CN14 - Competition Appeal Tribunal certifies first UK competition class action in Merricks

On 18 August 2021, the UK's Competition Appeal Tribunal ("CAT") certified the application by Mr Walter Merricks CBE to bring an opt-out class action on behalf of 46 million UK consumers who suffered loss as a result of anticompetitive interchange fees imposed by Mastercard between 1992 and 2008. While the CAT's ruling was expected following the Supreme Court's judgment in December 2020, this is a significant decision as it is the first time a class action has been certified following the amendments introduced by the Consumer Rights Act 2015.

Key takeaways

• The first opt-out collective proceeding in the UK has been certified which will pave the way for future collective actions.
• A class can include the representatives of the estates of deceased persons but it cannot simply include deceased persons.
• It will be difficult to claim for compound interest as part of a collective action.

Background

In September 2016, Mr Merricks applied to the CAT to bring a follow-on damages claim, on an opt out basis, on behalf of all individuals over 16 who purchased goods or services from a UK business that accepted Mastercard between 1992 and 2008.  The application is based on a decision by the European Commission in 2007 that interchange fees, charged to retailers for card use which are often passed through to consumers in the form of higher prices, for Mastercard debit and credit cards breached EU competition law. 

Mr Merricks brought his claim under Section 47B of the Competition Act 1998 (as amended by the Consumer Rights Act 2015) which introduced a framework allowing collective actions to be brought on an opt-out basis in the English courts for breaches of competition law.  Opt-out claims presumptively include all UK domiciled members of the class as claimants unless individuals actively "opt-out".  Before an opt-out claim may proceed, the CAT must certify it by granting a collective proceedings order ("CPO").  

After the CAT declined to grant a CPO for Mr Merricks' application in 2017, he appealed to the Court of Appeal which held that the CAT had failed to properly apply the eligibility condition. Mastercard then appealed to the UK Supreme Court. 

Supreme Court judgment

On 11 December 2020, the Supreme Court handed down its judgment which broadly upheld the Court of Appeal's judgment and confirmed that the CAT had not applied the correct meaning of "suitability" when considering the appropriateness of Mr Merricks' claim for collective proceedings.  On that basis, Mr Merricks' application was remitted to the CAT for it to reconsider certification.

CAT judgment

Following the Supreme Court's decision, Mastercard no longer opposed certification of Mr Merricks' application.  In its judgment, the CAT considered issues relating to three areas: 

• authorisation of Mr Merricks as the class representative;
• whether Mr Merricks could amend the application to extend the class to include individuals who died before the claim form was issued; and
• whether the collective proceedings could include a claim for compound interest.

Authorisation of the class representative 

In 2017, the CAT held that Mr Merricks satisfied the authorisation condition to be the representative of the proposed class.  In its recent judgment, the CAT considered two developments since the 2017 hearing: (i) an objection raised by a member of the proposed class which was dismissed and (ii) the replacement of Mr Merricks' third party litigation funder with Innsworth Capital.  

The CAT focused on whether the proposed class representative would be able to pay the defendant's recoverable costs if ordered to do so.  The new litigation funding agreement ("LFA") provides for a significant amount more funding than the previous LFA which had satisfied the CAT.  Under the LFA, Mastercard had no right to enforce the LFA and would therefore need to apply for a third party costs order against Innsworth Capital, which is a Jersey company and accordingly outside the jurisdiction.  Mastercard therefore sought an undertaking by Innsworth Capital to the CAT that it would discharge a liability for costs ordered against Mr Merricks, which Innsworth Capital agreed to provide.

Deceased persons issue

The CAT found that Mr Merricks clearly intended to exclude deceased persons in his original claim, however, the experts did not allow for the exclusion of deceased persons when calculating aggregate damages.  On remittal, Mr Merricks sought to amend the claim form to include deceased persons in the class.  This would have significantly increased the size of the class from 46 million to almost 60 million.  

Proceedings brought under Section 47B of the Competition Act 1998 are a subset of proceedings which could be brought under section 47A and are a "bundle" of claims which are brought collectively but retain their identity as distinct claims.  As the claims of deceased persons vest in their estate on their death, the CAT held that it is not possible to simply include deceased persons in the class. However, it would be possible to have a class definition which included the estates of deceased persons and the right to opt-in or opt-out could then be exercised by their representative. As this was not the amendment proposed by Mr Merricks, his application to amend the claim form was denied. 

For completeness, the CAT also noted that the application to amend the claim form was made over four years after the limitation period expired and did not fall within the exceptions in the CAT rules which allow for additional parties to be added after the expiry of the limitation period.

The CAT expressly noted that nothing in its judgment affects the claims of class members who died after the claim form was issued.  

Compound interest

Mr Merricks' original claim form included a claim for compound interest on the basis that all class members will have either incurred costs to finance the overcharge (for example, through borrowing) or will have lost interest that they would have otherwise earned by holding the amount of the overcharge.  Compound interest is a distinct head of loss which needs to be established separately and cannot be presumed: it is awarded as part of the damages unlike simple interest which is awarded on damages..  In this case, a claim for compound interest, as opposed to simple interest, would make a substantial difference to the total claimed given the period over which the alleged loss was incurred.  

Mastercard opposed the inclusion of the claim for compound interest on the basis that no plausible or credible method had been proposed for calculating the loss suffered and that it was not a common issue across the class.  

The CAT held that it was necessary to show on the balance of probabilities how members of the class funded the additional expense or how they would have used the additional money if there had been no overcharge.  The CAT observed that the principal claim amount per class member is small and was incurred incrementally as a result of very small overcharges on day-to-day purchases.  In this case, class members may have been able to pay the additional amount from their earnings and/or may have used the additional money, absent any overcharge, to spend more. 

Mr Merricks submitted two alternative methodologies for estimating the compound interest claim: (i) calculating a blended interest rate to reflect the saving and borrowing rates during the relevant period, proportionate to the members of the class who saved or borrowed money or (ii) given the data limitations with the first approach, limiting compound interest to a subset of borrowers and excluding members of the class who have no borrowings from the claim for compound interest.  The CAT rejected both approaches and commented that each approach assumes how the class members would have used the money, absent an overcharge, and do not address the probability that the money would have been used for additional spending.  Applying the Supreme Court's judgment, the CAT found that the claim for compound interest was not suitable for an aggregate award in the absence of any "credible or plausible method of estimating what loss by way of compound interest was suffered on an aggregate basis".  The CAT emphasised that that the claim was not being rejected on the basis of any data limitations but because no viable methodology had been put forward.  

Having excluded the claim for compound interest on the above basis, the CAT did not consider in detail whether the recovery of compound interest is a "common issue" raised by the claims of all class members. The CAT did, however, comment that it would be difficult to see how a claim for compound interest could raise a common issue where only a minority of class members suffered loss by way of compound interest. 

Comment

This is a significant milestone for the UK's nascent collective actions regime.  Mastercard now faces the largest damages claim in the history of the English civil courts, as well as claims brought by merchants.  A date has not been set for the case to be heard. 

Additional collective claims have been filed following the Supreme Court's judgment in December 2020 and more are likely to follow now that the first application has been certified.  Collective actions have been filed against BT, Qualcomm, Apple and Google, as well as in relation to the Trucks and FX cartels.  Based on the CAT's judgment, it may be challenging for applicants to claim compound interest in future collective proceedings.  However, there is potential for the estates of deceased individuals to be included as eligible class members in future claims.

The full judgment can be found here.

With thanks to Fiona Garside of Ashurst for her contribution.