Commission Recovery Ltd v Marks & Clerk LLP & Anor [2023] – a new renaissance for representation actions?

This article was co-authored by Yan-Xia Rogers and Edward Le Gassick, Trainee Solicitors, London.

Update – July 2024 The Court of Appeal upheld Knowles J’s ruling in January 2024, allowing the proceedings to go ahead as a representation action under CPR 19.8 on the basis that it considered that (i) there was a common issue applicable to all members of the class; and (ii) there was no relevant conflict between the members in relation to that issue. The defendants subsequently applied to the Supreme Court for permission to appeal the Court of Appeal’s decision. It is reported in April 2024 that permission was refused on the basis that the appeal “did not raise an arguable question of law” and that a full trial will take place in January 2025.

The recent decision in Commission Recovery Ltd v Marks & Clerk suggests the courts may approach the ‘same interest’ test for representative actions under Procedure Rule (CPR) 19.6 more flexibly than had been assumed following the UK Supreme Court (UKSC)’s high profile ruling in Lloyd v Google [2021]. CPR 19.6 provides for representative actions where one claimant can represent other claimants in a group action providing they all have the ‘same interest’ in the claim.

In Lloyd, the UKSC refused to allow a data privacy claim to proceed as a representative action owing, in part, to the requirement that there be an individual assessment of damages in each claim, taking therefore a relatively narrow approach to the ‘same interest’ requirement. Several data privacy claims were discontinued in the wake of Lloyd but the decision has not ultimately deterred claim funders from testing further the application of the relevant requirement under CPR 19.6.

In Commission Recovery Ltd v Marks & Clerk, the Hon. Mr Justice Knowles CBE considered the same interest requirement in a strike out application arising from a dispute concerning fees paid for the referral of intellectual property (IP) rights renewals. He also considered whether the assignment of claims to the lead representative party (Commission Recovery Limited), for the purpose of bringing a representative action, constituted an ‘unlawful champertous assignment’.

Background

Commission Recovery Limited (CRL) commenced proceedings against Marks & Clerk LLP, a law firm specialising in IP services, (D1) and its associated firm, Long Acre Renewals (D2) in relation to alleged undisclosed commission arrangements with an estimated value of tens of millions of pounds. CRL had been established solely for the purpose of pursuing recovery of these alleged undisclosed commission payments on behalf of all affected past and current clients.

In his judgment, Knowles J acknowledged that it is common for IP rights holders to pay renewal fees in the jurisdictions in which the rights are registered.

As D1 did not provide renewal services, they referred their clients’ renewals to CPA Global Limited (CPA), a renewal service provider. In return, CPA paid a commission to D2 based on the fees it received from D1’s clients who retained CPA to provide renewal services. CRL alleged that this practice, including the commission arrangements, had not been disclosed to the clients concerned.

Claims were alleged to be available to D1’s clients in respect of the recovery of commissions as well as declaratory relief. It should be noted that CRL was not a client of the defendants; rather, it claimed to have a dual role in the proceedings, namely:

• As the assignee of claims brought by one of D1’s clients, Bambach Saddle Seat Europe Limited (Bambach) (as a test case) against the defendants.
• As group representative of an opt-out representative action under CPR 19.6, brought on behalf of current and former clients of D1 who had commission-related claims against the defendants.

The defendants’ application

The defendants filed an application to strike out CRL’s claim and sought a direction under CPR 19.6(2) that CRL may not act as the group representative. They argued that:

• The assignment from Bambach to CRL “was an unlawful champertous assignment of a bare right to litigate”.
• The ‘same interest’ requirement in CPR 19.6(1) was not satisfied.

Judgment

The assignment

Knowles J held that the assignment from Bambach to CRL was neither unlawful or invalid, and was therefore not prepared to strike out the claim. The nature of the undisclosed or secret commission was key to his decision, as opposed to the ways in which a claim may be brought in order to recover the commission. By this, the undisclosed or secret commissions were held to amount to property and therefore the assignment constituted an assignment of property, which is not champertous. He noted that ancillary or incidental rights of action may validly accompany an assignment of property, including a claim for money, and may be used to recover the commission. Such rights of action are not being assigned alone, so as to render the assignment an assignment of “bare rights to litigate”.

Defendant’s application under CPR 19.6

Knowles J also rejected the defendants’ application under CPR 19.6 and considered it appropriate to allow the case to proceed as an opt-out representative action, with CRL as the representative party. He referred to the opinion of Lord Leggatt JSC in Lloyd as to the court’s approach, jurisdiction and discretion:

Approach: Lord Leggatt JSC had said there was no reason to decline to apply, or to interpret restrictively, the representative rule which has existed for some time. He also said that the simplistic nature of the rule can be seen to be its strength, allowing it to be treated as "a flexible tool of convenience in the administration of justice" and "applied to the exigencies of modern life as occasion requires". The same interest requirement must also be interpreted purposively in light of the overriding objective set out in the CPR.

Jurisdiction: Lord Leggatt JSC had said that the purpose of requiring the group representative to have the same interest in the claim as those persons they represent is to ensure that the representative can be relied upon to conduct the litigation in a manner that would effectively promote and protect the interests or all members of the represented class. He also considered there to be no reason in principle why all class members should not be represented by the same person, providing that this would not prejudice others.

Applying Lord Leggatt’s ruling to this case, Knowles J commented that differing factual circumstances (such as contractual dates) or the fact that different clients may have different positions on limitation, did not prejudice the interests of certain clients at the expense of others. In reality, collective proceedings are typically driven and funded by lawyers or commercial litigation funders, with the class representative merely acting as the figurehead.

The defendants sought to demonstrate some of the complexities faced by D1’s clients and in particular, asserted that whilst the claims being advanced gave rise to common issues, they were not sufficiently similar and did not arise from the same events at the same time. However, Knowles J held that whilst these points were relevant to the shortfall in information about the clients, what matters is whether the ‘same interest’ requirement is met. He also held that none of those issues or complexities prejudiced the other class members; they were “capable of resolution and none is fatal on jurisdiction” Whilst they would inform discretion, they did not constitute an absence of ‘same interest’.

Discretion: Lord Leggatt JSC ruled that where the same interest requirement is satisfied, the court has a discretion whether to allow a claim to proceed as a representative action. Having regard to this, and the parties’ statements of case, Knowles J elected to exercise his discretion and allow CSL to represent the class on an opt-out basis, noting that: 

• The CPR 19.6 jurisdiction does not require the proceedings to "necessarily resolve all possible claims". In this case, CRL sought to define the issues as best as it was able to in the circumstances known to it.
• The claim was focused on the recovery of undisclosed or secret commission rather than damages requiring individualised assessment. A claim for undisclosed or secret commission is a reasonable example of a claim where an “entitlement can be calculated on a basis that is common to all the members of the class”, notwithstanding the fact that the commission appeared to vary between clients.
• As per Lord Leggatt JSC’s ruling, there are still present at least some of the "advantages in terms of justice and efficiency" if "common issues of law or fact are decided through a representative claim, leaving [over] issues which require individual determination".

Knowles J was also prepared to consider, at the defendants’ request, authorising a suitable form of communication from the court to all material clients, advising them expressly that they may opt-out of the representative action.  Any lack of response would then inform the overall picture as to the size of the class. If appropriate, the defendants would be at liberty to ask the court to revisit the position under CPR 19.6(2).

Comment

The significance of Knowles J’s ruling goes beyond it being the first to consider the representative action procedure post Lloyd; it clarifies that that the court is not prepared to allow its assessment of the ‘same interest’ requirement to be clouded by the apparent complexities of a case, nor the fact that there may be insufficient factual information about each claim. Furthermore, it also suggests that different levels of loss in quantum terms will not dissuade the court from finding that the same interest requirement has been met.

The ruling also suggests that even if there may be some uncertainty over whether the opt-out representative action procedure is appropriate where “the choice is this or nothing”, then the court is more likely to exercise its discretion to allow the action to proceed on an opt-out basis. The decision also indicates that the court will not stand in the way of companies being formed, with the support of third party funders, for the sole purpose of pursuing opt-out representative actions, providing there is no conflict of interest between the representative party and the class members.

More widely, the ruling suggests that the court is becoming more amenable to allowing the opt-out representative actions procedure to be utilised more generally, particularly as (i) the only other opt-out collective regime is available for competition claims only; and (ii) the modern digitalised world is increasingly likely to give rise to mass harms, resulting in affected claimants seeking legal redress.

In an endnote to his judgment, Knowles J remarks: “we are still perhaps in the foothills of the modern flexible use of CPR 19.6, alongside the costs, cost risk and funding rules of practice of today and still to come”. He also comments that the current complex world is only likely to increase the demand for legal systems to offer means of collective redress, referring to Lord Leggatt JSC’s observation in Lloyd that:

Knowles J’s judgment adds that there may be a strong case for legislative reform in this area, and areas connected with it, acknowledging ongoing academic debate and thinking in respect of the administration of justice. Whilst he leaves this point open, he appears to suggest that existing group action mechanisms in the UK may need to become more flexible in the future in order to adequately respond to the growing appetite for collective redress.

It has been reported that the defendants will seek leave to appeal to the Court of Appeal.

Related item: Lloyd v Google Supreme Court ruling - a sigh of relief for data controllers