High Court Endorses CAT’s Broad Discretion Over Funder Returns in Collective Settlements

Legal Alert

June 15, 2026

Summary

The Divisional Court has dismissed a judicial review application brought by litigation funder Innsworth Capital Limited, confirming the Competition Appeal Tribunal’s (CAT) approach to dividing the £200 million settlement in the Merricks v Mastercard collective proceedings.
The court held that the CAT was entitled to determine that a reasonable return for the funder comprised repayment of its expenditure together with a profit of 50% of that spend, rejecting Innsworth’s claim to a substantially larger share of up to £179 million.
The decision reinforces the breadth of the CAT’s supervisory jurisdiction in opt-out collective proceedings. It confirms that the tribunal’s core task is to arrive at a distribution that is fair and reasonable overall, rather than one driven by contractual funding entitlements or market expectations.
In large part this reflected the exceptionally low settlement value in the claim. I
But underpinning the judgment is more than a hint of public policy that the funding tail should not wag the litigation dog.

Background

The initial claim, issued in 2016, as an opt-out collective action was brought on behalf of approximately 44 million UK consumers and was originally advanced at an exuberant estimated value of around £14 billion. Over the course of the long-running and complex litigation, which included multiple appellate stages, the prospects of the claim’s success materially deflated. In particular, issues of limitation and causation significantly undermined its viability, ultimately leading to a negotiated settlement of £200 million.

Approval of the settlement required the CAT to be satisfied that both the overall settlement figure and the proposed distribution of the settlement “pot” were “just and reasonable”.

The CAT adopted a structured approach to distribution, dividing the fund into three elements:

Pot 1: A £100 million allocation for class members, structured to promote participation. Based on expert evidence, the tribunal anticipated a low claims rate (around 5%) and approved an approach under which individual payments were expected to be approximately £45, with scope for adjustment depending on uptake and an upper cap of £70.
Pot 2: Direct reimbursement of the funder’s out-of-pocket expenditure, estimated in the region of £41 million to £46 million.
Pot 3: A residual fund (approximately £54 million) used to meet certain additional legal costs, provide the funder a reasonable profit (calculated at 50% of its capital deployment), and, if necessary, supplement payments to the class where claims exceeded expected levels. Any balance left over from this pool would default to the Access to Justice Foundation.

Innsworth did not seek a judicial review of the settlement amount, instead disputing the allocation of the proceeds, which had become highly contentious between the class representative and the funder. Innsworth contended that the allocation failed to reflect its contractual entitlement and the market value of the funding it had provided.

The High Court’s Decision

The Divisional Court rejected the challenge. A central aspect of the court’s reasoning was the strict and limited basis on which a judicial review can interfere with an evaluative judgment made by a specialist tribunal. The CAT had been required to make a broad assessment of what was “just and reasonable” in all the circumstances, and that assessment attracted a wide margin of appreciation.

The court confirmed that there was no basis to disturb the CAT’s conclusion that the funder’s return should be calculated as reimbursement plus a 50% uplift. It emphasised that these conclusions were well within the CAT’s statutory remit and that the tribunal had been entitled to find that any materially greater commercial return would have been excessive.

Key Points from the Judgment

A key theme running through both the CAT’s and the High Court’s reasoning was the quality of the litigation outcome. The tribunal had characterised the settlement as a very poor result when measured against the claim as originally advanced. The High Court accepted that characterisation and held that it was entirely legitimate for this to influence the level of the funder’s commercial return.

The court reaffirmed that the CAT enjoys extensive latitude when deciding how settlement proceeds should be distributed. That exercise is not formulaic and does not require adherence to any single methodology. Instead, it involves a multi-factor assessment in which a range of considerations may be weighed, including risk, outcome, and the collective interests of the class.

The decision makes clear that the terms of a litigation funding agreement, and evidence as to wider market practice, do not bind the CAT. Although such factors are relevant contextual considerations, the tribunal’s overriding statutory obligation is to arrive at a fair overall distribution.

The court accepted that the CAT had likely misinterpreted aspects of the Australian case law it referenced when considering standard funding returns. However, it concluded that this error was immaterial and did not undermine the overall decision, because that material formed only a single part of a much broader, non-dependent analysis.

The court placed weight on the fact that the CAT’s approach provided the funder with a guaranteed recovery of both its costs and a profit, completely insulated from the level of class participation. This elimination of “take-up risk” was a material benefit to the funder and supported the conclusion that the outcome was fair in the round.

Wider Implications

The judgment provides important clarification for participants in the UK collective proceedings regime.

For funders, it underscores that commercial returns are not insulated from the performance and ultimate health of the underlying case. Where litigation results fall materially short of original expectations, the CAT may scale down returns accordingly, even where underlying funding agreements anticipate much higher multiples.

For class representatives and defendants, the decision confirms the CAT’s willingness to approve pragmatic settlements and to adopt distribution models designed to deliver meaningful recovery to those who actually claim, rather than pursuing a purely theoretical equality across the entire class.

The court stressed that the approach taken in this case was heavily shaped by its particular facts, especially the comparatively low settlement value relative to the original claim. It should therefore not be treated as establishing a rigid mathematical benchmark for future settlements.

Underpinning the judgment is a sense that the Court will be astute not to permit the issue of funder return to distract from or otherwise impact a fair outcome for the parties. The funder’s approach both in the CAT and to a degree in the High Court betrayed a lack of appreciation for this dynamic. It will potentially be interesting to see how other attempts by funders to influence the outcome of settlement distributions fare, particularly in other courts which do not have the express discretion granted under statute to the CAT.

Finally, the case highlights a structural limitation for funders who choose to participate as interveners rather than principal parties. In the absence of a direct statutory right of appeal under the Competition Act, any challenge to the CAT’s determinations must proceed via judicial review, with its inherently restricted scope and high-threshold for success.

We understand the dispute between the funder and the class representative continues in separate, private arbitration proceedings, meaning that the broader commercial ramifications of the case may not finally have been resolved.