March 18, 2024

CAT upholds litigation funding agreement in UK class action suit against Apple

On March 12, 2024, the Competition Appeal Tribunal (“CAT”) ruled to uphold the use of a litigation funding agreement (“LFA”) proposed by Justin Gutmann, the class representative of a lawsuit against Apple Inc., Apple Distribution International Limited, and Apple Retail UK Limited in connection with defective batteries in more than 20 million iPhones in the United Kingdom.  Apple had petitioned the Tribunal to challenge the Gutmann LFA that had been revised to enable the payment of a litigation funder’s fee from class damages ahead of class members.  Apple argued that the funder’s fee should only be paid from unclaimed damages and sought to overturn the class certification (which was awarded on November 1, 1023) by asserting that the LFA was inappropriate, impermissible as a matter of law, and rendered Gutmann unsuitable to serve as a class representative.

The CAT unanimously determined that it was permissible for an LFA to pay a funder from an award of damages.  The Tribunal examined section 47C(6) of the Competition Act 1998 (the “Act”), which grants the Tribunal power in opt-out proceedings to make orders related to unclaimed damages.  Because Section 47C is generally silent regarding the payment of a funder’s fee from a damages award, the Tribunal reasoned that if the legislature had been opposed to such a payment arrangement, it would have stated this.  The Tribunal also determined that using a portion of the damages award to pay a funder’s fee was consistent with Section 47C(3)(b) of the Act that enables the Tribunal to order the payment of damages “to such other person as it sees fit.”  The Tribunal also held that the terms of the Gutmann LFA were not inappropriate because it contained no presumptions that impacted the Tribunal’s discretion with regards to priorities and sums to be awarded.

Apple had also challenged the Gutmann LFA on the grounds that the funder’s return was excessive and disproportionate and that the LFA created a risk of conflicts of interest between the funder and Gutmann and the funder and the class.  While the Tribunal acknowledged that the funder’s return was large and may be subject to scrutiny at the conclusion of the proceedings, it found that the amount was not “sufficiently extreme” to refuse certification at this stage.  The Tribunal also decided that, while potential conflicts between a funder and class members are inevitable to a point in any LFA, the Gutmann LFA contained certain protections that, when coupled with the Tribunal’s supervisory role, made potential conflicts manageable.

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