On Friday 21 February, the Competition Appeal Tribunal (CAT) approved the £200 million settlement in the collective action between MasterCard and Walter Merricks representing 44 million UK consumers. The case, which alleged that Mastercard interchange fees breached EU competition law, was settled without an admission of liability.
Walter Merricks commented in The Global Legal Post:[GWLG1] “I had clearly hoped to have recovered more, but the case and facts developed in a way that meant I could recover less than I initially planned, but I recovered the best amount possible.”
Funder’s challenge
Innsworth Capital, which funded the litigation, objected to the settlement and argued that it was far below the £10 billion valuation previously put on the claim. It argued that:
- The settlement undervalued the claims and failed to adequately compensate UK consumers;
- It did not meet the test of being ‘just and reasonable’ as required under the Competition Act 1998 and Rule 94 of the CAT Rules;
- It was agreed without Innsworth’s consent, despite its financial contribution;
- It raised policy concerns about the fairness and viability of UK collective actions.
CAT’s response
The CAT dismissed the funder’s concerns about the settlement emphasising several key points:
Reasonableness of settlement amount: The Tribunal found the amount of the settlement sum within a reasonable range, considering the uncertainties of litigation and potential risks of going to trial.
Efficiency and costs: Continuing the litigation would be lengthy and expensive, making settlement a pragmatic resolution.
Public interest in settlement: Encouraging settlement promotes access to justice, aligning with the policy goals of collective proceedings.
What are the wider implications of the ruling?
Beyond Innsworth, the ruling raises broader concerns for stakeholders in UK collective actions:
1. Limited control over settlements
- Funders cannot control settlement decisions, in line with champerty and maintenance principles.
- While they provide financial backing, this decision highlights the risks of being excluded from negotiations.
2. A lower bar for the ‘just and reasonable’ test?
- The CAT ruling suggests courts will not apply a high threshold when assessing settlements, limiting funders’ ability to challenge agreements.
3. Stronger contractual protections needed
Funders may seek tighter contractual protections, such as:
- Consultation or approval rights over settlements (where permitted).
- Minimum recovery thresholds before settlement.
- More oversight of case strategy.
4. Impact on UK collective actions
- The ruling may encourage earlier settlements, as funders may hesitate to finance cases where they lack settlement control.
- Defendants may engage class representatives directly, knowing funders cannot easily object to lower settlements.
What are the key takeaways for funders?
This ruling confirms funders do not control settlements, consistent with champerty and maintenance restrictions. However, it also highlights the risks when settlements are agreed without funder input.
Funders must rethink risk assessment, contractual protections, and engagement strategies. The decision also suggests the ‘just and reasonable’ test offers limited recourse for funders to challenge settlements, making early involvement critical.
For the UK litigation funding market, this signals that courts will prioritise judicial efficiency over funder concerns, shaping how funders approach future collective actions.
