Supreme Court paves the way for UK collective actions in landmark Merricks v Mastercard decision

As if 2020 weren’t already too much to handle, the UK’s Supreme Court has kept the competition litigation world waiting with bated breath, for over seven months, for its landmark judgment in Merricks v Mastercard.

The judgment in Merricks was the first time that the new UK collective action regime was considered at that level. It is likely to have huge implications in the competition litigation space because (at a slim margin of 3:2) the judgment significantly lowers the hurdle for certification of collective proceedings applications.

Some helpful background

For the uninitiated, the Consumer Rights Act 2015 introduced a new collective action regime that made the UK one of the few European countries where “opt-out” mass proceedings can be brought for competition claims. In an opt-out regime, the claim is brought on behalf of all those who fall within a defined class of claimants unless they take positive steps to opt out. This makes it much easier for claims to be brought in competition cases.

For such opt-out proceedings, a Collective Proceedings Order (CPO) is needed. It can only be granted by the Competition Appeal Tribunal (CAT), and will only be granted if the CAT (i) considers it just and reasonable for the class representative to act for the class members, and (ii) certifies the claims as eligible for collective proceedings.

To date, the CAT has not certified any CPOs. But the regime has been gathering pace with seven CPO applications made since May 2018. All of those applications are either at a very early stage or were paused pending the judgment in Merricks.

So back to Merricks: his application was refused by the CAT in 2017. Merricks appealed the CAT’s order refusing certification and, in 2019, the Court of Appeal set aside the CAT’s order, finding that the CAT was too stringent in its application of the test. Mastercard then appealed to the Supreme Court and, this month, the Supreme Court agreed with the Court of Appeal that the CAT judgment was underpinned by several errors of law and has sent the application back to the CAT for reconsideration.

The Supreme Court lowered the hurdle for CPOs

The Supreme Court has lowered the hurdle for existing and future claimants and litigation funders. It agreed with the Court of Appeal (with some differences in reasoning) that the CAT judgment was underpinned by several errors of law:

  • Pass-on: the Supreme Court determined (by a 3:2 majority) that the CAT’s consideration of certification was wrong because it failed to appreciate that both of the main issues in the case – pass-on and overcharge – were issues common to every member in the proposed class.

    Also the CAT wrongly treated the suitability of the claims for aggregate damages as it if were a hurdle rather than just one of many factors relevant to suitability for collective proceedings, and applied the wrong test for suitability in any event.

    The CAT also failed to take into account the general principle that the court must do what it can with the evidence available to seek to quantify damages.
  • Distribution: the Supreme Court (unanimously) found that the CAT had applied the wrong test for the distribution of damages, given that the collective action regime is designed to avoid the need for individual assessment of loss through the award of aggregate damages.

The judgment will highly influence the CAT’s approach to the pending CPO applications before it.

What does this mean for defendants?

From a defendant perspective, the judgment renders the potential consequences of a competition law infringement even more severe, and it carries some troubling implications:

  • The risk of wasted time and costs with an ongoing certification process if a claim is eventually unable to proceed down the line.
  • The risk that collective actions will be exploited opportunistically by claimants to extract settlements from defendants when they might otherwise be unable to establish a different form of claim.
  • The clarification that the compensatory principle (which says that the purpose of an award of damages is to compensate the injured party for actual loss, rather than to punish the wrongdoer) does not apply in relation to aggregate damages is a surprising departure from the standard tort principles previously believed to govern competition damages claims.
What’s next?

The judgment promises an overhaul of the UK collective action regime and surely means that at least one CPO application will finally get certified in 2021 - even if that one is ultimately not Merricks.

And, if there is one thing we can be sure about, there are plenty of spats to be had over the collective action regime in the UK yet. 

More detail?

For more analysis on the judgment, including background to the case, legal analysis of the three judgments, and the wider implications, see our Insights.