Court Case Outcome: Mastercard Wins Limitation on Payments to Lower Funders in Merricks v Mastercard, Possible Impact on Future UK Class Action Lawsuits
Rethinking Litigation Funding: The Impact of CAT's Intervention on Merricks v Mastercard
The Competition Appeal Tribunal's (CAT) decision in Merricks v Mastercard, a long-running class action case, has sent ripples through the world of collective redress and litigation funding. Craig Lonie, a specialist partner at Flint Global, unravels the complexities and potential consequences of this landmark decision.
Initially, the case boasted a monumental claim for 46 million consumers, with an approximate value of up to £14 billion. However, the settlement eventually settled for £200 million. While the settlement's size may have captured the public's attention, a less noticeable yet potentially more disruptive development lurked within the judgement – the CAT's revision of the financial terms agreed between the class representative and the litigation funder.
Litigation funders like Innsworth Advisors assume substantial risks in class action cases. The CAT's meddling with these financial terms poses a significant concern for anyone interested in the future of collective redress in the UK. By capping the payout to Innsworth, the CAT undermined a fundamental principle – the viability of the investment that underpins access to justice in complex group claims.
Diving deeper, the case revolves around the CAT's determination of how the settlement should be distributed. This departure from the agreement between class representative Walter Merricks and Innsworth challenged the balance between funding a well-funded collective action and limiting funders' rewards.
In a 'fair bet' agreement, both parties accepted high rewards if the case succeeded and potential total losses if it failed – akin to high-risk markets such as pharmaceuticals or technology. Yet, the CAT seems to demand both high returns and protection from excessive rewards, a feat that could satisfy short-term notions of fairness but risk long-term damage to the regime's sustainability.
The CAT determined the agreed return as excessive and imposed a cap on what Innsworth could recover, not due to legal issues but because the funder's share was deemed disproportionate compared to the damages awarded to class members. This move seems to overstep the court’s role, shifting from legal compliance review to substituting the Tribunal's view on 'reasonable' returns – after the fact.
Another unwelcome implication surfaces when considering that the significant risk of these claims failing could result in total funder wipeouts. Considering the CAT's low cap on payouts, the figure seems uncomfortably low, fostering uncertainty and potentially undermining previously agreed 'fair bets.'
Litigation funders operate within high-risk environments and require assurances of legal certainty. If courts are willing to interfere with funding agreements after years of litigation, it undermines confidence in the enforceability of those contracts, threatening the future of similar cases.
The timing of the CAT's intervention is particularly unfortunate, considering the UK's burgeoning collective actions regime and the growing number of certified claims under the Competition Act. The CAT's intervention risks undermining the vital role litigation funding plays in facilitating access to justice and collective redress.
Boiling it down, the CAT's reasoning favors compensation distribution over regime viability, a choice that may have unintended consequences. If the funding market dries up or investors perceive the UK as unpredictable, future claims may never see the light of day, ultimately leaving consumers without the desired redress.
To foster a transparent and commercially viable funding environment, courts and tribunals must respect – within lawful bounds – the autonomy of parties to agree on risk and reward. Overzealous judicial paternalism may backfire, nibbling away at the very foundations of collective redress. As Lonie concludes, consumers may bear the brunt of this cost.
Craig Lonie is a reputed specialist partner at Flint Global, advising on finance matters in regulation, competition policy, and litigation. He has provided expert witness testimony on competition and regulatory issues in the UK High Court, the CAT, and the CMA.
Enrichment data:
- The CAT's decision potentially dissuades litigation funders, impacting the financial support essential for complex group claims.
- The CAT acknowledges the importance of litigation funding in facilitating access to justice but its actual impact may be overshadowed by the precedent set by the capped payout.
- The case highlights challenges facing collective redress and litigation funding in the UK, potentially impacting the viability and attractiveness of these mechanisms for future claims.
- The CAT's low settlement value may influence future claims and raise skepticism about the effectiveness of collective redress mechanisms.
- Legal and procedural complexities exposed by the case can hinder collective actions, adding to the challenges claimants face in navigating these cases.
- The CAT's decision in Merricks v Mastercard, which has consequences for the viability of litigation funding in the UK, establishes technology-driven markets, such as pharmaceuticals or technology, as high-risk finance ventures, subject to unpredictable judicial regulations.
- The impact of the CAT's intervention on Merricks v Mastercard may extend beyond the case, potentially dissuading finance investors from supporting complex group claims, affecting the future of collective redress and access to justice in the business sector.
