Merricks v Mastercard: the first contested settlement of a funded class action

The UK’s first contested class action settlement, Merricks v Mastercard (Judgment (CSAO Application) 1266/7/7/16 Walter Hugh Merricks CBE v Mastercard Incorporated and Others [2025] CAT 28), has taken another dramatic turn. June saw litigation funder, Innsworth Capital, launch a judicial review challenge against the Competition Appeal Tribunal’s (CAT) approval of a £200 million settlement, calling into question the Tribunal’s treatment of funders’ rights and opportunities in opt-out collective proceedings.

After nine years of litigation, including a trip to the Supreme Court, this latest development opens a new chapter in one of the most significant consumer and competition claims ever brought in the UK. It also provides a first test of how the CAT approaches settlement approval under the UK’s emerging opt-out collective actions regime and how it will balance the competing interests of class representatives, defendants, funders and the millions of consumers collectively represented.

This article considers the history and nature of the claims, the CAT’s approach to settlement approval, the funder’s objections and the broader significance of the ruling, particularly in light of the Civil Justice Council’s (CJC) recent recommendations on the future of litigation funding.

Claim overview

In 2016, Walter Merricks, a former financial ombudsman, filed an ‘opt-out’ class action against Mastercard before the CAT on behalf of approximately 46 million UK consumers. The claim centred on multilateral interchange fees (MIFs), charged between banks when a consumer uses a credit or debit card.

The case followed a 2007 decision by the European Commission, upheld by the Court of Justice of the European Union (CJEU) in 2014, that Mastercard’s default MIFs for the European Economic Area (EEA) infringed competition law. Merricks alleged that this unlawful pricing structure inflated domestic UK MIFs, and that the resulting overcharge was passed on to consumers in the form of higher prices.

Initially, the CAT refused to certify the claim but Merricks successfully appealed to the Court of Appeal and the Supreme Court. The claim was finally certified on 18 May 2022, following the Supreme Court’s landmark judgment in December 2020, which lowered the threshold for certification and embraced a ‘broad axe’ approach to aggregate damages.

The claim originally sought damages of around £14 billion. However, after the CAT's 2023 decisions on preliminary issues, namely causation and limitation, the estimated value of the claim and size of the class were significantly reduced. A refusal of permission to appeal the 2023 causation judgment in June 2024 was regarded as a major blow. Without prejudice negotiations then began.

The proposed settlement

In January 2025, Merricks and Mastercard applied jointly to the CAT for approval of a collective settlement approval order (CSAO). Under the proposed settlement, Mastercard would pay £200 million, without any admission of liability, in return for full discontinuance of the claim.

The application proposed that the £200 million settlement funds be split between three ‘pots’:

Pot 1: One half of the total amount (£100 million) would be ring-fenced for class members. This would be distributed on an equal per head basis to all those who submit a claim, subject to a cap (of £45 as proposed by Mastercard) or £70 (as proposed by Merricks) depending on the take up.

Pot 2: £45.57 million was earmarked for reimbursement of Innsworth Capital’s (Innsworth) funding costs and estimated distribution costs.

Pot 3: The remaining £54.53 million would either be applied to: (1) provide an additional return to the funder, and/or (2) increase the amount to be received by class members.

In addition, Mastercard agreed to waive its right to recover the outstanding adverse costs liability owed by Merricks to Mastercard (of between £1.3 million and £6.8 million).

Innsworth publicly and vigorously opposed the proposed settlement and applied for permission to intervene, arguing that the fund was too small and that the distribution model unfairly prioritised consumer payouts over the funder’s expected return. Permission to intervene was granted.

Judicial scrutiny

The CAT will only approve a collective settlement if it is satisfied that the terms are ‘just and reasonable’ in all circumstances, as per Section 49A(5) of the Competition Act.

The Tribunal considered the following non-exhaustive factors:

• the amount and terms of the settlement, including any related provisions as to the payment of costs, fees and disbursements;

• the number or estimated number of persons likely to be entitled to a share of the settlement;

• the likelihood of judgment being obtained at trial for an amount significantly in excess of the amount of the settlement;

• the likely duration and cost of proceeding to trial;

• any opinion by an independent expert and any legal representative of the applicants;

• the views of represented persons; and

• the provisions for handling any unclaimed balances.

The CAT noted that the settlement does not have to be ‘perfect’ and that ‘there is likely to be a range of settlements which could be approved by the Tribunal.’ It firmly rejected Innsworth’s argument that the ‘just and reasonable’ test extends to the funder or other stakeholders. In the CAT’s view, its role is to protect the absent class members, not the financial interests of funders.

It also dismissed the suggestion that it should second guess the negotiation strategy, focussing solely on the outcome. The Tribunal likened its role to that of the court in approving settlements on behalf of children, where judicial scrutiny is needed to protect the interests of those who are not actively involved in the proceedings (Civil Procedure Rule 21.10).

‘Demand led’ vs ‘supply led’: the funder’s objection

Innsworth strongly objected to the ‘demand led’ distribution model, ie, the one calibrated to maximise participation by setting a capped per head payment, rather than simply dividing the net fund among the total eligible class. Innsworth preferred a ‘supply led’ model in which its own costs and returns would be reimbursed first, with the remainder distributed equally among class members. It argued that the funding agreement entitled it to an ‘agreed minimum return’ of £179 million and that any unclaimed amounts should go to charity.

The CAT rejected these arguments. It found that the litigation funding agreement was ‘a carefully drafted agreement’ and that it contained no provision to the effect of guaranteeing a minimum return (paragraph 141 [2005] CAT 28). The figure of £179 million appeared only in the termination provisions and not in any clause dealing with the funder’s entitlement post-settlement. There was also no provision requiring reimbursement of funder costs before any consumer payment.

Return on investment and PACCAR constraints

Innsworth’s expected return of up to £179 million was a central point of contention. However, the CAT made clear that it could not assess funder returns in reference to a percentage of damages, due to the Supreme Court’s decision in PACCAR (R (on the application of PACCAR Inc and others) (Appellants) v Competition Appeal Tribunal and others (Respondents) UKSC/2021/0078). That ruling held that such returns constitute damages-based agreements (DBAs), which must comply with strict statutory requirements, requirements that many funder agreements, including in this case, do not meet.

While the CAT acknowledged it might be commercially logical to assess the return of investment as a percentage of damages, it stated that ‘it is not open to us to do so’ in light of PACCAR. Instead, the Tribunal adopted the metric of the funder’s return on investment (ROI), relying on approaches taken in Australian and Canadian collective actions.

The CJC’s final report on litigation funding calls for the reversal of PACCAR and proposes new legislation to allow funder returns to be lawfully tied to damages, subject to judicial oversight. If adopted, such reform could significantly change how funder entitlements are assessed in future settlements and may yet influence the judicial review of the Merricks settlement.

Was £200 million enough?

Innsworth contended that the settlement figure of £200 million was ‘at the bottom of any range that might be contemplated’ for the EEA claims and that no value has been attributed to UK claims at all. The Tribunal disagreed and considered that it is well within the reasonable range. It noted that after the causation ruling in 2023, UK claims were dependent on success in a counterfactual causation trial. The CAT observed that counsel for Merricks had advised this course would have no more than a 40% chance of success at trial. This was a view that the CAT considered ‘optimistic’ and decided that the chances of judgment being obtained for an amount significantly in excess of £200 million was low.

Risk appetite: funder vs class representative

An underlying tension exposed by the settlement dispute is the mismatch between the risk tolerance of the funder and the class representative.

The CAT recognised that commercial funders, managing a portfolio of cases, may take a more aggressive approach in pursuit of higher returns across their book. Class representatives, by contrast, may adopt a more conservative stance, especially when litigation is long running; the outcome is uncertain (with even a 15% chance that a case may fail being deemed an unacceptable risk) and because they are not financially incentivised in any way.

No independent expert opinion

Innsworth also pointed out that unlike other recent CSAO applications, the Merricks settlement was not supported by independent legal opinion. The CAT found no fault with this. Given the multiple judgments in these proceedings to date, and the complexity, it agreed with the settling parties that it would have been difficult to obtain an opinion. The Tribunal also noted that it had ‘not been short of legal analysis of the relative strengths and weaknesses of the case.’ There were also analyses available in past judgments.

Costs

The CAT expressed concern about the level of legal costs incurred since the claim was filed in 2016 and announced it would appoint an independent costs expert, Sir Andrew Gordon-Saker, to assess the reasonableness of unpaid costs. This is a practice similar to Australian class actions, where courts regularly appoint ‘costs referees’ in class proceedings.

Judicial review challenge

Innsworth has now lodged an application for judicial review, seeking to overturn the CAT’s decision to approve the settlement.

Its grounds include:

• an alleged misinterpretation of the funding agreement;

• failure to take proper account of the funder’s legitimate expectations;

• misapplication of comparative law (notably, Australian case law); and

• improper treatment of undistributed funds, including what it calls a ‘gratuitous benefit’ to charity.

The judicial review will test the limits of the CAT’s discretion in balancing the interests of consumers and commercial stakeholders. It could have significant implications for how future settlements are structured, how funders are remunerated, and what level of judicial scrutiny will apply.

Final takeaways

Merricks v Mastercard is a milestone in the evolution of UK class actions and litigation funding. This latest CAT decision provides a strong direction for settling parties and funders in collective actions, where the approval of a CSAO is sought and challenged.

The CAT will require detailed justification for the proposed distribution model and settlement sum. This may well include expert input and explanations as to how stakeholders would be treated in each proposed scenario. Parties must present evidence demonstrating the fairness and reasonableness of the settlement. Privileged and without prejudice communications will most likely be disclosed.

CSAO applications will bring scrutiny of funding arrangements. The ‘just and reasonable’ test is focussed on protecting class members, not maximising funder profits. The CAT examined the litigation funding agreement in detail and made it clear that funders cannot assume a guaranteed return. This interrogatory approach to funding aligns with the CJC report’s recommendation for increased transparency of funding arrangements to protect consumers in collective actions. 

With the same focus on consumer protection, as far as costs are concerned, the CAT has made it clear that it will actively oversee legal fees and funding economics at the point of settlement, and will appoint a costs expert if necessary. This will lead to higher accountability for funders. It also mirrors the recommendations in the CJC report that call for enhanced mandatory costs budgeting and costs management in all collective proceedings, representative actions and group litigation.

A judicial review may yet re-calibrate parts of the CSAO application framework. Even so, this latest CAT decision marks a significant step, clarifying how the Tribunal will approach approval of collective group action settlements where there is strong funder opposition, and will serve as a key reference point for future class representatives, funders and defendants alike.