Funder penalised for failed challenge to Mastercard settlement

Litigation funder Innsworth has been hit by a punishing costs ruling over its failed challenge to a £200m settlement in Merricks v Mastercard approved by the Competition Appeal Tribunal last May.

The CAT ordered Innsworth to pay the extra legal costs incurred by class representative Walter Merricks CBE and defendant Mastercard as a result of its unsuccessful intervention in the settlement approval hearing; with the relevant costs amounting to around £323,000 each. The CAT noted that Merricks’ legal fees, which will be assessed by former senior costs judge Andrew Gordon-Saker, were ‘remarkably high’.

In a further blow to Innsworth, the CAT rejected the funder's application for £40 million to reimburse the money spent in funding the claim against Mastercard, including payments made to cover Merricks’ costs, fees and disbursements. The £40m sum was agreed under the settlement approved by the CAT, designated as ‘pot 2’. However, Innsworth has begun a judicial review of the CAT’s decision in relation to how the proceeds should be distributed. The CAT held that the funder must therefore wait for payment until after the outcome of its judicial review.

Ian Garrard, managing director of Innsworth Advisors, told the Gazette the CAT’s ruling may lead to settlements going unchallenged. He said: ‘There’s a principled point, which is that it’s highly unlikely that any member of a class is ever going to come forward and challenge a settlement, simply because of the cost involved. So if funders are to be penalised in costs for coming forward to challenge a settlement, then a potential consequence of that is that there will be no challenge.

‘The tribunal characterises our challenge as being in our own commercial interests, and of course that is true to the extent of [it concerning] the return we are seeking in relation to the risk we’ve taken. But at the same time, we were challenging the £200m as being too low, and had we been successful in that, there would potentially have been more money for the class…. It may well be the tribunal takes a very dim view of anybody coming forward to challenge their judgement or assessment of what is reasonable. If that’s the message the tribunal is sending, then they may well get their way, in that settlements will just be rubber stamped; because the tribunal has also said that they’re not really in a position to be able to judge these things particularly well for themselves, as they are entirely reliant on the information put before them by the class representative and the defendant.’

Garrard added that the decision not to allow reimbursement of the £40m was ‘harsh’. He said: ‘Having invested the best part of £40m, and [with the CAT] having decided that we’re entitled to those costs back from “pot 2”, without there being any challenge to “pot 2” in our judicial review… for us not to be allowed to get that money back now seems a harsh decision.’

Merricks described last week’s CAT ruling, which also formally signed off the £200m settlement he negotiated, as a ‘total vindication of all the arguments I have made since I decided to settle my case with Mastercard nearly a year ago’. He said it was ‘regrettable’ that Innsworth continued to pursue an arbitration claim against him personally. As part of the settlement, Merricks secured an indemnity of up to £10m from Mastercard to cover Innsworth’s arbitration proceedings against him.

Merricks’ solicitor Boris Bronfentrinker, partner at Willkie Farr & Gallagher, described the CAT’s ruling as ‘very satisfying’.

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