Podcost with Jamie Carpenter KC

Jamie begins by noting that ten years ago few would have predicted that the Competition Appeal Tribunal (CAT) would become the frontline for developments in costs law. The PACCAR case changed this, drawing attention to the CAT’s unique role in class actions. Representatives can bring claims on behalf of groups if they’ve suffered competition-related harm. The Tribunal’s certification procedure requires it to review both the merits of the claim and its funding to make sure the group can cover the Defendant's costs if they lose – and this puts what are normally private litigation funding agreements and ATE policies under public scrutiny.

The Supreme Court's PACCAR decision has sparked fresh debate about what constitutes a damages-based agreement (DBA). Most funders have since moved to a straightforward “multiple” that increases over time. Defendants argue that these capped returns are essentially DBAs, because the funders’ payments are ultimately still connected to the Claimants’ recovery. The CAT has repeatedly ruled otherwise, deciding that, while case success can affect funder payments, it doesn’t fundamentally determine what the funder earns – there is a qualitative difference between something having an influence on what the funder gets paid and being the substantive mechanism by which the funder’s fee is arrived at. Three key cases on this point, Alex Neil v Sony, the cases against Mastercard and Visa, and Kent v Apple, are heading to the Court of Appeal for review.

Jeremy notes that opinions differ. Some argue that funders are essential to enable these types of proceedings to work as Parliament intended, while critics worry that, if funders take too much, there is little left for Claimants.

Jamie believes litigation funding is under scrutiny as never before, which will possibly lead to calls for external regulation and more protection for those entering funding agreements. Jeremy adds that if the Court of Appeal reverses the CAT’s decisions, the Government may need to act quickly.

Jamie explains that in CAT claims, at the certification stage, Defendants now often focus on costs rather than the merits of the case. Initially, the tribunal was expected to consider merits more closely than funding, but since the Merricks v Mastercard decision funding has become the front line for Defendants trying to prevent certification.

In opt-out claims, the Tribunal calculates total damages for the class, which is paid to the class representative. It is the job of the class representative(CR) to encourage class members to come forward and claim their share. Typically, about 40% of class members will not claim, and claims proceed on the safe assumption that some of the damages will remain undistributed.

If the case settles, the CAT must approve the settlement and will specify how damages are divided.

However, the position is different if damages are awarded after a trial. It was generally assumed that class members would be paid first, followed by funders, lawyers, and insurers. However, that changed after the decision of the Court of Appeal in the case of Justin Le Patourel v BT in 2022. In this case every single Claimant had a BT account, and the Court of Appeal endorsed the approach of allowing damages to be credited directly to those accounts. In passing, and completely obiter, the Court indicated that if damages were to be credited to Claimants direct, there would need to be a mechanism for the funder to be paid first, otherwise similar claims would not get off the ground.

This suggestion has led funders to require CRs to seek tribunal approval to pay funders first in all circumstances, creating a potential conflict of interest. The CR is contractually obligated to secure payment for the funder but also has a primary duty to protect class members' interests. This tension raises two key questions:

1. Does the law allow funders to be prioritised?
2. If it does, is it appropriate?

In Gutmann v Apple, a decision of the CAT which is also heading for the Court of Appeal, the tribunal held that the law permits prioritising funders and that the tribunal could manage any conflicts of interest as part of its oversight role.

However, in the recent case of Riefa v Apple and Amazon, the tribunal took a more rigorous approach. Judgment is pending, but the Defendants scrutinised every aspect of the funding and the proposed CR’s suitability. The proposed CR was cross-examined on the details of the funding, including minutia such as whether the Defendants have been correctly identified in the ATE policy schedule. This was a stressful and unpleasant experience for the proposed CR and Jeremy notes that, with inherent conflicts of interest built into funding agreements, any CR could face a similar situation.

Jamie highlights that privilege is a key issue in these cases. CRs rely on their lawyers’ advice, but they face a choice: either protect privileged information, which may appear secretive, or open everything to scrutiny, which could deter others from stepping forward as CRs for these claims. Funders also face risks – they seek high returns and with that the need to accept the risk of lower success.

Andy notes that, while litigation funding remains a focus, going forwards we will be moving into areas where Practico will have more input, like security for costs and budgeting.

The discussion shifts to key developments in cost budgeting, focusing on the NOx emissions case, or ‘Dieselgate’ as it is more commonly known. This large-scale litigation involves manufacturers, dealers, and finance companies, with the number of Claimants potentially reaching 1.5 million. There are 13 group litigation orders, including four which have been designated as lead group litigation orders. Three trials of common issues have been planned. The first trial was last month, and this part of the litigation will run until late 2026.

Jamie, who was involved in the case on behalf of Mercedes, praises Andy and Practico’s work on budgeting. Separate budgets were created for different parts of the proceedings, with the Claimants required to prepare budgets reflecting various levels of shared costs. Some budgets were specific to individual Defendants, while others covered costs common to multiple claims. The three-day budgeting hearing dealt with 81 cost budgets in total.

The Claimants initially sought over £342 million in costs, while the Defendants claimed just under £307 million. The resulting 30-page judgment is incredibly useful as a rare illustration of how the courts will approach costs budgeting in a case of this size and complexity. Both sides saw significant reductions, especially the Claimants, whose costs were cut to about 25% of their original claim, while the Defendants’ costs were reduced to 54% of the amount originally claimed.

These are some of Jamie’s highlights from the judgment:

•          As in many budgeted cases, the Claimants’ costs were so high that they couldn’t challenge the Defendants’ costs without implicating their own. It was very clear during the hearing that the court wanted to alter the Defendants’ figures even where they were agreed. The Defendants agreed that the court could replace certain agreed figures with lower amounts. The judgment clarified that, in a typical case, the court doesn’t have this power. Usually, if one side accepts the other side’s figures, the court’s only options are to either approve them as they have been agreed or to refuse to make a cost management order, potentially requiring the parties to redo their budgets. In this case, however, it was clear the court did not want to take that route.

•          The court raised questions about proportionality. The Claimants valued the case at over £6 billion and based on the Claimants’ projected costs, the Claimants would need to spend £1 billion to recover £6 billion, which the court described as ‘well within the foothills of disproportionality’. The court noted that the number of Claimants didn’t impact the level of common costs. Looking at the real issues in the preliminary trials and noting that the level of complexity was a good deal less than the Claimants asserted, the court was satisfied that the budgets were wholly disproportionate.

•          The court rejected the idea that high costs are justified by case size alone, emphasising the need for efficient litigation. Even the most gargantuan litigation must be run as efficiently as possible and there should be economies of scale. The court dismissed the Claimants' argument that their costs were reasonable because they were only slightly more than the Defendants’, noting that Claimants are doing work once, while the Defendants must do the work 13 times.

Jeremy compares the NOx litigation costs to the Vardy v Rooney detailed assessment (another of Jamie’s cases), where the court considered whether there is misconduct if a party understates its incurred costs in Precedent H without disclosing that fact – and then criticises its opponent’s costs as excessive.

This raised two key points:

1.         What should be reported in Precedent H for incurred costs? The only guidance comes from the wording of the budget’s statement of truth.

2.         Is it misconduct if you then go on to compare your costs with your opponent’s?

The NOx litigation was referred to in the Vardy v Rooney detailed assessment. In the NOx litigation, the Claimants argued that some Defendants using Magic Circle firms had used lower hourly rates when completing their budgets than had been agreed with their clients. The court in the NOx litigation accepted this approach, provided there was transparency.

Despite criticising the lack of transparency provided by Coleen Rooney’s legal team, the Senior Costs Judge found the statement of truth wording ambiguous and held – albeit ‘only just’ – that it was not misconduct to take the view that you could or should limit incurred costs to what was reasonable and proportionate. An appeal on the misconduct element of the Senior Costs Judge’s decision is now underway.

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Jeremy discusses with Jamie the recent ruling by Master McCloud in Elphicke v Times Media, where she required the parties to engage in ADR before beginning detailed assessment. Jamie understands the judge’s motivation but notes a key issue: there is no formal mechanism in costs disputes for dealing with matters before detailed assessment, aside from presenting a bill and serving Points of Dispute. Early on, the receiving party controls the information available to the paying party and the level of information available will not make any ADR terribly effective. Jamie also doubts ADR’s necessity in most cases. Where cases are budgeted or involve fixed costs, there is much less scope for dispute.

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The discussion ends with a few words about the retirement of Andrew Gordon-Saker, the Senior Costs Judge, aptly described by Jamie as ‘the personification of affability’. The SCCO’s ability to move to electronic working and the way that it dealt with the move to remote hearings are singled out for particular mention.

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