Mastercard backs Merricks with £10m for litigation funder dispute


Merricks: Distressed by arbitration

Mastercard will back the man suing it, Walter Merricks, in his dispute with his litigation funder over its proposed settlement with him, which the funder opposes – to the tune of £10m.

The extraordinary detail emerged in a slew of documents filed with the Competition and Appeal Tribunal (CAT) in seeking its approval of Mr Merricks’ proposed £200m settlement with the credit card company in a claim once valued at £14bn.

They show that the funder, Innsworth Capital, could end up taking more than half of the money.

But it has commenced arbitration proceedings against Mr Merricks personally, claiming he has not acted with best endeavours to secure its return – which the litigation funding agreement (LFA) envisaged as £400m on the basis of Innsworth covering £40m in costs.

The first opt-in collective proceedings started under the 2015 Consumer Rights Act was filed in 2016. It is a follow-on action after Mastercard was found to have infringed EU law by imposing charges (known as ‘interchange’ fees) on the use of Mastercard debit and credit cards.

Mr Merricks, the former solicitor acting as the class representative, says this increased costs for retailers and consumers and that 44m consumers were affected.

If the settlement is approved, the first £100m would be distributed to those eligible consumers who come forward, which Mr Merricks estimates will be around 5% of potential claimants.

If so, each claimant would receive £45, falling to £22.72 if 10% claimed and ultimately to £2.27 in the “unlikely” event every eligible person claimed.

There would be a cap on the amount any claimant could receive – either £45, as proposed by Mastercard, or £70, as proposed by Mr Merricks. The CAT will have to decide. If any of the £100m remained unclaimed, this would go to Innsworth.

The next £45.6m would reimburse Innsworth for the costs it has covered to date and those still to come.

However, Mr Merricks said Innsworth had refused to confirm that it would not then seek a detailed assessment of his lawyers’ fees, which could provide it with an unjustified “windfall”. Without this, “I do not see how I can propose ringfencing money to the funder’s benefit”, because it may not reflect Innsworth’s final expenditure.

Mr Merricks said the remaining £54.4m could be put to two different uses. He proposed that it also be paid to Innsworth.

Alternatively, if more than 5% of people have claimed, it could be used to increase their compensation, up to a maximum of £45. Any remaining balance would then be paid to Innsworth.

Explaining his decision to settle, Mr Merricks said adverse rulings in the proceedings to date, particularly on causation and limitation, had put 95% of the original quantum being claimed “either at serious risk or not recoverable”

“This has the unfortunate outcome that neither the class nor Innsworth are able to recover that which I had hoped when I commenced the proceedings back in 2016.”

He said balancing his competing obligations to act in the best interests of the class and to use his best endeavours to get Innsworth the return provided for in the LFA, had put him “in a difficult position”, one that ultimately it was for the CAT to determine.

“I am aware of various public statements made by the former president of the tribunal to the effect that it would be wrong for collective proceedings to result in the ‘lion’s share’ of sums recovered going to lawyers and funders rather than to class members. I share that opinion.

“It is my view therefore that the distribution methodology to be adopted needs to make it likely that at least half (if not more) of the £200m is received by represented persons.

“Anything less will simply fuel criticisms of the regime as benefitting only litigation funders and advisors, which as a strong advocate of the collective action regime, I consider would be very unfortunate.”

Mr Merricks contended that the collective action regime could only function with the financial backing of claims by litigation funders. “To that end, I consider it important that Innsworth is able to recover the full amount it has expended… In the circumstances, this is quite a favourable outcome.”

He acknowledged that the proposed settlement could end up with Innsworth receiving more than half of the money.

“I recognise that there are reasonable arguments that some of the settlement sum should be paid to an appropriate charity that will indirectly benefit the non-participating represented persons. However, because of my contractual obligations under the LFA, this is not something I can advance.”

In the wake of the settlement’s announcement last month, Innsworth said it strongly opposed the deal, “which was struck without our agreement”, describing it as both too low and premature.

Mr Merricks’ witness statement, some of the public version of which was redacted, revealed that last August, Innsworth said it would continue to back the next stages of the claim if he gave up “exclusive control” over the conduct of the litigation and particularly settlement.

He said he was “not happy” to do this but agreed so as to continue the case and seek a settlement.

Mr Merricks said Innsworth would only accept a per capita distribution model for the £200m, meaning that each claimant would only receive £4.50.

“Few represented persons would claim such sums, leaving the vast majority of the settlement as unclaimed damages, which Innsworth would seek to claim as its return.”

On the day the settlement was announced, Innsworth issued a request for arbitration under the London Court of International Arbitration. Mr Merricks said he rejected the allegations made but did not have the financial means to defend himself.

He sought, and Mastercard has agreed to make available, up to £10m to cover resolving the arbitration, “despite the years of having been adverse to each other”.

“Whilst none of this has deterred me from doing that which I consider to be in the best interests of the class, it goes without saying that having a very large litigation funder commence arbitration proceedings… has been very distressing for me and my family.”




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