1. Landmark Settlement in Merricks v. Mastercard
On 20 May 2025, the CAT handed down judgment in the first large-scale opt-out class action settlement, Merricks v. Mastercard, offering a glimpse into how it will determine settlements and the distribution of damages in such claims going forward.
Nearly four years after the commencement of substantive proceedings, as discussed in our previous alert here, Mr. Merricks and Mastercard reached a £200 million settlement, formalised by agreement dated 3 December 2024. Under the UK’s opt-out collective proceedings regime (claims by which all affected individuals are automatically included, unless they actively choose to remove themselves), such settlements require the CAT’s approval via a Collective Settlement Approval Order (“CSAO”) in order for the settlement to be binding on the class. A hearing to approve the CSAO in Merricks was held in January 2025, with the much-anticipated judgment handed down in May.
As the largest settlement in UK collective proceedings to date, and only the fifth approved under the current regime, the CAT’s commentary offers significant guidance for stakeholders in other collective actions. We highlight key aspects of the judgment below.
“just and reasonable”
In order to approve a CSAO, it must be determined that the settlement terms are “just and reasonable” in the given circumstances (s. 49A Competition Act 1998).
Since 2019, Innsworth Capital Ltd had provided funding for the claimant class in the claim (the “Funder”), which had originally been valued at £14 billion. Given the substantial reduction in the value of the claim in the CSAO, the Funder sought to intervene in and challenge the CAT’s approval of the settlement. The Funder’s position was that the £200 million settlement figure undervalued the claim, failing to sufficiently compensate the class. The Funder had also entered into a Litigation Funding Agreement (“LFA”) with the class representatives in 2023, which provided for an “agreed minimum return” to the Funder of at least £179 million. The Funder further initiated arbitration proceedings against the lead claimant, Walter Merricks, and threatened to derail the settlement (interestingly, Mastercard agreed to indemnify Mr. Merricks up to £10 million for fees, expenses, costs, and/or sums incurred in relation to the arbitral proceedings brought by the Funder).
The CAT rejected the Funder’s argument, concluding that: (i) the settlement terms must be “just and reasonable” for the absent class members, but not for every stakeholder (such as those who had provided litigation funding), (ii) the LFA recognised that any return to the Funder was subject to the CAT’s discretion, and (iii) consumers’ interests override any private bargain between the class representatives and the Funder: “the collective proceedings regime should operate for the benefit of [the class] and not primarily for the benefit of lawyers and funders.”
Funders vs. the class
In evaluating the Funder’s objections to the CSAO, the CAT also examined the potential divergence in perspectives between litigation funders and class representatives. For instance, the CAT noted that a funder, with a diversified portfolio of cases, might prefer to pursue litigation offering a 30% chance of securing a £500 million return over accepting a £200 million settlement. In contrast, a class representative might choose to settle, even if the risk of failure is minimal, because an unsuccessful outcome would leave class members with no compensation whatsoever. The CAT indicated that the risk appetite of funders is likely to be significantly greater than that of average consumers.
The Funder remains displeased with the outcome of the case and has brought an application for judicial review of the CAT’s decision to issue the CSAO. We will watch this unfold with interest.[1]
How the money flows – the CAT’s first “waterfall”
In approving the £200 million consumer class settlement, the CAT considered the distribution scheme proposed by the settling parties and ultimately endorsed a three-tier “waterfall” allocation – albeit with modifications to favour the class members.
- Pot 1 – Consumer compensation (c. £100 million). Half the fund is ring-fenced for class members, with individual pay-outs targeted at approximately £45 (capped at £70) per class member. If more than 5% of the class claim, Pot 3 must top-up Pot 1 to keep payments around that level. The CAT scaled payouts based on uptakes, predicted to equate to, for example: £70 each per 200,000 claims, £50 each per 2 million claims, and c. £4.50 per all 22 million claims (with Pot 1 topped up from Pot 3 if funds remain).
- Pot 2 – Reimbursement of Innsworth’s costs (≈ £45.6 million). This pot repays the Funder’s out-of-pocket costs—legal fees, expert costs, and any outstanding bills—subject to independent scrutiny by a retired Costs Judge.
- Pot 3 – Innsworth’s profit (balance, expected at ≈ £54 million). After costs are covered, the Funder can recover a profit capped at 1.5 times its deployed capital; with any surplus used to top up consumer payments from Pot 1 if claims exceed 5%, and the residue paid to the Access to Justice Foundation.
The CAT also doubled the claims window to six months, so consumers can gauge their likely recovery before deciding whether to claim. Merricks, therefore, confirms that, even when it approves the settlement quantum agreed by the parties, the CAT will recalibrate the distribution to ensure that the class—rather than the funder—enjoys priority.
What does this mean for the future of collective settlements?
Although the CAT cautioned that Merricks arose in “exceptional circumstances,” it nonetheless offers the first detailed roadmap of how the CAT will vet opt‑out settlements, calibrate funder returns, and insist on meaningful consumer redress. The CAT’s judgment has also introduced several new procedural requirements for CSAO applicants, including that:
- a section on “full and frank disclosure,” which outlines possible objections to the settlement, must be provided (similar to a without notice injunction or freezing order application);
- a KC’s (privileged) opinion on the fairness of the proposed settlement should be commissioned by the class representative; and
- imminent trial dates should be vacated while the CAT conducts its review of a belatedly reached settlement (as the CAT will “always require a proper opportunity, on full submissions and evidence, to determine whether a proposed settlement is just and reasonable”).
2. Litigation Funding in Flux: PACCAR and the CJC’s Final Report
In June 2025, the Civil Justice Council (the “CJC”) released a comprehensive Final Report recommending legislative action to restore certainty for funders and claimants. This follows the Supreme Court’s 2023 ruling in PACCAR, which held that third‑party LFAs under which a funder’s recovery is a contingent share of damages legally constitute damages‑based agreements (“DBAs”) (see our previous alert). The effect of PACCAR rendered those LFAs which were noncompliant with the DBA Regulations unenforceable in all proceedings and threw the UK class action sector into turmoil; numerous ongoing CAT cases faced questions over their funding, and class representatives were forced to renegotiate LFAs so that they would not be covered by and fall foul of the DBA Regulations.
The UK government has previously proposed ways to reduce the impact of the PACCAR decision, including the introduction of a draft bill to clarify that third-party LFAs are not to be treated as DBAs, to no avail (the draft bill did not pass and has since not been taken up after the 2024 General Election). The issue was, therefore, handed to the CJC for further review. After a public consultation, the CJC published its Final Report, delivering 58 recommendations that together call for a “light-touch” statutory regulation of litigation funding in England and Wales.
The centrepiece of the CJC’s report is its proposal for urgent legislation to reverse PACCAR and clarify by statute that LFAs are not DBAs, and to do so with retrospective effect to cover existing cases. Crucially, the CJC views third-party funding as a pillar of access to justice in collective proceedings and thus advises that funders’ percentage-based returns should be permitted (subject to oversight).
The CJC further proposes a new regulatory framework to govern the funding industry going forward. Key recommendations include:
- Light-touch statutory regulation of litigation funding: A new statutory regime would impose baseline requirements—capital adequacy, AML checks, and disclosure of the funder’s identity—while leaving profit uncapped. In opt‑out cases, the court, not the contract, must decide that the funder’s share is “fair, just and reasonable.”
- Distinct treatment for funding vs. contingency fees: The CJC wants a clear divide between third‑party LFAs and lawyers’ DBAs/CFAs. It proposes lifting the current ban on DBAs in opt‑out cases once PACCAR is reversed (by legislation), so each model operates under its own set of rules.
- Enhanced safeguards for class actions and consumers: A new “Consumer Duty” would require funders to treat class members fairly; class representatives must obtain an independent KC’s advice on any LFA (at the funder’s cost); and every funding agreement would be filed with, and approved by, the court.
- Other notable recommendations: Introduce a pre‑action protocol for collective disputes, mandate cost budgeting in funded group litigation, and review the regime after five years. The CJC rejects a fixed profit cap, automatic security‑for‑costs orders, and, for now, regulation of arbitration funding.
If implemented, the CJC’s recommendations would fundamentally reshape the environment for class action funding. The recommendations in the report aim to eliminate the uncertainty caused by PACCAR, safeguard claimants (through oversight and transparency), and preserve the economic viability of class actions (by keeping funding available and attractive to investors). To date, the UK government has indicated that it will revisit legislation in light of this report, and the class action momentum in the UK appears set to continue growing, provided the funding infrastructure can be stabilised.
3. Higher Bar for Class Representatives
In Christine Riefa CRL v. Apple Inc. & Others (Jan. 2025), the CAT refused certification of an opt-out claim seeking aggregate damages for UK consumers who overpaid for certain electronics on online marketplaces. The CAT held that the proposed class representative (“PCR”) did not satisfy Rule 78 of the Competition Appeal Tribunal Rules 2015, which requires the CAT to be satisfied that it would be “just and reasonable” for the PCR to act as a representative in the proceedings. Factors considered by the CAT include whether the PCR would, amongst other things, “fairly and adequately act in the interest of the class members.” The CAT expressed concerns following a hearing in July that Professor Riefa, the PCR, appeared not to understand the funding arrangements, not to have the necessary experience or support needed to be a PCR, and to be very reliant on her legal advisers, and invited evidence from the parties to address these concerns. Both of the proposed defendants were also given permission to cross-examine Professor Riefa.
Upon hearing further evidence, the CAT found that Professor Riefa did not demonstrate sufficient independence or robustness so as to act fairly and adequately in the interests of the class. The £490 million claim, therefore, could not proceed as a collective action, and the class was ordered to pay about £3 million in costs. Professor Riefa applied to the CAT for permission to appeal, but this was refused.
This case was the first in which the CAT refused to grant a collective proceedings order on the basis of an inappropriate PCR, and confirms that the CAT subjects class-representative suitability to rigorous scrutiny. Parties should, therefore, not expect authorisation to be a mere formality.
4. 2025 So Far
As of 7 August 2025, only two new opt‑out claims have been registered in the CAT, both alleging abuse of a dominant market position in digital‑advertising services. For comparison, 2024 produced 11 new collective actions in total, seven of which had been filed by 15 July 2024.
So, why the slowdown?
- Post‑PACCAR rewrites: Claimant teams may be continuing to renegotiate funding documents to avoid falling foul of the DBA Regulations prior to reform, delaying the issuance of fresh claims.
- Legislative overhang: With the government yet to respond to the CJC’s June recommendations, many promoters are likely waiting to see whether a funding‑friendly fix is enacted before launching proceedings.
- Certification headwinds: Recent CAT judgments, culminating in the detailed examination of funder terms and returns in Merricks, signal closer scrutiny of pleadings.
Should the government follow the CJC’s recommendations and reverse the impact of PACCAR, we anticipate a filing rebound in 2026, as pent‑up claims enter the CAT. The government recently issued a call for evidence as part of its review of the opt-out collective actions regime. Proposals and a formal consultation are expected to follow in early 2026.
5. What’s Next?
The year-to-date developments in 2025 confirm that the UK’s class action regime is coming of age. If the CJC’s guidance is followed and light-touch regulation implemented, London’s attractiveness as a hub for large-scale class litigation may be fortified. However, funders may recalibrate their approach in light of the Merricks experience, knowing that their returns could be scrutinised and reduced by the CAT to protect class members. Indeed, recent reports suggest that funders’ enthusiasm for UK class actions has cooled, and that a market correction may be underway as new claims attract fewer financing offers. The remainder of 2025 promises to be interesting with:
- more guidance – through appellate decisions and CAT rulings;
- the commencement of some very large class actions outside of the CAT in late 2025, such as the Pan-NOx case (a group litigation order), which may provide more guidance and case law for class actions outside of the CAT regime; and
- judgment (expected) from the first stage of the largest group litigation in the English High Court in Municipio de Mariana & Ors v. BHP Group, which is a £36 billion claim involving over 600,000 claimants relating to the collapse of the Fundão Dam in Brazil in 2015.
It is hoped that all of the above will help solidify the UK’s class action landscape for the future. In addition, as of 6 April 2025 the UK Competition and Markets Authority (the “CMA”) has the power to investigate and fine noncompliant businesses for consumer protection violations. This new power of the CMA may lead to class actions (such as follow on damages claims) from any findings of wrongdoing by the CMA. This is in addition to a likely increase in product liability claims and environmental class action claims before the English courts.
Stakeholders in this space should remain alert and adaptable as the class action landscape settles into a new equilibrium in the wake of Riefa, PACCAR, Merricks – and now, the CJC report.
Safwan Akbar, London Trainee Solicitor, contributed to the drafting of this alert.
[1] At the time of writing, there was no public indication as to when the judicial review proceedings are expected to commence.
