Mastercard: Arbitration proceedings still ongoing
The Divisional Court has rejected the high-profile challenge by a litigation funder to its return from the Merricks Mastercard claim, which settled for £200m.
Lord Justice Males said the Competition Appeal Tribunal (CAT) was entitled to reach the decisions it did, which were “well within the wide powers conferred upon it as an expert and specialist tribunal”.
In January, the CAT set out its decision about how last year’s £200m settlement should be distributed. The claim was originally for £14bn.
The first £100m will be for consumers, with any unclaimed sums going to the Access to Justice Foundation. The second tranche of money will go to repay Innsworth the sums it has spent on the litigation, estimated at £46m.
The remaining cash will pay, in order, for: the relatively small other costs and expenses of claimant representative Walter Merricks for which Innsworth is not responsible; a 50% profit for Innsworth (ie, £23m); supplementing the £100m in the event that more than 5% of the class submit claims; and then, if any is left, a donation to the foundation.
The CAT agreed Innsworth should see a “profit return” but in assessing this noted: “Although the settlement has secured a positive payment, the outcome of the present case is very far from a success for a class of some 44m claimants…
“A return on investment of 1.5 is here appropriate… recognising the significant risk but reflecting also the poor outcome.”
Males LJ noted there was no challenge to the CAT’s statement that the outcome was poor for the class. “It is a view which the CAT was entitled to reach,” he said and was “clearly the principal driver” of the decision on the profit element.
He added: “It might be thought that a guaranteed total return of about £68m, representing a profit of 50% on the claimant’s investment, was not a bad result for [Innsworth]. If the case had not settled, it would not only have borne the cost of another expensive trial, but would probably have lost its entire investment and made no profit at all.”
The judge stressed the “limited scope” of a challenge to an evaluative judgment of the CAT and rejected the three grounds of judicial review (as Innsworth was not a party, it could not appeal).
Though Males LJ accepted that the CAT likely misunderstood evidence from Australian case law in arriving at the appropriate profit for Innsworth, it did “not come close to undermining the cogency of its conclusion” as the CAT took several other factors into account.
Mr Merricks described the decision as “a total victory for me and the class I have represented over the last 10 years”.
He accused Innsworth of seeking “to elevate its grab for profits over and above all other considerations”, continuing: “I have no doubt other funders will not act in this way and that this judgment will not have any negative effects on the desire of funders to continue to invest in, and support, collective actions.”
Mr Merricks added that he could now start the process of distributing the settlement to consumers.
Innsworth has also commenced an arbitration against Mr Merricks for failing to use his best endeavours to maximise its return.
He express confidence that these “will come to a positive conclusion” too.
In a statement, Innsworth said it was disappointed by the outcome and warned that “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”.
The funder said the principles determining what constituted a ‘fair’ return remained “opaque” and there was “no objective safeguard of the return on funders’ investment in opt-out actions in the CAT”.
It went on: “The CAT is in effect positioning itself as a de facto regulator of the litigation funding market – retrospectively determining acceptable returns – while simultaneously asserting that third-party funding is indispensable to the regime.
“These positions are inherently inconsistent and will remain so unless and until the CAT provides clear guidance as to the level of funder return it will permit and on what basis.”
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