Litigation funder fails in bid for greater profit from Mastercard claim

The Divisional Court has upheld the Competition Appeal Tribunal's (CAT) decision regarding the distribution of the £200 million settlement in the landmark *Merricks v Mastercard* collective proceedings. Litigation funder Innsworth Capital Ltd challenged the CAT's allocation of its return, arguing for a significantly higher profit based on its funding agreement. However, the Divisional Court, in *R (Innsworth Capital Ltd.) v. Competition Appeal Tribunal*, affirmed the CAT's wide discretionary powers as an expert tribunal in determining a "just and reasonable" distribution for class members. This ruling reinforces the CAT's supervisory role in collective actions and signals a cautious judicial approach to funder returns, particularly in the context of public interest claims.

The landscape of collective proceedings in the United Kingdom continues to evolve, with significant developments shaping the roles and expectations of all stakeholders, particularly litigation funders. A pivotal moment recently occurred with the Divisional Court's rejection of a high-profile challenge by Innsworth Capital Ltd, the litigation funder behind the monumental *Merricks v Mastercard* claim. This challenge sought a greater share of the £200 million settlement, a sum agreed upon after years of complex litigation.

The *Merricks v Mastercard* case, a landmark opt-out collective action, has been instrumental in defining the parameters of the UK's nascent collective proceedings regime. The subsequent dispute over the distribution of the settlement proceeds, culminating in the Divisional Court's judgment, provides crucial insights into the judiciary's approach to balancing the commercial interests of funders with the overarching goal of ensuring access to justice and fair compensation for class members. This article will delve into the background of the *Merricks* claim, the regulatory framework governing litigation funding, and the Divisional Court's reasoning, assessing the implications for legal practitioners and the future of collective actions.

The *Merricks v Mastercard* proceedings originated from a 2007 European Commission decision finding that Mastercard's multilateral interchange fees infringed EU competition law. Walter Merricks CBE subsequently launched an opt-out collective action in 2016 on behalf of approximately 44 million UK consumers, seeking damages initially estimated at £14 billion. This claim was brought under the Consumer Rights Act 2015, which established the collective proceedings regime before the Competition Appeal Tribunal (CAT).

Litigation funding plays a critical role in enabling such large-scale, complex claims, providing the necessary capital for legal costs and adverse cost insurance. In England and Wales, the regulation of litigation funding has historically been largely self-governed, primarily through the Association of Litigation Funders (ALF) Code of Conduct. However, the Supreme Court's 2023 decision in *R (on the application of PACCAR Inc) v Competition Appeal Tribunal* significantly impacted this landscape, holding that litigation funding agreements (LFAs) structured to provide funders with a percentage of damages recovered are damages-based agreements (DBAs) and are generally unenforceable in opt-out collective proceedings unless they comply with strict DBA regulations. This ruling prompted the UK government to announce plans to legislate to reverse the *PACCAR* decision and introduce proportionate regulation for LFAs. Against this backdrop, the CAT is tasked with scrutinising funding arrangements and approving collective settlements to ensure they are "just and reasonable" for the class members.

Following years of litigation, Mr. Merricks and Mastercard reached an "in-principle" settlement of £200 million in December 2024, which the CAT approved in February 2025. The CAT's approval of the settlement, despite its significantly lower value compared to the initial claim, was based on its assessment that the terms were "just and reasonable" from the perspective of the class members. The CAT then determined the distribution of this sum, allocating £100 million to consumers, approximately £47 million to Innsworth Capital Ltd for its costs, and a further approximately £54 million as the funder's profit return.

Innsworth Capital Ltd, the funder, expressed significant dissatisfaction with this distribution, having anticipated a return of over £520 million, including an "agreed minimum return" of £179 million under its litigation funding agreement. Innsworth subsequently launched a judicial review challenge in the Divisional Court, arguing that the CAT's decision on its return was flawed. The funder contended that the CAT had effectively positioned itself as a "de facto regulator" of the litigation funding market by retrospectively determining acceptable returns without clear guidance, which it argued was inconsistent with the acknowledged indispensability of third-party funding to the regime.

In *R (Innsworth Capital Ltd.) v. Competition Appeal Tribunal [2026] EWHC 1393 (Admin)*, the Divisional Court, comprising Lord Justice Males and Mr Justice Morris, dismissed Innsworth's application for judicial review. Lord Justice Males affirmed that the CAT, as an expert and specialist tribunal, was "entitled to reach the decisions it did," which fell "well within the wide powers conferred upon it." The court acknowledged the "limited scope" for challenging the CAT's evaluative judgment. While Males LJ accepted that the CAT might have misunderstood some Australian case law evidence regarding appropriate profit, this did not "come close to undermining the cogency of its conclusion," given the multiple factors the CAT considered. The CAT's approach to determining the funder's profit involved guidance from Australian and Canadian jurisprudence, taking into account the substantial funding commitment and the lengthy duration of the case.

This judgment underscores the CAT's broad discretion in approving collective settlements and distributing proceeds, particularly its focus on the interests of the class members. The court's deference to the CAT's expertise highlights the unique nature of collective proceedings, where public policy considerations regarding access to justice and consumer protection often take precedence over purely commercial contractual terms between funders and class representatives. The ruling also implicitly navigates the complexities introduced by the *PACCAR* decision, as the CAT must ensure funding arrangements are not only compliant but also result in a "just and reasonable" outcome for the class, potentially overriding contractual expectations of funders where necessary.

The Divisional Court's decision in *R (Innsworth Capital Ltd.) v. Competition Appeal Tribunal* serves as a significant affirmation of the Competition Appeal Tribunal's extensive powers in overseeing collective proceedings and the distribution of settlement funds. It reinforces the principle that in such public interest litigation, the CAT's primary duty is to ensure a "just and reasonable" outcome for the class members, even if this means adjusting the commercial expectations of litigation funders.

For legal practitioners, this judgment underscores the critical importance of carefully drafting litigation funding agreements in collective actions, acknowledging the CAT's ultimate supervisory role over funder returns. Funders must now operate with a clearer understanding that their contractual entitlements may be subject to the CAT's discretion, guided by the broader interests of the class. The ongoing legislative efforts to address the impact of the *PACCAR* decision and introduce a more formal regulatory scheme for litigation funding will further shape this evolving landscape. Practitioners should closely monitor these developments, as they will undoubtedly influence the viability, structure, and risk assessment of future collective claims in the UK.