The court held that the Competition Appeal Tribunal’s (CAT's) conclusions were reasonable, noting the CAT had “a very wide scope to decide how the proceeds of settlement should be distributed as between the funder and the members of the class”.
Lord Justice Males, sitting with Mr Justice Morris, rejected Innsworth’s challenge to a CAT order that ring-fenced reimbursement of the funder’s expenditure and awarded it a profit of 50% of that expenditure.
The ruling concerned proceedings brought on behalf of consumers in the long-running Mastercard litigation, which alleged losses arising from unlawful multilateral interchange fees, with initial damages estimated at £14bn.
After more than eight years, Merricks and Mastercard agreed a £200m settlement. The CAT approved that agreement, finding that the prospects of obtaining a judgment significantly above that sum were low.
Innsworth did not challenge the settlement approval itself but brought proceedings regarding how the proceeds should be divided. Innsworth argued that it should receive £179m of undistributed proceeds, corresponding to the minimum return it said had been agreed under its litigation funding agreement. The CAT, however, rejected that approach.
The CAT had divided the settlement into three pots. It allocated £100m to class members, with an expected payment of at least £45 per claimant, subject to take-up. A second pot covered Innsworth’s expenditure, expected to be between £41m and £46m.
A third pot was set aside to provide for Innsworth's profit, calculated at 50% its expenditure, pay costs and make any additional payments to class members, if required. Any remaining funds have been earmarked for distribution by the Access to Justice Foundation (ATJF).
Innsworth argued that in determining the distribution, the CAT had misunderstood Australian authorities on litigation funder returns.
Males accepted that the tribunal was likely to have misinterpreted figures referred to in those cases, but found that the error "does not come close to undermining the cogency of its conclusion that a profit of 50% of the claimant’s expenditure would be just and reasonable".
He cited a fundamental principle that collective proceedings “should operate for the benefit of [class members] and not primarily for the benefit of lawyers and funders" as well as "the need to ensure that what is recovered by a funder is not excessive".
The court also rejected Innsworth’s argument that the CAT failed to take account of the net settlement proceeds after expenditure. Males LJ said the tribunal was plainly aware of the relevant figures.
He said: “The CAT determined that despite the very poor outcome of the claim against Mastercard, a just and reasonable return for the claimant funder would be reimbursement of its expenditure of between £41 million and £46 million, together with a profit of 50% of that expenditure.
“This return was guaranteed, in that it will not depend on the level of take-up of the settlement proceeds by members of the class. The CAT determined also, at least by necessary implication, that any greater return would have been excessive.”
He explained: “These were conclusions which it was entitled to reach, and which were well within the wide powers conferred upon it as an expert and specialist tribunal.”
The court refused permission to Innsworth to challenge the distribution of the residue to the ATJF.
Merricks hailed the ruling as “a total victory for the class I have represented over the last ten years”, describing it as “a complete vindication” of his arguments to the CAT and then to the Divisional Court and a “total rejection of all Innsworth’s grounds of challenge”, for which it will incur costs.
Innsworth said it was disappointed by the outcome, having sought “much-needed clarity” on the extent of the CAT’s supervisory discretion in opt-out class actions, noting Males LJ had found Merricks’ claim to be “ambitious".
It said the “very low outcome has clearly influenced subsequent decisions of both the CAT and the Divisional Court", adding: “The inevitable consequence if funders do not make a meaningful return out of recoveries by the class will be a reallocation of capital towards lower-risk claims, potentially leaving some significant actions without viable funding.”
A spokesperson for ATJF declined direct comment, saying: "The foundation is focused on ensuring any unclaimed funds it receives are put to best use and channelled to advice organisations that support thousands of UK consumers every year.”
Proceedings by Innsworth against Merricks in a related arbitration are ongoing, with Merricks saying he expected a “positive outcome”.
Charles Béar KC of Fountain Court Chambers with Bibek Mukherjee of Essex Court, instructed by Akin Gump, acted for Innsworth; Mark Brealey KC of Monckton Chambers, instructed by Willkie Farr & Gallagher, acted for Merricks; Gerard Rothschild of Brick Court, instructed by Hogan Lovells, acted pro bono for the ATJF; while Owain Draper of One Essex Court, instructed by Freshfields, acted for Mastercard.
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