Funders backing class actions entitled to share of damages before their distribution to claimants

Yesterday’s decision in Gutmann v Apple (16 April) is a victory for class representative Justin Gutmann, who had earlier succeeded at the CAT in having his estimated £850m opt-out claim certified on behalf of more than 20 million iPhone users against Apple, the CAT having approved the funding arrangements.

Gutmann alleges Apple misled users over an upgrade that slowed phones down, reducing their value.

A particularly august tribunal handed down the unanimous ruling, with Sir Julian Flaux serving as Chancellor of the High Court, Lord Justice Green as the Senior Presiding Judge, and Lord Justice Birss as the deputy head of civil justice.  

Writing for the court, Flaux said: “I have concluded that the CAT does have jurisdiction to order that the funder’s fee or return can be paid out of the damages awarded to the class in priority to the class. Whether or not such an order should be made would be a matter for the CAT in the exercise of its supervisory jurisdiction.”

Noting Nicholas Bacon KC’s submissions as counsel for Gutmann, Flaux added: “Once it is recognised that the CAT has such a jurisdiction… there can be absolutely nothing wrong with the [class representative] entering into an LFA [litigation funding agreement] which makes provision for that to happen.”

Responding to Apple’s counsel’s arguments regarding the relevant legislation, Flaux said firmly: “Ingenious though the arguments on jurisdiction advanced by Lord Wolfson KC were, I am unable to accept them. Payment of the funder’s return and lawyers’ fees from [awarding] damages in priority to payment to the class is permitted.”

Flaux added that the LFA was “always subject to the supervisory jurisdiction of the CAT to determine [the] appropriate order to make”.

Gutmann said in a statement: “Apple has attempted to overturn every major decision of the tribunal, delay proceedings and increase the costs of litigation. I am delighted that the Court of Appeal has issued a strong, unanimous verdict showing them their tactics will not work.”

Dorothea Antzoulatos, a director at Charles Lyndon, which represents Gutmann, said: “Funders require certainty that if a case is successful, they will make a fair return on their often sizeable and lengthy investments in these important cases. 

“We are delighted that the Court of Appeal has confirmed that funders, and other stakeholders, do not need to hope that enough is left over after sums have been distributed to class members to seek their return and anticipate that this will confirm to the funding market that the UK class action regime is a good place to invest.”

The decision is a welcome boost for funders given the ongoing uncertainty created by the Supreme Court’s 2023 PACCAR decision, which held that litigation funding agreements that allowed funders to receive a share of damages were Damages-Based Agreements (DBA), rendering many unenforceable.

Erso Capital released a statement, which said: “The court’s decision sends a clear message to the market: the UK’s class action regime remains open for business, and funding it is not a shot in the dark. That’s good news for funders, the claimants and legal teams who depend on us to bring high-stakes, high-cost litigation.”

Matthew Lo, director at Exton Advisors, added: “The possibility of being paid out in priority to class members can be fundamental to funders, particularly where a high take-up of damages by the class is likely, for example.  

“It would be a perverse outcome if funders were disincentivised from investing in cases with a possibility of high take-up, which should be the very cases the regime encourages to be brought.” 

Cameron Azari, senior vice president of global claims administration firm Epiq, said he believed the ruling would encourage “more funders to invest”, adding: “The regime in the UK is nascent and, under the current framework, without funding, it can’t work.”

In June, the Court of Appeal is due to consider a second appeal by Apple – and a number of other defendants in CAT collective claims – over whether LFAs in which returns are calculated as a multiple of the investment are DBAs and therefore fall foul of PACCAR.

A Civil Justice Council inquiry into funding, which has been tasked with providing a solution to PACCAR, is also due to report in the summer.

Covington & Burling, which represents Apple, was contacted for comment.