UK Competition Appeal Tribunal Approves Collective Settlement in Long-Running Merricks Class Action
Client Alert | June 4, 2025
The Judgment is only the third occasion on which the Competition Appeal Tribunal has been required to approve a collective settlement, and it offers valuable insight to the CAT’s developing approach to a settlement procedure still in its infancy.
A. Introduction
In the long-running Merricks v Mastercard litigation, the Competition Appeal Tribunal (the CAT) approved the Class Representative and the Defendants’ (together, the “Settling Parties”) joint application for a collective settlement approval order (CSAO) (the Settlement Application). On 20 May 2025, the CAT issued its judgment setting out its reasons for that approval, together with its decision as to how the settlement sum should be distributed (the Judgment).
The Judgment is important because it is only the third occasion on which the CAT has been required to approve a collective settlement. As such, the Judgment offers valuable insight to the CAT’s developing approach to a settlement procedure still in its infancy. It is also the first time the CAT has had to consider whether it is required to consider the interests of other stakeholders (in particular, the litigation funder, who opposed the Settlement Application) when considering a settlement application.
This client alert briefly examines the Judgment and identifies some key takeaways.
B. Collective Settlement Procedure
The CAT is required to approve proposed settlements in opt-out collective proceedings.[1] Accordingly, once parties have reached a settlement, they must apply jointly to the CAT for a CSAO (which application will usually be determined at a hearing). The application must among other things: set out the terms of the proposed settlement; contain a statement that the applicants believe the terms of the proposed settlement are just and reasonable, supported by evidence; and specify how any sums are to be paid and distributed. The test for approval is whether the terms of the proposed settlement are “just and reasonable”.
The process is new, with little authority on how it should operate in practice. Prior to the Judgment, there had only been two previous decisions under the collective settlement regime, each involving far smaller sums. In McLaren,[2] the Class Representative settled with one of 12 Defendants for £1.5 million (comprising both damages and costs). In Gutmann,[3] the Class Representative settled with one of two Defendants for up to £25 million (comprising both damages and costs).
C. Judgment Summary
Approval of the settlement
The Settling Parties signed a settlement agreement on 3 December 2024 (the Settlement Agreement), which provided that, subject to the CAT’s approval, the Defendants would pay £200 million in full and final settlement of the proceedings (inclusive of interest and all costs and expenses) (the Settlement Sum).[4] The Settlement Agreement did not contain any provisions regarding distribution of the Settlement Sum, which was expressed to be a matter for the CAT.[5] The litigation funder was not a party to the Settlement Agreement, strongly opposed the Settlement Application on the basis that the Settlement Sum was “significantly too low”,[6] and was granted permission to intervene. As a result of the litigation funder’s opposition, the Settlement Agreement provided for an indemnity from the Defendants to the Class Representative of up to £10 million against any contractual exposure he might have to the litigation funder as a result of accepting the settlement (the Indemnity).[7]
Notwithstanding the litigation funder’s intervention and objections, the Judgment makes clear that the test to be applied by the CAT in determining whether to approve a collective settlement application is whether the terms of the settlement are “just and reasonable” from the exclusive perspective of the class members (as opposed to all stakeholders involved, i.e. including the litigation funder).[8] That is because, in opt-out proceedings, class members are not involved in the proceedings and the CAT’s role is to scrutinize the proposed settlement on their behalf.
Rule 94(9) of the Competition Appeal Tribunal Rules 2015 (the CAT Rules) provides that, in determining whether a collective settlement is “just and reasonable”, the CAT shall take into account all relevant circumstances, including a non-exhaustive list of factors. In this regard, the Judgment emphasises that the CAT will not require a settlement to be “perfect” and that “there is likely to be a range of settlements which could be approved”.[9]
The CAT considered various factors listed in CAT Rule 94(9). In doing so, it noted, amongst other things, that:
- the number of class members entitled to participate in the settlement was “vast”;[10]
- the £200 million Settlement Sum was “well within the reasonable range”, despite the litigation funder’s objections;[11]
- there was “real benefit to class members in securing a payment of damages now, rather than waiting potentially a further two years for the uncertain prospect of potentially a higher amount”;[12]
- the fact that any further costs would have been paid by the litigation funder was not an irrelevant consideration from the perspective of the class members since the litigation funder would have sought reimbursement for such costs;[13], and
- there was “no requirement for there to be an independent opinion” in the circumstances – it would have been very difficult to obtain a meaningful opinion in the short period of time available and, in any event, the CAT was not short on legal analysis of the relevant strengths and weaknesses of the case, nor past judgments in the case (however, note the CAT’s postscript guidance below).[14]
More generally, the CAT observed that it is not concerned with deciding “the best negotiating strategy”.[15] In this regard, it made clear that there may be a difference in perspective and interests between a class representative and a litigation funder. For the former, a 15% chance that the case may fail might be an unacceptable risk in terms of rejecting a settlement sum of £200 million; whereas for the latter, which has a portfolio of cases and seeks to make a high return on that portfolio, continuing a case which only has a 30% chance of achieving £500 million as opposed to settling it for £200 million may be a more commercially sensible approach.[16]
In relation to the Indemnity, the CAT noted this may have given rise to a conflict of interest when the Settlement Agreement was entered into. However, it explained that it had subjected the terms of the settlement to “careful scrutiny to satisfy [itself] that they are just and reasonable”.[17] Further, the Class Representative had reached the view that the Settlement Sum was in the best interests of the class members before the Defendants offered the Indemnity.[18]
Distribution
As a preliminary point, the CAT rejected the litigation funder’s “fundamentally misconceived” argument that it could not: (i) approve the Settlement Application; but, (ii) then direct a different basis of distribution to that proposed in the draft order accompanying the Settlement Application. Rather, the CAT held that it must first determine the Settlement Application and then must itself decide the appropriate order as to how the Settlement Sum is distributed.[19] This distinction is made clear in CAT Rule 94(4)(b) and (d).[20]
The CAT highlighted as “fundamental” that “the collective proceedings regime should operate for the benefit of [class members] and not primarily for the benefit of lawyers and funders” while recognising the need for “commercial litigation funding to pay for it”.[21] The Tribunal further noted that there is “no one right answer […] regarding the amount to be offered to each [class member]”; “the only requirement is that the distribution should be fair and reasonable”.[22]
On that basis, the CAT divided the Settlement Sum into the following pots for distribution:
- Pot 1 – Class Members. The CAT agreed with the Settling Parties that a payment of £45 per class member, which was expected to lead to a take-up of 5% (i.e., 2.2 million class members), was reasonable and fair, subject to a cap of £70 per class member in the event of lower take-up to ensure payments were not excessive.[23] Equally, given the possibility of higher take-up, which could exhaust the Settlement Sum, the CAT determined that it was necessary to reserve a portion of the Settlement Sum for the litigation funder.[24] Accordingly, the CAT limited Pot 1 to £100 million.
- Pot 2 – Costs. The CAT decided that this pot should cover: (i) costs paid on behalf of the Class Representative; (ii) the litigation funder’s payment of its own direct costs; and (iii) further anticipated costs, with certain of those costs to be assessed for reasonableness by an independent expert. The CAT noted that the total Pot 2 sum may exceed the estimated figure of £45.6 million in the Settlement Application.
- Pot 3 – Litigation Funder’s Profit Return and Other. Pot 3 would amount to £100 million less the sum of Pot 2. The CAT determined it should be used to:
- Pay the Class Representative’s costs which do not fall within Pot 2.[25]
- Pay the litigation funder’s profit return. The Settlement Application expressly left the determination of the profit return to the CAT, in line with the statutory scheme and the LFA.[26] As an initial matter, the CAT was satisfied that the litigation funder should be paid a profit return given the importance of litigation funding to collective proceedings. However, to determine the appropriate level in the circumstances,[27] it was guided by jurisprudence from Australia and Canada. The CAT took into account the significant value of the funding commitment (a notional £54.85 million),[28] the significant funding period (over 5 years),[29] the fact that the case was “very far from a success”,[30] the litigation funder’s strategy of running a portfolio of cases,[31] and an Australian judgment which found that the return on investment for a substantial litigation funder is 1.2x for all completed cases, 1.9x for cases which did not provide a negative return, and above 4x for 15% of cases.[32] On that basis, although the litigation funder argued it was entitled to an “agreed minimum floor” of a return of £179 million, the CAT determined that a return on investment of 1.5x (amounting to only £68 million) would be appropriate, “recognising the significant risk but reflecting also the poor outcome”.[33]
- Supplement Pot 1 in the event that more than 5% of class members submit claims.
Any remaining money in Pot 3 after these three stages would go to a charity, The Access to Justice Foundation (as proposed by the Class Representative), which the CAT determined to be more appropriate than The Good Things Foundation (proposed by the Defendants).[34]
D. Takeaways for Future Collective Settlements
The CAT emphasised that its approach to settlement in this case had been “determined by the exceptional circumstances of this case” and “should not be regarded as a guide for more positive settlements”.[35] Nonetheless, given the limited jurisprudence in this area, we anticipate the Judgment, together with the Canadian and Australian jurisprudence, will at the very least provide a starting point for future collective settlements.
Practitioners should also note the CAT’s postscript guidance that: (i) settlement applications should have a section specifically addressing full and frank disclosure;[36] (ii) they will ordinarily expect a comprehensive opinion from a KC;[37] and (iii) if a settlement application is made shortly before trial, the likely outcome is that the trial will be adjourned and refixed if the settlement is not approved.[38]
Finally, in the days since the Judgment, the litigation funding industry has sounded the alarm in relation to the CAT’s approach to the litigation funder’s level of return on investment which they say is far too low and likely to produce a chilling effect in terms of the availability of funding for future collective proceedings. Indeed, the litigation funder in this case has called the Judgment “unfair” and is exploring potential options to appeal. Claimant law firms and other litigation funders will therefore be watching closely to see what steps the litigation funder takes next.
[1] Section 49A Competition Act 1998.
[2] Case 1339/7/7/20 Mark McLaren Class Representative Limited v MOL (Europe Africa) Ltd and Others.
[3] Case 1304/7/7/19 Justin Gutmann v First MTR South Western Trains Limited and Another.
[4] Judgment, para. 61.
[5] Judgment, para. 68.
[6] Judgment, para. 75.
[7] Judgment, para. 67.
[8] Judgment, para. 81.
[9] Judgment, para. 83.
[10] Judgment, para. 84.
[11] Judgment, para. 89.
[12] Judgment, para. 100.
[13] Judgment, para. 100.
[14] Judgment, para. 106.
[15] Judgment, para. 107.
[16] Judgment, para. 107.
[17] Judgment, para. 102.
[18] Judgment, para. 103(1).
[19] Judgment, para. 112.
[20] Judgment, para. 118.
[21] Judgment, para. 121.
[22] Judgment, para. 129.
[23] Judgment, paras 129 and 131.
[24] Judgment, para. 130.
[25] Judgment, para. 196.
[26] Judgment, para. 167.
[27] Judgment, para. 168.
[28] Judgment, para. 179.
[29] Judgment, para. 180.
[30] Judgment, para. 182.
[31] Judgment, para. 183.
[32] Judgment, para. 187.
[33] Judgment, para. 188.
[34] Judgment, para. 202.
[35] Judgment, para. 208.
[36] Judgment, para. 211.
[37] Judgment, para. 212.
[38] Judgment, para. 213.
Gibson Dunn lawyers are available to assist in addressing any questions you may have regarding these developments. Please contact the Gibson Dunn lawyer with whom you usually work in the firm’s Class Actions, Antitrust & Competition, or Litigation practice groups, or the following in London:
Philip Rocher (+44 20 7071 4202, [email protected])
Patrick Doris (+44 20 7071 4276, [email protected])
Doug Watson (+44 20 7071 4217, [email protected])
Susy Bullock (+44 20 7071 4283, [email protected])
Dan Warner (+44 20 7071 4213, [email protected])
Jack Crichton (+44 20 7071 4008, [email protected])
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