What can be learnt about the future of English collective action settlements from Walter Merricks v Mastercard?

In the last year, a number of settlements have been agreed by parties to collective actions and approved by the Competition Appeal Tribunal (CAT). The most high profile collective settlement agreed is that between Walter Merricks and Mastercard which has been publicly, and vehemently, opposed by Mr Merricks' litigation funder.

Following a series of public statements since the settlement was first announced in December 2024, the parties to the Merricks settlement were before the CAT in February 2025 seeking a collective settlement approval order (which was opposed by the litigation funder). Permission was also granted to The Access to Justice Foundation to file a written statement of intervention on the basis that it has an interest in the proceedings due to it being a "potential recipient of a part of settlement monies".

Judgment has now been handed down approving the collective settlement (with certain modifications). The issue of the funder’s return was the main point of dispute, though the CAT also provided guidance on future settlement approval applications.

Outcome of Merricks

Although at the end of the hearing to approve the collective settlement order the CAT confirmed that it would approve the settlement of £200 million, it modified certain aspects of the structure of the settlement in its written judgment.

That judgment was handed down on 20 May 2025. In accordance with the judgment, the settlement payment will be allocated to three pots:

• Pot 1 will comprise £100 million for distribution to class members, up to a maximum of £70 each (with any balance going to charity); in the event that more than 5% of class members make valid claims, the residue of Pot 3 will be used to top up Pot 1.
• Pot 2 will be ringfenced to reimburse the costs incurred by the funder in funding the claim (around £40 million to £45 million with some elements to be assessed).
• From Pot 3, the CAT determined that the funder should be entitled to a guaranteed level of return (equivalent to 50% of the amount it invested), with anything remaining being used to top up Pot 1 if necessary, or otherwise go to charity.

The thorny issue of the funder's return

The funder wanted a much larger portion of the settlement proceeds to be paid to it, if the settlement was to be approved. Its core contention was that, without funding, the claims could never have been brought; therefore the idea that most of the settlement should be paid to the funder should not be objectionable.

The Litigation Funding Agreement (LFA) provided for the funder to receive eight times the amount of its investment and it submitted that the minimum return it was entitled to was £179 million. The funder's primary position was that the appropriate balance between the class and the funder could be struck by making available to the class a strict per capita division of the settlement amount (£200 million divided between 44 million class members), meaning that any class member who came forward would receive £4.50, with the remaining unclaimed funds going to the funder. Alternatively, it submitted that it should receive £179 million, with the remaining £21 million being divided between class members.

The funder's position at the hearing that it should be paid up to £179 million was based on a clause in the LFA that allowed it to terminate the agreement if it considered it was unlikely to obtain a return of at least £179 million, this being described as its "agreed minimum return". The CAT rejected this argument based on a close reading of the LFA.

In particular, the CAT found that even if a sufficient sum had been recovered in the proceedings, a contractually specified return was not guaranteed to the funder given that the LFA recognised that it would be for the CAT to determine the level at which to approve a return to it, pursuant to section 49A(5) of the Competition Act 1998.

Given this, the CAT determined that a return on investment of 1.5 was appropriate to recognise the significant risk that the funder took in funding the claim while also reflecting the poor outcome (noting that the settlement sum was only 1.4% of the original claim value of £14bn). This figure was based on jurisprudence from Australia where, in a recent case, the court found that the average return on investment for litigation funders (taking into account cases that were lost) was between 1.2 and 1.9. Accordingly, once the funder's final liability for costs was determined, this would be the amount of Pot 2, with 0.5 times that amount then being taken from Pot 3 to pay the funder the balance of its return. The remaining funds in Pot 3 would then either go to top up Pot 1 (if needed) or be paid to charity.

The CAT confirmed its practice of not assessing the reasonableness of the funder’s return (save where manifestly excessive) at the time of certification. It made clear that it is generally "not practicable to assess the reasonableness of a funder’s return under an LFA at the time of certification; that is a matter that can more appropriately be addressed after a judgment for damages or a settlement". Accordingly, this judgment is unlikely to make any significant change to arguments that will be heard at the certification stage in the future, particularly as regards a class representative's funding arrangements.

However, funders will take note of the clear message that the CAT will not countenance high levels of return for them where a case has achieved a low level of success compared with what was claimed. The CAT noted that funders generate their overall returns based on a portfolio of claims in which some will be won and some will be lost – they cannot be seen to be making large profits on claims that have little benefit for the represented class.

Future practice in relation to settlement approval

In Merricks, the CAT made some final observations on the approach that should be taken in future cases in relation to the approval of settlements, setting out three elements that should be observed:

1. The parties should give full and frank disclosure of the arguments that might be raised in opposition to the settlement proposal, as required in ex-parte
2. The application should ordinarily be supported by a comprehensive legal opinion from a representative of the class representative (anticipated in most cases to be from leading counsel) and it may be appropriate to have an opinion from an independent counsel.
3. Parties should keep in mind that collective settlements will always require proper scrutiny by the CAT and therefore where a settlement approval application is made close to the date of trial, it is likely that the trial will have to be adjourned (and refixed if the settlement application is rejected).

For more on class actions and group litigation in England, see our Insight. Should you require any advice on collective action settlements, or competition claims more generally, please contact one of Osborne Clarke's experts.