High Court finds that Marks & Clerk secret commission case can proceed as representative action
In a judgment handed down at 10.30am today, Mr Justice Robin Knowles CBE has found that Commission Recovery Limited has successfully met the hurdle for representative claimants set out in the Supreme Court judgment in Lloyd v Google in November 2021. Mr Justice Knowles ruled, after consideration of the parties’ submissions and underlying law, that he would “allow the Claimant to represent the class, and to do so on the “opt out” basis proposed.” The case is Commission Recovery Limited v. Marks & Clerk LLP and Long Acre Renewals (A Firm).
Peter Rouse, Director of Commission Recovery Limited, commented:
“There are many other firms who have also routinely referred IP renewals to CPA Global (now Clarivate plc) and been paid large commissions for doing so. The Regulator, IPReg, has so far done nothing to address this clear breach of the long-standing professional obligation to put a client’s interests before their own. This shameful practice has gone on far too long and there are far too many IP owners who have been paying far more than necessary because their legal advisors have been more concerned to line their own pockets.”
Daniel Spendlove, Partner at Signature Litigation, representing Commission Recovery Limited, commented:
“We are pleased that the Court has found that Commission Recovery Limited can bring this claim on a representative basis for all parties within the proposed class definition. This judgment is significant for the legal industry, providing greater clarity on the limits of England and Wales’ representative action regime. The alleged actions of Marks & Clerk in hiding their commission payments from current and former clients, and failing to account for them as the law requires, paints IP professionals engaging in these practices in a very negative light”.
Commission Recovery Limited is a company established to bring the claim against intellectual property law firm Marks & Clerk in relation to secret commissions allegedly paid by CPA Global, an IP management organisation, to Marks & Clerk in return for referring their clients to CPA. CPA allegedly paid these secret commissions to Long Acre Renewals, a partnership set up by current and former partners of Marks & Clerk.
It is alleged that Marks & Clerk hid these commissions from their clients, breaching their fiduciary duty to their clients to act in their best interests. Under established English law confirmed in Wood v Commercial First Business Ltd [2021], secret commissions are treated as bribes.
In bringing the claim, Commission Recovery Limited pleaded the case based on that of another company, Bambach Europe, arguing that their case was representative of other companies that had been impacted by Marks & Clerk’s alleged actions under CPR 19.6. Commission Recovery Limited argued that they bring the claim on behalf of all those with the “same interest” as Bambach Europe, encompassing all of Marks & Clerk’s current and former clients that: 2
• Contracted directly with Marks & Clerk
• Were subject to Marks & Clerk’s terms of business
• Had commission paid by CPA to Marks & Clerk in respect of the renewal of their IP rights
They further argued that CPR 19.6 was likely to be the only regime that would give redress to those impacted by Marks & Clerk’s alleged illicit conduct. The commission paid in relation to each individual client, largely SMEs, would be too small to justify bringing an individual claim, making a representative action the only way to prevent Marks & Clerk being “left to retain an unjust profit from their unlawful scheme” (Skeleton Argument, paragraph 59). It is estimated that the commissions involved may total some tens of millions of pounds.
Marks & Clerk and Long Acre Renewals (represented by Clifford Chance) sought to argue that the potential claimants did not have the “same interest” under the test established in Lloyd v Google and, surprisingly, that the meaning of “client” is unclear in the context of the case. In analysing the defendant’s arguments around “same interest”, Mr Justice Knowles stated that “what matters is whether the “same interest” requirement is met, and in particular whether the points involve class members affected by an issue prejudicing the position of others. None do.” Mr Justice Knowles concluded that: “There is no absence of same interest”.
The judgment confirms the availability and appropriateness of the CPR 19.6 regime for those cases where a definable class of parties have suffered a legal wrong and share the same interest as each other, making it the only legal mechanism for “opt out” claims outside of competition claims. Mr Justice Knowles found that “A claim for undisclosed or secret commission is perhaps 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”. The fact that it appears the commission varied between clients does not deflect from that point. In any event 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”.”.
In a positive finding for litigation funders, Mr Justice Knowles found that claims under CPR 19.6 could see mechanisms put in place “to allow reasonable costs of the recovery achieved to be paid before disbursement to the members of the class.”
Mr Justice Knowles also opined on the future of the CPR 19.6 regime, stating “we are still perhaps in the foothills of the modern, flexible use of CPR 19.6, alongside the costs, costs risk and funding rules and practice of today and still to come. In a complex world, the demand for legal systems to offer means of collective redress will increase and not reduce. It will be the legal systems that actively prepare, but choose well in that preparation, that are likely to fare the best. The Courts, the common law and equity all have their part to play. The case for further development through legislation may also be strong, in this area and areas connected with it. If legislative policy is to take this in steps then it may be time for next steps.”
Mr Justice Knowles also dismissed the Defendants’ argument that the claims brought by the claimant could not be assigned to Commission Recovery Limited, and that they might be “vexed” should the case be permitted to proceed.
Signature Litigation is a law firm specialising in commercial litigation, international arbitration and regulatory investigations. Headquartered in London, the firm also has offices in Paris and Gibraltar.
Full statement of Peter Rouse:
“In its judgment handed down today the Court has roundly rejected the comprehensive list of arguments the Defendants put forward to strike out the Representative Claims against them related to receipt of secrets commissions. Rather than accepting Representative proceedings as the right way to “come at justice”, in the words of Lord Leggatt in Lloyd v Google, they prefer to run from justice and will continue to do so by pursuing an appeal to the Court of Appeal and possibly even to the Supreme Court.
“The Defendants have from the outset done their utmost to deny, delay and defeat the claims against them. They no doubt continue to receive commissions and so can readily fund their defence for as long as due process allows. While they risk paying the Claimant’s costs should they eventually fail, they will not have to pay the multiple of those fees that will be recovered by the Third Party Litigation Funders without whom the claims could never have been brought. The inevitable and entirely unjust outcome will then be that an award to the Represented Class will be substantially diminished or potentially exhausted as a direct consequence of the Defendants’ deliberate avoidance of a trial on the merits, in which of course they say they will prevail. Another recent and shameful example of this was in the Postmasters Group Action against the Post Office, where interlocutory proceedings, including appeals, gave rise to huge costs that left the Postmasters with so little of the reported £54m award in those proceedings.
“I am glad to be able to continue to represent those who have a right to the return of commissions received by the Defendants without obtaining their clients’ prior and fully informed consent and I will do my utmost to ensure that class members recover all undisclosed commissions. There are many other firms who have also routinely referred IP renewals to CPA Global (now Clarivate plc) and been paid large commissions for doing so (more than 20% of the fees paid to CPA Global for each renewal in examples I have seen). The Regulator, IPReg, has so far done nothing to address this clear breach of the long-standing professional obligation to put a client’s interests before their own. This shameful practice has gone on far too long and far too many IP owners who struggle to pay the renewals fees needed keep their patents and other registered IP rights in force have been paying far more than necessary because their legal advisors have been more concerned to line their own pockets. Inserting manufactured terms such as ‘client management fees’ and ‘data management fees’ into terms of business to justify receipt of commissions is, in my view, fundamentally dishonest and dishonourable.”