Lawyers and litigation funders have been reflecting on the implications of Friday’s landmark settlement between Mastercard and Walter Merricks, the lead claimant in a class action whose value plummeted from £14bn to the agreed £200m.

The controversial agreement was approved by the Competition Appeal Tribunal (CAT) on Friday after it rejected a challenge by funders Innsworth Capital, represented by Akin Gump, which argued the value of the settlement was too low and did not meet the statutory test of being ‘just and reasonable’.

In welcoming the settlement, Merricks said: “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.” 

A spokesperson for Freshfields, which represented the defendant, said: “We are delighted for Mastercard that the Tribunal has approved the settlement amount of £200m, vindicating Mastercard’s position that the [settlement amount] was just and reasonable.”

The case was originally filed in 2016 by Merricks, the former financial services ombudsman, making it the first collective action proceeding initiated after the 2015 Consumer Rights Act gave the green light to ‘opt out’ competition group claims.

It stemmed from a European Commission decision – backed by the European Court of Justice in 2014 – that Mastercard had infringed competition law through its use of charges known as interchange fees on cross-border transactions. It was alleged that 46 million UK consumers using Mastercard had paid too much for goods between 1992 and 2008.

Hodge Malik KC, a member of the CAT, said at the close of Friday’s hearing: “Being a class representative is a huge responsibility. Mr Merricks has tirelessly fought for the benefit of class members over the last eight years, [which] is appreciated. The fact that the outcome has been disappointing in the light of how the evidence and the rulings had developed does not detract from that.”

The eagerly awaited ruling is expected at the end of March, when light will be shed on concerns expressed by the tribunal on how the agreement was reached. 

However, White & Case partner Charles Balmain said it was “telling” the CAT made its decision immediately after hearing Merricks’ application for settlement approval without reserving judgment.  

“This suggests that the tribunal had no hesitation in concluding that the settlement struck was just and reasonable and underscores that although headline claim amounts at the outset of proceedings are often eye-watering, the true value after years of hard-fought litigation may be orders of magnitude lower,” he said. 

Alexandra Hildyard, counsel at BCLP, added that approval of the settlement was in line with previous rulings in which the CAT had not sought to adjust the headline amount of the settlements placed before it.  

Despite the “eye-catching difference” between the original headline claim and the settlement sum, he said the settlement acknowledged the uncertainty of litigation, agreeing with Balmain that the CAT had shown “a degree of deference to the knowledge and experience of the parties who have been embroiled in the litigation”. 

She added: “When published, the CAT’s full judgment will provide important insights on its approach to settlement approval, the role of funders and the extent to which they should be permitted to influence key decisions.”

The proposed distribution of the settlement will see affected consumers receive the first £100m, which would amount to £45 per person if an estimated 5% come forward. Innsworth would receive £45.47m to cover its costs out of the second £100m, with the remaining £54.43 set to be paid by way of a return. However, the precise distribution is pending the CAT’s decision.

Louise Trayhurn, co-founder of litigation risk advisory boutique Crescient, said it was “a shame for the parties and courts (but not the lawyers) that it cost almost £90m to get that result”.

She noted that while Innsworth had made a significant investment, a return of twice that was “still a good result”, adding: “Funders are vital in bringing these cases and holding corporate behaviour to account, but they have limited ability to affect settlement, and we see this consistently at Crescient.”

Writing in Global Legal Post today (25 February), Leslie Perrin, chair of litigation funding firm Calunius Capital and a former chairman of the Association of Litigation Funders, argues: “For the sake of the [CAT] regime, there has to be hope that Merricks’ settlement with Mastercard is not a blueprint for other cases and class representatives – because it will no doubt encourage other defendants.   

“The funder’s intervention to challenge the settlement has been unjustly criticised, but its intervention did ensure that all arguments were heard and that the settlement was duly scrutinised.”

However, Fair Civil Justice’s executive director, Seema Kennedy, contrasted the returns achieved by Innsworth and the sizeable legal fees involved with the possible compensation due to consumers. 

Speaking to the Financial Times before the settlement hearing, Kennedy, a former Tory MP who has criticised funders, said the Mastercard case shows the UK’s class action regime “is not working for consumers”.

The CAT settlement may not be the end of the matter for Merricks. Legal Futures reported that the funder had instituted arbitration proceedings against him for want of best endeavours in securing its return, estimated in the original litigation funding agreement as £400m based on Innsworth covering £40m in costs. 

The title reported Mastercard had agreed to cover Merricks’ costs in defending the arbitration with up to £10m. Innsworth and Akin Gump were contacted for comment.