Legal development

Litigation Trending: Court of Appeal confirms 'secret commissions' representative action may proceed

Litigation Trending: Court of Appeal confirms "secret commissions" representative action may proceed

    In Commission Recovery Ltd v Marks & Clerk LLP, the Court of Appeal ruled that a claim in respect of "secret commissions" paid by an IP renewal services firm could proceed as a representative action under CPR 19.8.

    Key takeaways

    • This is the first Court of Appeal judgment on the CPR 19.8 representative action regime following the UK Supreme Court's 2021 decision in Lloyd v Google.
    • The existence of a narrow "common issue", which would not resolve all questions of liability or quantum in respect of all individual class members, was sufficient to engage the representative action jurisdiction under CPR 19.8.
    • The Court of Appeal emphasised that a conflict of interest will only exist between class members where arguments on behalf of some class members could be prejudicial to others. Therefore, the availability of additional or alternative arguments to only some class members does not give rise to a conflict of interest unless those arguments prejudiced the position of other class members.

    Background

    The claimant, Commission Recovery Limited (CRL), commenced proceedings pursuant to what is now CPR 19.8. 

    The defendants were Marks & Clerk LLP (M&C), a firm of patent and trademark attorneys, and a related firm (Long Acre Renewals). CRL's claim concerned alleged "secret" or "undisclosed" commissions received by M&C as a result of referring clients to a third-party IP renewal services provider. 

    The class members were identified by CRL as all current and former clients of M&C that: (1) had a direct contractual relationship with M&C; (2) were subject to M&C's standard terms of business; and (3) had been subject to commission payments by the external services provider to M&C.

    The defendants had applied: 

    • to strike out the claim on basis that the proposed class members did not have the "same interest" for the purposes of CPR 19.8; and/or
    • for an order that CRL may not act as a representative pursuant to the Court's discretionary power under CPR 19.8.

    That application was unsuccessful at first instance (see our article here).

    Should the claim continue as a representative action?

    The Court of Appeal (Nugee LJ, with Sir Geoffrey Vos, Master of the Rolls, and Snowden LJ agreeing) agreed that the claim should continue as a representative action.

    Lord Leggatt had explained in Lloyd v Google that to engage CPR 19.8, it is necessary and sufficient for there to be a common issue such that the representative can be relied on to conduct the litigation in a way that will effectively promote and protect the interests of all members of the class in respect of that issue. That is not possible if there is a conflict of interest between class members (that is, where arguments which could advance the position of some members would prejudice the position of others). But it is no impediment if the class members only have divergent interests (that is, where some arguments may affect only some class members, but either advancing or not advancing those arguments would not prejudice the position of other members).

    Therefore, the essential questions for the Court in this case were: 

    • whether the claims of each member of the class raised a common issue; and
    • whether there was any relevant conflict of interest between the class members.

    CRL's case was said by Nugee LJ to be "a very simple one": based on the "core proposition" that class members needed only to prove that they contracted on M&C’s standard terms and that M&C received commissions in respect of the renewal of their IP rights. That was said by CRL to be sufficient to give rise to liability, subject to two potential defences: (i) disclosure/informed consent; and (ii) limitation. 

    The defendants argued that the scope and content of the duty to avoid conflicts of interest was more complex and depended on the particular facts and circumstances of each client, including what had been disclosed to them and their knowledge of commission payments as a broader industry practice.

    Nugee LJ agreed with CRL that if its core proposition was correct, a declaration to that effect would be equally beneficial to every member of the class. It was irrelevant that there may be further questions to resolve liability in respect of individual class members relating to the potential defences of disclosure/informed consent and limitation.

    Nugee LJ referred to Lord Legatt's endorsement in Lloyd v Google of a "bifurcated process" in the resolution of representative claims. He said that it was clear from that judgment that it is no impediment to the use of the representative action procedure that not all issues can be resolved on a class basis. This applied equally to questions of liability and quantum.

    Nugee LJ also held that there was no conflict of interest between class members in relation to the common issue. The defendants noted that CRL's claim had initially been pleaded on the basis of a referral or introduction by M&C to the renewal services provider, but that this had been removed by amendment. The defendants said that some members of the class may wish to argue that there had in fact been such a referral or introduction to give rise to liability and this gave rise to a conflict of interest.

    Nugee LJ rejected that argument: this may indicate a divergence of interests between class members, but not a conflict of interests. The "core proposition" which CRL wished to establish would benefit all class members, regardless of whether there had also been a referral or introduction to the third-party provider. Therefore, CRL's arguments would not prejudice the position of others in the class.
    As to whether the Court should exercise its discretion, the defendants argued that there was no value to any class member in obtaining only the declaratory relief because no money judgment could be entered for any class member before they came forward and there was no evidence that they would do so. The defendants therefore characterised the claim as a potentially futile use of the Court's resources. 

    Nugee LJ's short answer to this point was that it was it was ultimately a matter for CRL to determine whether its claim was worth pursuing. Save in clear cases, the Court would be slow to prevent a claimant with an arguable case from taking it forward on the grounds that it would involve court resources being used on "pointless litigation". 

    Analysis

    The absence of representative actions adopting the bifurcated process highlighted by the Supreme Court in Lloyd v Google has been telling. This judgment offers renewed hope for claimants looking to advance such claims using the representative action procedure. 

    Although the "common issue" identified was a narrow one and would not resolve all questions going to liability (let alone quantum), the Court of Appeal was satisfied that determination of that common issue would benefit all class members and that the case should proceed as a representative action. 

    Equally, the Court of Appeal approached the question of conflicts of interests between class members robustly, emphasising the point that class members having potentially divergent interests does not amount to a conflict of interests. 

    We may well see more claims using the representative action procedure in the wake of this important judgment.

    Cases referred to:

    Authors: Jon Gale and Justin Browne

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