A landmark legal claim against Mastercard was billed as Britain’s largest class action lawsuit, leaving a large section of the population to pay hundreds of pounds each in compensation for alleged overcharging by the global payments network.
But after a legal battle that lasted more than eight years, the prospect of a big payday for tens of millions of people — and the threat of a multibillion-dollar bill for Mastercard — has failed to materialize.
The American company reached an agreement in principle this week to settle the matterbrought by former financial ombudsman Walter Merricks on behalf of around 46 million consumers, for £200 million – a small fraction of the £14 billion claimed by the claimants originally sought.
Details of the deal, including how the pot would be shared, are yet to be confirmed, but the headline figure works out to just a few pounds per eligible claimant.
The deal sparked an extraordinary public row between Merricks and the financier of the case, Innsworth, which is owned by US hedge fund Elliott. The process financier criticized the agreed amounts as “too low”.
The settlement in the case, which is one of the first close to completion since the right to bring class action lawsuits on behalf of consumers was codified in legislation passed in 2015, has also received wider attention.
Supporters of the emerging class action system, which has enabled a wave of claims to be brought before the Competition Appeal Tribunal (CAT) against the likes of Apple, BT and Microsoft, have hailed the regime as a much-needed way to hold companies accountable for unlawful anti-competitive behavior.
Yet cases have stalled due to lengthy discussions about the process. Critics argue that dealing with such claims puts UK businesses in legal turmoil, and seized on the relatively small payout in the Mastercard case as evidence that such lawsuits fail to result in meaningful compensation for consumers.
“It is quite likely that the lawyers will be paid more than is shared among the members of the group,” said Kenny Henderson, a partner at law firm CMS.
“This claim has been closely watched as a bellwether for the UK class action regime, but this settlement indicates that the regime is dysfunctional.”
The characterization is rejected by Woodsford Chief Investment Officer Charlie Morris, who has provided support for several high-profile CAT cases, including ongoing claims against railway companies due to alleged excessively high rates.
He said the regime helped facilitate access to justice, noting that it was not “feasible” for clients in such cases to bring claims individually given the costs this entails, in contrast to the level of the requested compensation.
In addition to compensating victims, the regime also “acts as a form of private regulation, which has the effect of deterring anticompetitive behavior,” Morris said.
The claim against Mastercard was that it charged unlawful fees for transactions processed through its network over several years. The company said it was “pleased that we had reached an agreement in principle to put this matter behind us.”
The case, like other claims of its kind, was filed on an “opt-out” basis, meaning consumers are automatically involved unless they proactively opt out. However, compensation only goes to those who request it.
Merricks’ lawyer Boris Bronfentrinker said those who do would need to secure around £40 to £50 each, although that assumes only a small proportion of those eligible come forward.
Bronfentrinker, partner at Willkie Farr & Gallagher, said it was a “very good outcome” for consumers, who would “receive money that they otherwise would not have received”.
Still, Innsworth said Merricks and Bronfintrenker “appeared to have rushed to settle the claim, which was allowed without their consent.” The financier said he had written to the CAT, which would have to sign off on the settlement, to challenge it.
A person familiar with the matter said Innsworth was expected to warn the CAT that approving the settlement could have “adverse consequences” on the plethora of other class actions that preceded it.
Bronfentrinker hit back, describing Innsworth’s claims as “absurd”. New evidence had come to light showing that “the realistic value of the claim has now become much clearer,” he added.
Innsworth’s opposition “has nothing to do with looking after the interests of British consumers and everything to do with the greed of financiers”, he insisted.
The war of words highlights the tensions that can develop between litigation funders and the plaintiff law firms and other parties, such as Merricks, on whose behalf such cases are brought.
Although seemingly on the same side, conflicts can arise between lender and financier as the former, depending on the agreement, may be incentivized to seek a higher settlement amount.
Some lawyers said the outcome of the Mastercard case could make other lenders hesitate. Charles Balmain, partner at White & Case, said: “If lenders see awards or settlements that are a fraction of the total amount claimed, they will take an even stricter approach” in determining which cases to fund.
“It could have a chilling effect on the finance industry, in terms of their willingness to pursue such claims.
The settlement comes at a time of wider uncertainty for litigation funders in Britain. The Supreme Court ruled last year that an agreement awards a financier a percentage of the damages was unenforceableeffectively blocking similar deals.
Funders can be rewarded in other ways – most obviously by receiving a multiple of the amounts they invest – but the ruling has complicated their relationships with financiers.
The Civil Justice Council, chaired by Sir Geoffrey Vos, Master of the Rolls, is now carrying out a review of the sector. A interim report In October, the possibility of limiting financiers’ financial returns was raised, although no recommendations were made.
The council, which was set up to make recommendations to the Lord Chancellor on possible changes to the civil justice system, is holding a consultation that will conclude at the end of next month.
Despite the Mastercard ruling, the UK class action regime remains largely untested. More settlements and rulings should provide a clearer picture of the damage that consumers may suffer.
A ruling is expected in a £1.3 billion claim in the CAT against telecoms operator BT, which overcharged around 3 million landline customers. The case, funded by Harbor Litigation Funding, was the first claim of its kind to be heard full trial earlier this year.
For UK business leaders facing the threat of class actions, White & Case’s Balmain said: “I’m not sure it (the outcome of the Mastercard case) will come as much of a relief.”
“Every case is different,” he said, adding that funders are still interested in such cases. “That won’t go away completely.”
