Sony Interactive Entertainment Europe Limited & Anor v Alex Neill Class Representative Limited

This appeal concerned whether various amended litigation funding agreements (LFAs) used in Competition Appeal Tribunal collective proceedings were "damages-based agreements" (DBAs) within the meaning of s.58AA(3)(a) of the Courts and Legal Services Act 1990 and therefore unenforceable unless they complied with the statutory DBA regime. The Court addressed three main issues: (i) whether a funder’s payment that is payable from, and/or capped by, the proceeds of a successful outcome is nevertheless "determined by reference to the amount of the financial benefit obtained" under s.58AA(3)(a)(ii); (ii) whether provisions that permit a percentage-based recovery "only to the extent enforceable and permitted by applicable law" render the LFA a DBA; and (iii) whether (if unlawful) an unenforceable part of an LFA can be severed.

The Court upheld the Competition Appeal Tribunal’s approach. It held that where a funder’s primary contractual entitlement is a multiple of the funder’s outlay, the fee is not determined by reference to the amount of the financial benefit recovered and is not a DBA under s.58AA(3)(a)(ii), even though recovery is payable from, and may be capped by, the proceeds. The conditional percentage provisions were held to be of no contractual effect unless and until the law changes to make them enforceable; they do not render the LFAs DBAs. The Court declined to decide severance as it was unnecessary for disposition.

This Group of appeals arose from decisions of the Competition Appeal Tribunal which held that amended litigation funding agreements used by class representatives in collective competition claims were not damages-based agreements (DBAs) for the purposes of s.58AA(3)(a) of the Courts and Legal Services Act 1990 and were therefore enforceable.

• Background and parties: multiple standalone collective claims were before the CAT: Neill (against Sony) alleging Article 102 TFEU abuses related to PlayStation distribution and pricing; CICC opt-in/opt-out claims (against Visa and Mastercard) alleging Article 101 TFEU breaches by inter-regional/commercial card fees; Kent and Gutmann (against Apple) alleging Article 102 issues in relation to the App Store and a performance management feature respectively. Each class representative had entered LFAs with funders which had been amended after the Supreme Court’s decision in R (PACCAR Inc) v Competition Appeal Tribunal [2023] UKSC 28.
• Procedural posture: the CAT decided between November 2023 and March 2024 that the revised LFAs were not DBAs and were enforceable; the defendants (appellants here) appealed with the CAT’s permission. A Parliamentary Bill (the Litigation Funding Agreements (Enforceability) Bill) and the Civil Justice Council review were noted during the procedural history; the Bill fell when Parliament was dissolved.
• Issues framed: (1) whether a funder’s payment payable from and/or capped by proceeds is "determined by reference to the amount of the financial benefit obtained" under s.58AA(3)(a)(ii); (2) whether a clause allowing percentage recovery "only to the extent enforceable and permitted by applicable law" creates a DBA or is otherwise impermissible; (3) if an LFA is unenforceable, whether severance is available to remove offending provisions. A fourth issue on ratchet arrangements in Kent/Gutmann was abandoned.
• Court’s reasoning: The Court applied a substance-over-form approach. It emphasised that s.58AA(3)(a)(ii) should be read with focus on the funder’s primary contractual entitlement: in these LFAs that entitlement was to multiples of capital outlay, not to a percentage of damages. The fact that the funder’s recovery is paid from proceeds or subject to an express or implied cap by reference to proceeds does not convert a multiple-based entitlement into a payment "determined by reference to" the financial benefit for the statutory definition. The Court also held that conditional percentage provisions which operate "only to the extent enforceable and permitted by applicable law" are presently of no contractual effect while PACCAR remains good law; they therefore do not presently engage s.58AA(3)(a)(ii). The Court relied on statutory construction principles, ancillary explanatory materials (Regulations and explanatory memoranda), and common-sense considerations to avoid constructions producing absurd consequences (for example, rendering most LFAs in the CAT impracticable). On severance, the Court considered the legal tests and authorities but declined to decide severance because the issue was unnecessary to dispose of the appeals.
• Result: the Court dismissed the appeals, upholding the CAT’s determinations that the LFAs were not DBAs and were enforceable. The Court left open severance issues for a case in which they are necessary to decide.

The appeals were dismissed. The Court held that where the funder’s primary contractual entitlement is calculated as a multiple of the funder’s outlay, the fee is not "determined by reference to the amount of the financial benefit obtained" within s.58AA(3)(a)(ii) of the Courts and Legal Services Act 1990, even if payment is made from, or capped by, the proceeds. Conditional percentage-based provisions limited to "only to the extent enforceable and permitted by applicable law" are, while PACCAR remains binding, of no contractual effect and do not render the LFAs DBAs. Severance was not decided as it was unnecessary for disposal of the appeals.

Appeals from multiple decisions of the Competition Appeal Tribunal: Neill v Sony [2023] CAT 73; CICC (opt-out and opt-in against Visa and Mastercard) [2024] CAT 3; Kent v Apple [2024] CAT 5; Gutmann v Apple [2024] CAT 18. The CAT had granted permission to appeal on public‑importance grounds despite considering the appeals had low prospects of success.