The Competition Appeal Tribunal is set to deliberate today on a remarkable public disagreement between a class representative and its funder.

The Tribunal is requested to issue an order to settle the claim, which was initially submitted in 2016 and was the first to be certified under the collective actions framework established by the Consumer Rights Act 2015: Merricks v Mastercard.

Meanwhile, an intriguing development has emerged in the case. On 23 January, the Tribunal permitted litigation funder Innsworth Capital to intervene in the proceedings. The funder intends to argue that the settlement reached between class representative Walter Merricks CBE and the Mastercard defendants does not constitute a reasonable resolution of Mastercard’s liability.

Background

Innsworth has funded the landmark collective action initiated by former financial ombudsman Walter Merricks against Mastercard, alleging that the payments network had overcharged millions of consumers. However, a dramatic fallout occurred at the end of last year regarding a settlement agreement Merricks reached with Mastercard, which amounted to 200 million pounds—substantially less than the 14 billion he initially sought.

According to the settlement terms, a minimum of 100 million is designated for consumers, while at least 46 million is allocated to Innsworth to cover the expenses of the claim. The remaining 54 million will be distributed based on the number of consumers who file claims; if significantly more individuals than anticipated come forward, Innsworth may not generate a profit.

In a surprising development, despite their long-standing opposition, Mastercard and Merricks have united to challenge Innsworth and advocate for the Tribunal’s approval of their settlement agreement. In an unprecedented move, Mastercard is even providing 10 million pounds in financial assistance to its former adversary in the arbitration proceedings initiated by Innsworth against Mr. Merricks.

Setbacks   

This settlement represents another setback for litigation funders following the Tribunal’s dismissal of a claim against BT last year. Numerous other claims remain entangled in lengthy legal disputes while their funders incur escalating costs.

Funders have expressed increased caution in supporting new lawsuits due to restrictions imposed by judges on the rewards they can receive in successful cases.

The Supreme Court’s PACCAR ruling had a significant impact on the litigation funding sector upon its issuance. It determined that litigation funding agreements (LFAs) in which the funder is entitled to a percentage of the damages should be categorized as agreements that fall under the statutory definition of damages-based agreements (DBAs).

Consequently, LFAs were mandated to comply with the statutory requirements for DBAs as outlined in the DBA Regulations 2013; failure to do so would render them unenforceable. At that time, numerous LFAs were found non-compliant with the DBA Regulations 2013, necessitating immediate action from the stakeholders to rectify the situation.

Funders have adapted to the limitations by modifying their agreements with recipients, allowing them to receive a multiple of the amounts they have expended if the claimant prevails. Nevertheless, several corporate defendants are disputing the legality of this alteration. The Court of Appeal is set to review the issue later this year.

Reform

For several months, funders have urged ministers to act, and the previous Conservative administration had committed to amending the law to counter what former Justice Secretary Alex Chalk KC referred to as the “detrimental effects” of the Supreme Court’s decision in PACCAR. However, the proposed legislation did not progress through the parliamentary “wash up” prior to the general election, and the Labour Party has adopted a more cautious stance.

The CAT will address the disputed settlement over three days, starting today.

Hearing (CSAO Application)