Competition Appeal Tribunal’s collective settlement distribution ruling upheld following funder’s judicial review

The High Court has delivered the first judicial review (JR) decision in an application concerning a settlement under the UK’s collective proceedings regime. The case concerned the landmark judgment of the Competition Appeal Tribunal (Tribunal) in Merricks v Mastercard [2025] CAT 28 (covered previously), approving the settlement agreement in those proceedings. The litigation funder, Innsworth Capital, unsuccessfully challenged the Tribunal’s ruling on the distribution of the settlement proceeds.

Recap of the Tribunal’s decision 

The Merricks v Mastercard opt-out collective proceedings were commenced in 2016 on behalf of a class of around 44m UK consumers and sought damages (including interest) of £14bn further to the European Commission’s finding that Mastercard’s cross-border interchange fee arrangements breached EU competition law. 

Following nine years of litigation and a series of interim judgments in Mastercard’s favour, the parties agreed (subject to the Tribunal’s approval) to settle for £200m in late 2024. 

At the settlement approval hearing, Innsworth argued that the settlement amount should first be divided equally between the class members, following which Innsworth should be paid out of any undistributed damages. Innsworth further submitted that it should receive £179m of the settlement funds, this being the agreed minimum return (three times its funding commitment of c. £60m) under its litigation funding agreement (LFA) with Mr Merricks and/or the market value of its funding commitment. 

The Tribunal disagreed, preferring the approach proposed by Mr Merricks.

In summary, it decided that the settlement amount should be divided into 3 pots:

1. Pot 1 of £100m for the class;
2. Pot 2 of around £46m, ring-fenced to cover Innsworth’s committed capital on the case; and
3. Pot 3 of the remaining £54m, to be used to pay (i) first, minor costs and expenses not covered by Pot 2; (ii) next, a “just and reasonable” profit to the funder, which the CAT determined to be around £22.5m or 50% of Innsworth’s expenditure, (characterised as a return on investment (ROI) of 1.5) (or, on a ‘cross-check’ basis and including Innsworth’s Pot 2 recovery of its £46m of committed capital, c. 34% of the settlement sum); and (iii) next, to supplement Pot 1 in the event of a higher-than-expected take-up by the class. Any remainder would go to the Access to Justice Foundation. 

Innsworth’s role as an intervener (not a party) in the settlement hearing meant that it had no right of appeal. Instead, Innsworth was granted permission to bring JR proceedings against the Tribunal. 

The High Court has now rejected this JR application on all grounds. 

The High Court’s judgment

Taking Innsworth’s arguments in turn:

Points of interest

Whilst the decision was necessarily case-specific, the following general points are worthy of note:

• The High Court repeatedly emphasised that the Tribunal (as an expert specialist body) has “wide scope” to decide how settlement proceeds are to be distributed. Strikingly, this includes a discretion to order a distribution of proceeds that runs contrary to the terms of the LFA between the funder and class representative.
• The decision reinforces the Tribunal’s indications of the factors that it may consider in determining a just and reasonable return for the funder following a collective settlement, such as:
  • the purpose of the collective proceedings regime, which is to facilitate access to justice. The Tribunal will balance the fact that litigation funders play a crucial role and undertake significant risks, with its special responsibility under the regime to safeguard the interests of class members;
  • the specifics of the litigation, including the size of the class and the length of the proceedings;
  • the degree of perceived success or failure of the proceedings;
  • the “need” to ensure that the funder’s recovery is “not excessive”; and
  • the portfolio model of the litigation funding industry (such that funders can expect to lose their investment in unsuccessful cases and therefore hope to make material returns in successful ones).
• The High Court noted that it would be “perverse” to allow an intervener greater scope to challenge the Tribunal’s decision than would be available to a party appealing on a question of law. As a result, in the High Court considered that the same approach should be taken as in an appeal - the intervener would need to identify an error of law which was “sufficiently important to undermine the cogency of the CAT’s conclusion”.

At heart, the Tribunal starkly disagreed with Innsworth’s views as to what would constitute a just and reasonable return for it, and as to the deference that ought to be shown to the contractual terms of its LFA with Mr Merricks.

The Merricks case has been exceptional in many respects. However, it has highlighted a tension that may have implications for future cases: when funding terms are agreed at the outset, the class representative and funder cannot know the eventual outcome for class members, yet the funder’s contractual recovery rights may still be curtailed if the Tribunal later concludes that a settlement delivers a poor result for the class.