In what appears to be a major departure from previous case law, the High Court has adopted a liberal approach to the "same interest" requirement to bring a representative action under CPR 19.6, allowing a claim in respect of secret commissions to proceed on behalf of all clients and former clients of the defendants in respect of whom a commission was received: Commission Recovery Ltd v Marks & Clerk LLP  EWHC 398 (Comm).
The decision is one of the first to consider the "same interest" requirement for a representative action in light of the Supreme Court's seminal decision in Lloyd v Google  UKSC 50, considered in our blog post here. In that case, the Supreme Court held that a claim for damages under the Data Protection Act 1998 could not be brought as a representative action, as such a claim required proof of material damage or distress which would have to be assessed individually for each claimant – though it suggested that the claim could have been brought using a "bifurcated" process in which the representative action procedure was used to determine truly common issues (such as whether there has been an actionable breach), leaving any individual issues to be dealt with subsequently.
In the present case, the court appears to have accepted that some elements of the claim might differ depending on class members' individual circumstances, and that some information or decisions (eg as to remedy) might be needed from them in due course. However, it did not see this as an impediment to allowing the representative action procedure to be used, as there was no conflict of interest between the claims of class members. The decision does envisage that some aspects of the claims might in due course need to dealt with through individual arrangements outside CPR 19.6, but it is not clear that this is envisaged for all aspects which depend on individual circumstances.
The decision is particularly interesting in suggesting (somewhat tentatively) that the court might be able to find a way to allow those funding the action to be paid out of recoveries before distribution to class members, without the need for their consent, similar to the court's jurisdiction to allow an insolvency practitioner to be paid out of assets recovered. However, the court emphasised that the point did not have to be decided at this stage, commenting that it was really a question for the claimant and its funders to worry about as it would not affect the defendants' potential liability.
Subject to any appeal, this decision may pave the way for more claims than previously thought to proceed on a representative basis, despite the presence of differences between the claims of class members, so long as there is no actual conflict of interests. However, it leaves many questions unanswered, including the extent to which individual issues can be examined as part of the representative action or must be left over to separate proceedings – and, significantly, the question of whether and in what circumstances those who fund such actions will be able to obtain payment out of recoveries absent the consent of class members.
The case also raises interesting questions as to the nature of a claim for a secret commission and whether the assignment of such a claim can be seen as an assignment of property, so that it is outside the rules of maintenance and champerty (the ancient rules against "trafficking" in litigation) which control the assignment of a bare right of action.
The claimant brought proceedings against two defendants (a firm of patent / trademark attorneys and a partnership associated with it) alleging that they had received secret commissions for referring clients of the first defendant to a third party provider of IP renewal services ("CPA"). The claimant was not a client of the first defendant but sued as the assignee of claims of one of its clients ("Bambach Europe"). Under the assignment, Bambach Europe passed to the claimant its right to undisclosed commission (and other connected rights) in return for a payment to Bambach Europe which was designed to leave the claimant with 15% of the proceeds of recoveries in respect of the assigned rights (after deducting legal and other expenses and amounts due to third parties who financed the claims).
The claimant sought to bring the proceedings under CPR 19.6 as representative of current and former clients of the first defendant who were in a direct contractual relationship with the first defendant, whose details were passed to CPA, and in respect of whom CPA made payments to the defendants in connection with CPA's engagement by those clients.
The defendants applied to strike out the claims on two grounds:
- that the assignment from Bambach Europe to the claimant was an unlawful champertous assignment of a bare right to litigate; and
- the the claimant could not act as a representative pursuant to CPR 19.6 because the "same interest" requirement was not met, or alternatively the court should refuse to exercise its discretion to permit the claimant to act in that capacity.
The High Court (Mr Justice Robin Knowles CBE) dismissed the strike-out application and held that the claim could proceed as a representative action under CPR 19.6.
Knowles J held that the assignment was not champertous since, as between a client and an agent, a secret commission is property, and therefore (on the claimant's case) the assignment was an assignment of property. It was not an assignment of a bare right to litigate, and therefore the law of champerty did not apply. Accordingly, there was no need to consider whether the assignee had a "genuine commercial interest" in the enforcement of the claim (as per Trendtex Trading Corpn v Credit Suisse  AC 679).
Knowles J considered in detail the Supreme Court's decision in Lloyd v Google, noting Lord Leggatt's description of the rule as a flexible tool of convenience in the administration of justice, which must be interpreted purposively in light of the overriding objective of the CPR (ie to enable the court to deal with cases justly and at proportionate cost) and the rationale for the representative procedure.
The judge referred to Lord Leggatt's comment that the purpose of requiring the representative to have "the same interest" as the persons represented is to ensure that it will conduct the litigation in a way that effectively promotes and protects the interests of all class members, which is not possible if there is a conflict of interest. Lord Leggatt added that, so long as advancing the case of class members would not prejudice the position of others, there is no reason in principle why they should not all be represented by the same person.
The judge summarised the defendants' arguments in the present case as focusing on three groups of points:
- First, that the claims were not sufficiently similar to be pursued under CPR 19.6, and each would require details of (eg) the date and terms of the client's relationship with the first defendant, the knowledge and expertise of the client, the client's introduction to and instruction of CPA, and the relief sought including quantum and particulars of loss.
- Second, that there were conflicts of interest between class members, including for example that the claims of some clients might fall partly in and partly outside the period of claim, and that if the claims succeeded different clients might make different elections as to remedy.
- Third, that the class was defined by reference to matters that were in issue and was conceptually and practically uncertain, for example because the court would need to adjudicate on the meaning of "client" and "direct contractual relationship".
However, the judge said what mattered was whether the "same interest" requirement was met, and in particular whether the points raised by the defendants meant that advancing the claims of class members affected by an issue would prejudice the position of others. In his judgment, none had that effect.
Knowles J recognised that the dates of the contracts and amounts of commission paid might differ, but said these points did not affect suitability for representative proceedings and could be ascertained. Also, while the class was only intended to comprise those to whom the commission was not disclosed, there was "an evidential basis for non disclosure being the starting position for the position of all clients concerned", and there was no conflict of interest with any to whom it was disclosed. Some of these points might affect the eventual size of the class, and the total liability of the defendants (if the claims succeeded), but there was "not a limit to that total liability (or the ability to meet it) such that the success or recovery by one client prejudices the interests of another."
There might also be the need for case management where limitation issues arose, including potentially the need for individual arrangements outside CPR 19.6, but again the judge said the limitation point did not prejudice the interests of some clients at the expense of others. Nor (in contrast to the position of the damages claims in Lloyd v Google) did limitation mean there would need to be individualised assessment of every represented person.
Similarly, there was no conflict between the clients as regards the remedies to be pursued, as a declaration of entitlement to one or more remedies, and especially to commission, was likely to assist all. Where necessary the question of remedies could "receive further particular attention at a later stage or at any dedicated remedies stage".
Accordingly, Knowles J concluded, there was no absence of "same interest" and therefore the court had jurisdiction to allow the claim to proceed as a representative action. As a matter of discretion, he considered it appropriate to do so, commenting: "If the choice is this or nothing, then better this."
The points addressed by the judge in considering the exercise of his discretion included the following:
- In Lloyd v Google, Lord Leggatt commented that there is no reason why damages or other monetary remedies cannot be claimed in a representative action "if the entitlement can be calculated on a basis that is common to all the members of the class". Knowles J commented that a claim for secret commission might perhaps be an example of such a claim, regardless of whether the commission varied between clients. In any event, he said, there would still be at least some advantages in terms of justice and efficiency if (as per Lloyd v Google) common issues of law or fact were decided through a representative claim, leaving over issues which required individual determination.
- Lord Leggatt also noted in Lloyd v Google that questions of considerable difficulty would arise regarding distribution of any damages awarded to the class representative, including whether there would be any legal basis for paying part of the damages to the litigation funders without class members' consent. Similarly, in the present case, the defendant argued that the court could not (absent legislative intervention) direct payment otherwise than to the person or persons whose cause of action had been established. However, the judge did not consider that a reason not to permit the action to proceed. It could be addressed at a later stage, and the court could potentially order the sums to be paid into court or to a trustee, and might be asked to consider the exercise of a jurisdiction to allow reasonable costs of the recovery to be paid before disbursement to class members (akin to the jurisdiction established in Re Berkeley Applegate (Investment Consultants) Ltd  1 Ch 32, which allows an insolvency practitioner to be paid for work done in realising assets for the benefit of a third party out of the relevant assets).
- The defendant argued that the lack of ability to obtain disclosure from the represented parties showed the unsuitability and unfairness of proceeding under CPR 19.6, as each individual case would need to be examined, for example as to knowledge and limitation. Knowles J stated, however, that where the focus was on secret commission there were limits to the need for disclosure from clients rather than the defendants, and so the need for disclosure was not a decisive point in the exercise of discretion – though he recognised that there might ultimately be a need for "some information or choice" from each client and that the litigation could break down if the clients were unresponsive at later stages and after much cost. While that was a matter that needed to be taken into account, on the facts of this case it did not mean the claim should not be permitted to proceed.
- Knowles J said he would consider, at the defendants' request, authorising a suitable form of communication from the court to all material clients advising them expressly that they could "opt out" of the action. If appropriate, depending on the responses or lack of responses, the defendants could ask the court to look again at the position under CPR 19.6(2), ie the court's ability to direct that a person may not act as a representative. That was not, the judge said, a "once and for all time" provision.
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.