Merricks v Mastercard Incorporated & Ors [2017] CAT 16
Litigation funders have undeniably fuelled the rise in competition litigation. The first case to reach the certification hearing was the Merricks case which was a collective action against Mastercard. It has almost single-handedly chartered the course for claims in the Competition Appeal Tribunal. Things did not get off to a good start. In the application for a Collective Proceedings Order (which was in fact dimissed on the law), the funding agreement with the litigation funder was placed under the microscope. Mastercard’s objection to the applicant as class representative was due in large part to this funding agreement. The funder for this stage of the action was an entity owned by Gerchen Keller Capital LLC (which, by the time of the hearing, had been acquired by Burford Capital). It follows that the funding agreement had already been disclosed to Mastercard, in redacted form. There were 3 main objections – the agreement would not enable the applicant to continue to fund the litigation or pay Mastercard’s recoverable costs since it could in certain circumstances be terminated by the funder; the limit of £10m for funding a liability for such costs was inadequate and the terms of the agreement gave rise to a conflict of interest. In the face of the CAT’s indication that it would not authorise the applicant if the funding agreement could be so terminated, counsel confirmed that the representative was prepared to amend the funding agreement to take account of the difficulty. Given that Mastercard did not substantiate its objection to the £10m limit by producing its own budget, the CAT refused that objection. The proposed conflict arose in this way – on the one hand the applicant was to seek to ensure that sufficient funds were left for the funder to take its return, but on the other he was supposed to maximise the return to the class. The perceived conflict could be particularly acute if the proceedings approached settlement. Since the funding agreement contained clear acknowledgment that the applicant was to act independently and have sole control of the litigation in the best interests of the class, the CAT did not consider that such a conflict would arise.
Competition litigation has grown at a pace since Merricks, but one thing remains true now as it did then. A funder has to accept that its agreement, and the accompanying ATE policies, are going to have to be disclosed to the defendant and to the CAT. In any carriage dispute, it can be expected that there will be serious attack directed at the ability of the funder to deliver, and that the funded amount in the agreement is too low. A funder will need to provide witness evidence as to its ability to deliver, and in all likelihood in respect of its track record and expertise. However, the CAT is not going to penalise litigation funders once transparency has been established. The CAT simply wishes to know that the funding arrangements are not going to prejudice the operation of justice and that the class representative will be able to litigate through out the life of the case and have sufficient insurance if things go wrong. This latter point is crucial because of the huge costs at stake.