The Court of Appeal reverses the CAT’s first instance Mastercard decision in landmark collective action ruling

In its much-anticipated judgment in Walter Merricks CBE v Mastercard Incorporated & Ors [2019] EWCA Civ 674, the Court of Appeal has provided the most significant guidance regarding the application of the UK’s collective action regime to date. We consider the Court of Appeal’s judgment and what it means for the future of the UK regime.

1. Development of the UK’s collective action regime

The Consumer Rights Act 2015 significantly changed the UK procedural landscape for private damages claims in antitrust proceedings by introducing a collective action regime.

Since 1 October 2015, the Competition Appeal Tribunal (the “CAT”) has had power to grant a collective proceedings order (a “CPO”) on an “opt-in” or an “opt-out” basis in appropriate cases which combine two or more stand-alone claims or follow-on claims1 in respect of alleged cartels or for abuse of dominance.

A CPO can only be granted if:

  • the CAT authorises the class representative to act on behalf of the class members on the basis that it is 'just and reasonable' to do so; and
  • the CAT certifies that the claims are eligible to be brought on a collective basis.

When applying the second criterion, the CAT must be satisfied, in all the circumstances, that the claims: (i) are brought on behalf of an identifiable class; (ii) raise common issues of fact or law; and (iii) are suitable to be brought in collective proceedings (taking into consideration, for example, the costs and benefits of the claims proceeding as a collective action, the fair and efficient resolution of the common issues, the size and nature of the class and whether the claims are suitable for an aggregate award of damages).2

If a CPO is granted, the CAT is permitted to make an aggregate award of damages without undertaking an assessment of the amount of damages recoverable in respect of each represented member of the class.3

The CAT has heard just two CPO applications to date4, but has refused to certify either case, leading some to question whether the new regime is fit for purpose.

2. Background to the Mastercard collective action

2.1 The Mastercard “MIF” and the 2007 European Commission decision

The claim concerns Mastercard’s default multilateral interchange fee (“MIF”), a fee charged by the cardholder’s bank to the merchant’s bank when a consumer pays for goods or services using a Mastercard payment card. That fee is “passed-on” entirely to merchants by their banks as part of the charge they pay for payment services.

On 19 December 2007, the European Commission (the “Commission”) issued a decision which found that Mastercard’s EEA MIF5 restricted competition in breach of EU competition law. The decision was upheld on appeal by the European Courts.

The Commission found that the level of the EEA MIF had a direct effect on the amount of the charges paid by merchants. It also considered that some part of the unlawful MIF was likely to have been passed on by merchants to consumers in the form of increased prices.

2.2 The Merricks collective action

On 6 September 2016, Walter Merricks CBE (“Merricks”), acting as class representative, issued follow-on proceedings against Mastercard on an opt-out6 basis, on behalf of an estimated 46.2 million individuals who purchased goods or services between 22 May 1992 and 21 June 2008 from businesses in the UK which accepted Mastercard payment cards. Merricks alleges that the unlawful MIF was passed on to consumers entirely (or near entirely) and that, absent MasterCard’s infringement, all consumers would have paid lower prices during the claim period.

Merricks seeks an aggregate award of damages for this overcharge, together with interest, totalling more than £14 billion – the largest civil damages claim of any sort ever brought in the UK.

The claim does not seek to account for the differing levels of expenditure of the individuals within the class, nor the potentially differing levels of pass-on between different sectors or merchants. Instead, Merricks is pursuing an aggregate damages award calculated using a “top down”, class-wide approach, with damages to be distributed on an equal per capita basis, rather than reflecting the loss of any particular individual.

3. First instance: the CAT judgment

In its judgment of 21 July 2017, the CAT refused to grant a CPO for two principal reasons:

3.1 Pass-on

Firstly, the CAT was not persuaded by Merricks’ expert evidence that there would be sufficient data to show, on a sufficiently sound basis, pass-on from merchants to consumers across the entirety of the UK economy, so as to establish the amount of aggregate damages in the claim.

Taking inspiration from the test set out for certification applications in the Canadian Supreme Court decision of Pro-Sys Consultants Ltd v Microsoft Corp.7, the CAT determined that Merricks had failed to show a sufficiently credible or plausible expert methodology to establish some basis in fact for the commonality requirement. The degree to which overcharges were passed on to consumers in the form of price increases and the amount which each individual in the class spent at those merchants were not considered to be sufficiently common issues to satisfy this test.

3.2 Distribution

Secondly, the CAT determined that the proposed methodology for assessing and distributing damages offered “no plausible way of reaching even a rough-and-ready approximation of the loss suffered by each individual claimant”.8 As such it offended against the compensatory principle, which underpins claims for damages in tort. Accordingly, the CAT concluded that a “top-down” assessment of damages could only be acceptable where there is “a reasonable and practicable means of getting back to the calculation of individual compensation” in distribution9, which Merricks had made no attempt to do.

4. A new direction? The Court of Appeal’s judgment

The Court of Appeal set aside the Order of the CAT refusing certification and held that:

  • the CAT erred in law and adopted the wrong approach to the assessment of the evidence and the strength of the case on pass-on; and
  • the CAT adopted the wrong test in relation to distribution, in particular in directing itself that a method of damages which did not in some way seek to link the distribution of an aggregate award of damages to individual loss was impermissible.
4.1 Pass-on

The Court of Appeal considered that the CAT had demanded too much of Merricks at the certification stage and criticised the CAT for having effectively carried out a “mini-trial”.10 The Court determined that, whilst the CAT had been right to apply Microsoft,11 it had failed to do so correctly.12

The Court held that:

  • in principle, a “top-down” calculation of the level of pass-on of MIFs to consumers as a whole is a permissible basis for the making of an aggregate award, and there is no requirement to undertake an assessment of the damages that each individual member of the class would have been able to recover in separate proceedings.13
  • the issue of whether the MIF overcharge was passed-on to consumers generally and in what amounts is an issue common to all individual claims within the class as a necessary step in establishing loss by the class as a whole.14
  • the purpose of a certification hearing is to enable the CAT to be satisfied that (with the necessary evidence) the claims are suitable to proceed on a collective basis, and that they raise the same, similar or related issues of fact or law. At that stage the proposed representative must be able to demonstrate, applying the test in Microsoft, only that the claim has a real prospect of success. In order to do so, Merricks needed to satisfy the CAT that the expert methodology was capable of assessing the level of pass-on to the represented class and that there was, or was likely to be, data available to operate that methodology.15
  • it was not appropriate, however, to require Merricks’ experts to specify in detail what data would be available for each of the relevant retail sectors in respect of the infringement period, nor to conduct a “cross-examination” of experts at a pre-disclosure stage on evidence that had been identified but had not yet been fully analysed or assessed.16
  • certification is a continuing process, under which a CPO may be varied or revoked at any time. Accordingly, the CAT had been wrong to scrutinise the claim to this degree at the very first hurdle. Any concerns about sufficiency of data would be more appropriately resolved once pleadings, disclosure and expert evidence were complete.17
4.2 Distribution

The Court of Appeal held that distribution is a matter for the trial judge to consider after making an aggregate award, such that it was “both premature and wrong” for the CAT to have refused certification for this reason.18

The Court added that, in any event, a loss-based method of distribution is not expressly required by the CAT’s procedural rules. Accordingly, the CAT’s approach in inferring that an aggregate award needed to be distributed in a way which respected the compensatory principle was too narrow.

In reaching its decision, the Court further observed that:

  • if Merricks’ action was not certified, follow-on damages claims by consumers against MasterCard would be a practical impossibility;19 and
  • the regime had been introduced to enable means of redress that could be facilitated by litigation funding, and that if Parliament wished to limit aggregate awards by reference to what was necessary for assessment of damages in an individual claim, it would have said so.20

5. Conclusions and the future of the collective action regime

The Court of Appeal acknowledged in its judgment that it could allow the appeal only in circumstances where the CAT had either misapplied the legal test for certification or had made a decision on the facts “which no reasonable tribunal… could have reached.21 That the Court went on to overturn the CAT’s Order, and to criticise it so comprehensively, will undoubtedly serve to encourage claimants and litigation funders, particularly given that this is the first consideration of the new class action regime by an appellate court in the UK.

The Court of Appeal’s judgment significantly lowers the initial certification hurdle that CPO applicants must overcome. Whilst it offers no guarantees that a claim will ultimately be successful, it potentially opens the door to more collective actions progressing to a full trial.

The judgment does, however, have some troubling implications:

  • The Court of Appeal has both advocated a lower level of scrutiny of collective actions at the initial stage, and made it clear that it considers certification to be an ongoing process rather than a “once and for all” assessment. This approach will obviously lead to a significantly increased risk of wasted time and costs if a claim is later unable to proceed. The suggestion that CPO status could be revoked on the basis of inadequacy of data after pleadings, disclosure and expert evidence creates a very significant adverse costs risk for a proposed class representative and its funders.
  • The Court of Appeal’s finding that the compensatory principle does not apply in relation to aggregate damages (based on its assessment that Parliament would have used express words had it intended the principle to apply) marks an uncomfortable and surprising departure from the standard tort principles which were previously believed to govern competition damages claims. The Court acknowledged the tension between this principle and the difficulty of distributing aggregate damages in class actions (which are often too small to be brought at an individual level) on this basis, but chose to prioritise facilitating collective actions over normal concerns about avoiding over-compensation and preventing under-compensation of claimants.

The Court of Appeal has remitted the CPO application to the CAT for re-hearing in light of its judgment and refused MasterCard permission to appeal. However, Mastercard has already stated publicly that it intends to apply to the Supreme Court.

In the meantime, the Court of Appeal’s ruling can be expected to influence the approach of the CAT in relation to the four other pending CPO applications, which will provide further guidance on the operation of the new regime. In June 2019, the CAT will consider two competing CPO applications for the first time in respect of claims relating to the trucks cartel.22 The first stand-alone claims have also recently been issued under the new regime, in respect of alleged abuses committed by train companies regarding boundary fares.23

Click here for the judgment: Walter Merricks CBE v Mastercard Incorporated & Ors [2019] EWCA Civ 674