considered – following the further steps taken – that “the commercial reality is that Calunius LLP has material influence, albeit not legal control, over the conduct of Yarcombe and it is significantly Mr Perrin, as chairman of Calunius LLP, who confirms the escrow arrangement which Yarcombe will enter into.”
Adequacy of committed funds
The Tribunal noted “an air of artificiality” to the OEMs’ arguments that the claim funding secured by the representatives was insufficient and stated that, on any view, the funding constituted considerable sums. The Tribunal recognised that it was early in the litigation to be forecasting expenditure for the duration of the Claims and noted that the applicants were at the CPO stage putting forward “what can only be broad estimates of what the whole case may cost”. In this sense, a CPO application does not involve a full costs budgeting exercise and the fact that the applicants had not allocated funds for certain issues was not something which the Tribunal considered necessary to address at the CPO stage:
“…it is not a requirement under the CAT Rules that the Tribunal must determine the likely costs of the Applicant to the end of trial and be satisfied that the proposed class representative has secured sufficient funding to cover those costs. What is required is for the Tribunal, in deciding whether to authorise a proposed class representative, to take into account the estimated costs and arrangements which the applicant has made in that regard: rule 78(3)(c)(iii). As the Guide states, the proposed class representative’s ability to fund its own costs is therefore a relevant consideration.”
Overall, the Tribunal was satisfied that the arrangements would facilitate both applicants to act adequately in the interests of the class members and referred to the fact of there being “no suggestion that either Applicant is not acting in good faith with the objective of pursuing effective litigation in order to assist recovery by the proposed class.”
Nature of the ATE insurance policies
The OEMs sought to attack the applicants’ insurance arrangements on a variety of fronts. With regard to the general standard the Tribunal ought to apply, the OEMs submitted that this should mirror that employed on a security for costs application. Whilst the Tribunal disagreed that the assessments required in both cases are identical, they ultimately found that some of the case-law on security for costs provided a helpful analogy.
The OEMs put forward that, as the RHA policy wording included an exclusion of cover if the class representative, any sub-class representative or claimant has “fraudulently, deliberately or recklessly” breached their duty to make a fair presentation of the risks to the insurers, this gave the insurer a right of termination. However, the Tribunal held that these provisions nevertheless satisfy the concerns articulated in Premier Motorauctions and indeed sought to distinguish the facts of the present case against those in Premier Motorauctions (in which the risk of material non-disclosure to the insurers could not be dismissed as illusory). In particular, the Tribunal was persuaded that the “RHA is a responsible, well-established body” and as such the Tribunal regarded “as minimal the risk that it would be reckless, let alone fraudulent, in providing information to the insurers.”
The OEMs also argued that the RHA’s ATE policy ought not to be sufficient security because it excluded the rights of third parties to enforce the policy. However, the Tribunal held that there was no basis to suggest that the RHA would not claim under the policy and furthermore that, should the RHA become insolvent, the OEMs would in fact have the benefit of the Third Parties (Rights against Insurers) Act 2010 and the RHA’s rights under the policy would vest in the insurers.
Unlike the RHA’s structure, the insured in the UKTC’s claim was the funder. On this basis, the OEMs sought to argue that, as SPVs with no assets, there would be no reason for the proposed representative or the funder to make a claim under the policy. The Tribunal disregarded these concerns as “completely unrealistic”, finding the suggestion that the directors of UKTC, in the event of a costs order, would choose to default on their liability rather than enforce its contractual right “fanciful.”
However, the Tribunal did acknowledge the OEMs’ concern that, should Yarcombe go into liquidation, no one would claim under the policy, which would leave the OEMs without protection from the Third Parties (Rights against Insurers) Act 2010 (due to Yarcombe being incorporated in Guernsey). UKTC therefore proposed an endorsement to their opt-out ATE policy, agreed in principle by the insurers, which would exclude a right of the insurers to avoid other than for fraud, stipulating that the terms of the policy may be enforced by the OEMs and indeed that pay-out would be made directly to the OEMs. The Tribunal took the view that the endorsement should resolve the issue at hand but left it open to the OEMs to contend otherwise.
A separate issue arose, however, regarding when the endorsement ought to take effect. UKTC took the position that this should occur when any appeals of an opt-out CPO have been exhausted (or, if an opt-in CPO was granted, then the endorsement would be entered into upon the reaching of a threshold of economic viability), chiefly because UKTC did not want to incur an associated premium should a CPO not be granted. The OEMs, by contrast, sought reassurance that UKTC could meet any adverse costs order immediately.
The Tribunal considered that the endorsement would only be required in one of a number of circumstances, namely if an opt-out CPO was granted and then appealed. In such circumstances, the OEMs would only be without the protection of the endorsement for the duration of the appeal, and only if the appeal was successful. The recoverable costs being incurred by the OEMs are therefore not the costs of the action but the costs of opposing the CPO application. The Tribunal therefore sought to balance the risk against which the endorsement was providing protection and the cost to UKTC (of 10% of the limit of the indemnity) and found that the latter outweigh the former. On the basis, the Tribunal rejected the OEMs’ demand that the endorsement be a condition of a CPO irrespective of any appeal.
Lastly however, the Tribunal was less sympathetic to UKTC’s contention that the fact of its ATE policies only providing cover for two OEMs ought to be dealt with at a later point: if a CPO were to be made, it would be “inevitable” that other OEMs would be joined to the claim. It made sense, therefore, for the UKTC policies to be amended to reflect the fact that cover extended to the costs of all addressees of the Commission’s decision who were added as contribution defendants.
Level of cover
Insofar as the level of adverse costs available to the proposed representatives was concerned, the Tribunal ultimately considered the RHA’s £20 million of cover and the UKTC’s existing £12 million, with a promised top-up of £8 million, to be sufficient. The Tribunal indicated that it would be willing, in due course, to grant a CPO to UKTC conditional upon UKTC’s obtaining the top-up amount.
In reaching this view, the Tribunal rejected the submission that unless the Tribunal found that an applicant would be able to pay the defendant’s recoverable costs to the end of trial if ordered to do so, the Tribunal could not find that it was just and reasonable for that person to act as the representative. Rather, whilst the factors set out in Rule 78(2) must be considered by the Tribunal, “complete satisfaction” of each factor is not a condition to authorisation.
Importantly, the Tribunal stated that it would “resist an approach whereby it is only “just and reasonable” to authorise someone to act as the class representative if that person has adverse costs insurance at a level which may make the obtaining of such cover prohibitive.” The right approach to a very high costs case (and in the absence of any other reason to deny authorisation), the Tribunal said, is to determine that the class representative has at the outset the ability to pay a “substantial” level of adverse costs cover which should be sufficient for “at least a significant part of the proceedings”. Authorisation of the class representative should not be refused on the basis that such “substantial” cover may later not be sufficient to last for the duration of the proceedings and the issue could be revisited as the proceedings advanced.
The Tribunal’s rejection of many of the defendants’ arguments against the adequacy of the applicants’ funding and insurance arrangements is positive for class representatives and those on whose behalf they seek redress. Equally positive is the Tribunal’s practical and proportionate approach towards permitting representatives to amend their funding and insurance arrangements during the course of proceedings. Looking ahead, the ruling offers applicants greater clarity as to how the Tribunal will interpret the relevant requirements for authorisation in a context where, should the bar be set too high, the legislative intent behind the regime would be defeated and meritorious claims could not be brought.
  CAT 26 (28 October 2019) (the Ruling)
 1282/7/7/18 UK Trucks Claim Limited v Fiat Chrysler Automobiles N.V. and Others.
 1289/7/7/18 Road Haulage Association Limited v Man SE and Others.
 Ruling, paragraph 77
 The Tribunal’s rebuttal of the OEMs’ DBA arguments are not further covered in this note.
 Ruling, paragraph 52
 Ruling, paragraph 54
 Ruling, paragraph 55
 Ruling, paragraph 61. Whilst Mr Perrin initially gave a personal undertaking that Calunius would use its best endeavours to ensure that Yarcombe complies with the Code, the Tribunal expressed concern about reliance upon a personal undertaking. Calunius then gave a written undertaking that it would comply with the Code and that it will use its best endeavours to ensure that Yarcombe also does the same. Calunius was unable to give an absolute undertaking as regards Yarcombe because it has no legal authority to manage or control Yarcombe.
 Ruling, paragraph 63
 Ruling, paragraphs 61-63
 Ruling, paragraph 65-66
 Ruling, paragraph 67
 Ruling, paragraph 72
 Ruling, paragraph 72
 Ruling, paragraph 74
 Ruling, paragraph 69
 Ruling, paragraph 75
 Ruling, paragraph 75
 Ruling, paragraph 79
 Ruling, paragraphs 82-83
 Ruling, paragraph 84. We note that the Tribunal also rebuffed the OEMs’ submissions that the participating insurers’ liability is not joint and several (but rather, only several), holding that as all of the insurers are A-rated, and that it is common practice for large claims for there to be several liability, the likelihood of insolvency is “accordingly very low” (see Ruling, paragraph 85).
 The Tribunal continued: “Although for a claim funded by a third party funder with ATE insurance cover against an adverse costs order it may be more usual to have the claimant as the insured, we do not see that an arrangement where the funder is the insured and assumes an obligation to pay the claimant’s liability for adverse costs is in and of itself objectionable.” (see Ruling, paragraph 89)
 Ruling, paragraph 90
 Ruling, paragraph 96. The enforceability of the terms by the OEMs was proposed following further argument from the OEMs that this was required.
 The concept of “economic viability” for UKTC’s opt-in claim is set out in the Tribunal’s ruling at paragraph 63 but not elaborated upon here.
 Ruling, paragraph 98
28] Ruling, paragraphs 99 – 102
 Ruling, paragraph 103
 Ruling, paragraph 105. The Tribunal noted that it will not be possible, at the CPO stage, for defendants’ solicitors to forecast their costs with firm accuracy and therefore there is inevitably some uncertainty as to how the Tribunal ought to satisfy itself that the class representative will be able to pay a defendant’s recoverable costs.
 Ruling, paragraph 108. We also noted the Tribunal’s list of factors as to why £20 million’s worth of adverse costs cover ought to be sufficient, including the fact of recoverable costs being only reasonable and proportionate costs (see Ruling, paragraph 107).
 Ruling, paragraph 109 – it is worth noting that the Tribunal specifically make reference here to being able to vary or revoke the terms of a CPO.