Background
Commission Recovery Limited (CRL) brought a claim against Marks & Clerk LLP (M&C), a firm of patent and trade mark attorneys, and Long Acre Renewals (LAR), an entity associated with M&C comprising partners and ex-partners of M&C.
As part of its services, M&C passed its clients’ information to CPA Global Limited (CPA), a renewal service provider, to assist with the renewal of its clients’ intellectual property rights in various jurisdictions. If the clients retained CPA for the renewal services then CPA would, in turn, pay a commission to LAR based on the fees received from the clients.
CRL alleged that M&C’s commission arrangements were not disclosed to its clients and sought recovery of this secret commission. CRL was not an M&C client, but alleged that it was the assignee of claims of a former M&C client and therefore brought the claim as a representative under CPR 19.61on an “opt out” basis and on behalf of M&C’s current and former clients who had commission-related claims against either defendant.
Strike out application
CPR 19.6 provides:
1. Where more than one person has the same interest in a claim –
(a) the claim may be begun; or
(b) the court may order that the claim be continued,
by or against one or more of the persons who have the same interest as representatives of any other persons who have that interest.
M&C sought an order that CRL could not act as a representative under CPR 19.6 as the “same interest” requirement had not been satisfied. In its judgment, the High Court relied heavily on the UK Supreme Court’s decision in Lloyd v Google [2021] UKSC 50, framing its analysis by reference to the approach, jurisdiction and discretion components of the representative rule.
Representative action
Approach
The High Court highlighted the approach adopted by the Supreme Court that while a detailed legislative framework for representative actions would be preferable that was not a reason to disregard the existing representative action regime or to interpret the representative rule restrictively. The phrase “same interest” must therefore be interpreted purposively in light of the overriding objective in the CPR and the underlying rationale of the regime. This was reinforced by the legislative basis of the representative rule since 1873. The rule should be treated as a flexible tool of convenience in the administration of justice and applied to modern demands as required.
Jurisdiction
In Lloyd v Google, the Supreme Court made it clear that there is only one condition that must be satisfied for a representative action to proceed – the representative must have the “same interest” in the claim as the person(s) represented to ensure the litigation is conducted in a way which effectively promotes and protects the interests of all class members.
In the modern context of commercial litigation funders where the nominated representative does not conduct or control the representative action, the Supreme Court considered that there was no reason why a representative party cannot properly represent the interests of all members of the class, provided there is no true conflict of interest between the class members.
The High Court considered various arguments against permitting a representative action:
a) while the claim gave rise to common issues, those issues were not sufficiently similar and did not arise from the same events at the same time;
b) there were conflicts of interest between CRL and members of the class and as between the members of the class, including that some clients might fall partly within and partly outside the period of the claim, and that the clients might have differing elections as to remedy; and
c) the class was defined by reference to matters that were in issue and was “conceptually and practically uncertain”.
The High Court held that what matters is whether the “same interest” requirement is satisfied and whether the points raised by CRL identified class members being affected by an issue which prejudices the position of others. If there is a conflict of interest between class members or if an argument pursued by the representative helps some class members and hinders others then the “same interest” requirement would not be satisfied. In its judgment, however, this was not the case.
While a limitation issue may arise for certain clients (which may require individual arrangements outside CPR 19.6), this did not prejudice the interests of some clients at the expense of others in circumstances where individualised assessment of every represented person is not necessary (unlike in Lloyd v Google). Furthermore, additional detail in relation to the clients’ information would become available in due course.
Accordingly, the High Court was of the view that the “same interest” requirement is assessed by considering whether any of the persons within the class would be prejudiced if the representative were allowed to represent the class.
Discretion
The Supreme Court noted in Lloyd v Google that where the “same interest” requirement is satisfied, the court has a discretion whether to allow a representative action to proceed and must, in exercising its discretion, seek to give effect to the overriding objective in the CPR. However, what limits the scope for claiming damages in representative proceedings is the compensatory principle. This is because damages in a civil claim are awarded with the purpose of putting the individual in the same position they would have been in had the wrong not occurred. If a claim requires the participation of individual class members in order for the court to assess each individual’s loss then a representative action is not a suitable mechanism for such a claim.
The Supreme Court continued that in cases which require individual assessment of damages, there may be advantages in adopting a bifurcated approach whereby common issues of law or fact are decided through a representative claim and issues which require individual determination are dealt with separately. However, there was 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 class members.
In applying the above, the High Court’s overarching observation was that it is not a requirement of the jurisdiction under CPR 19.6 that the proceedings will necessarily resolve all possible claims. Moreover, the High Court considered a claim for undisclosed commission to be a reasonable example of a claim where an entitlement can be calculated on a basis that is common to all class members.
The High Court focused on the claim being for recovery of undisclosed secret commission rather than damages which would require individualised assessment and therefore exercised its discretion to allow CRL to represent the class on an opt out basis. Interestingly, however, the High Court did not address the fact that the clients had a right to elect to claim a remedy in restitution (such as an account of profit or a proprietary remedy) or compensatory damages (if their loss exceeded the amount of the commission). This would likely require the participation of individual class members in the claim.
Furthermore, the High Court did not address the fact that even if the claim were for recovery of undisclosed secret commission and not compensatory damages, the amount of the commission attributable to each client would also require individualised assessment and therefore each individual class member would likely need to participate in the proceedings.
The High Court was of the view that if the choice is between the representative action continuing or no claim being pursued at all then allowing the representative action to continue was the better option. Accordingly, the High Court dismissed the defendants’ strike out application
What does this mean for English class actions?
In an endnote to its judgment, the High Court notes that we are still in the “foothills of the modern, flexible use of CPR 19.6, alongside the costs, costs risk and funding rules and practice of today and still to come” and that “the demand for legal systems to offer means of collective redress will increase not reduce”.
However, in light of the High Court’s remark that there is a strong case for further legislative development and that it may be time for legislative next steps, it must be questioned whether the High Court’s progressive decision is a case of judicial activism attempting to adapt an ancient statutory regime to modern demands for effective collective redress or a commercially sound approach to a 150-year-old regime?
Is the representative rule an unworkable aspect of the regime which requires legislative assistance before it can become a modern day viable mechanism for collective redress which increases access to justice for individual claimants? Or, should the simplicity and brevity of the representative action regime be lauded and relied on by class members for the purpose for which it was enacted?
Whether the High Court’s decision is a case of judicial activism gone too far or a necessary step in the right direction … one thing is certain, the English representative action regime is back. The question is: for how long?
Footnotes
1. From 6 April 2023, CPR 19.6 will be renumbered as CPR 19.8 under rule 12(9) of the Civil Procedure (Amendment) Rules 2023.
