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The financial backer of a groundbreaking class action lawsuit against Mastercard has accused a court of granting it an “unreasonable” financial return in the latest blow for litigation funding in the UK.
Innsworth, owned by US hedge fund Elliott, hit out on Tuesday at the Competition Appeal Tribunal, warning that the amount awarded to the funder risked deterring the industry from backing other claims.
The CAT signed off on a £200mn settlement that Mastercard reached late last year with former financial ombudsman Walter Merricks, who brought the class action claim on behalf of about 46mn consumers.
The settlement sum was a small fraction of the £14bn the claimants had originally sought over allegations Mastercard charged merchants unfair fees that were passed on to consumers.
Innsworth strongly opposed the settlement, describing it as an “extraordinarily low proportion” of the original claim value and has brought arbitration proceedings against Merricks over the deal.
After years of dispute, Mastercard and Merricks have joined forces to oppose Innsworth. Mastercard is even providing £10mn in financial support to its former nemesis in the arbitration proceedings.
The row between Innsworth and Merricks intensified after the CAT approved the settlement on Tuesday. Merricks called on Innsworth to apologise.
“Not only have I had to fight Mastercard, but I also had to fight Innsworth Capital,” he said in a statement on Tuesday.
“To try to prevent me from settling when I believed it was in the best interests of my class to do so, it threatened and then commenced legal action against me personally seeking unlimited damages which might have meant my bankruptcy.”
Litigation funders have already become more wary of backing new lawsuits as a result of restrictions the courts have imposed on how they can be rewarded.
The industry has been prevented from receiving a percentage cut of damages from antitrust class action claims since a ruling in 2023 from the Supreme Court.
Jeremy Marshall, chief investment officer at another litigation funder, Winward, said of the ruling on Tuesday: “This judgment will have a chilling effect on the funding industry.”
In the ruling on Tuesday, the CAT approved a return of about £68mn for Innsworth, equivalent to recovery of all of its costs plus 50 per cent.
The tribunal said this return was “just and reasonable” given the risks that Innsworth had run and the “poor outcome” for consumers.
But Innsworth said the return was inadequate given that it had borne all the financial risk. Innsworth had told the tribunal that £179mn was its “minimum floor” under an agreement it entered into with Merricks.
Ian Garrard, managing director at Innsworth, said in a statement: “Innsworth regards this as unfair. We also consider that the specific reasons given for it are demonstrably mistaken.
“This judgment may have far reaching implications for class actions in the UK. We do not think it is a reasonable division of the proceeds, or one that will do anything to encourage investors to fund other . . . collective actions in the future.”
Garrard said Innsworth was “considering of all of our options, including asking the courts to look again at this matter”.
He added that Innsworth was “justified in challenging the settlement”. Garrard argued that had the case proceeded to trial “there would have been a better result”.
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