Competition Appeal Tribunal dismisses £14 billion collective action against Mastercard

United Kingdom

MasterCard has successfully opposed a collective action in the Competition Appeal Tribunal (“CAT”), in the latest instalment of the multilateral interchange fee (“MIF”) litigation.  MasterCard faced a £14 billion claim – the largest ever filed in the UK – brought on behalf of a class of 46 million consumers in relation to debit and credit card fees charged over a 16 year period.

The MasterCard action is only the second of its kind since the reform of the UK collective proceedings regime in 2015.  Both cases (the first being Mobility Scooters) have now failed at the initial certification stage. The CAT’s judgment will be significant for any future collective actions brought on behalf of consumers who have been victims of competition law infringements; it sets out some helpful explanation as to how the issue of certification will be approached by the CAT, and clarifies the evidentiary hurdles that must be overcome for a claim to be certified. However, the decision itself may also have cast doubt upon the future of collective competition proceedings. 

Collective proceedings

The only actions eligible for collective proceedings are those ‘certified’ by the CAT by way of a collective proceedings order (“CPO”).  The CAT has a wide discretion regarding certification and may take into account “all matters it thinks fit”, including whether the claims raise “the same, similar or related issues of fact or law” (common issues) and are suitable for collective proceedings, according to a range of factors.  Each collective action must also have a representative acting on behalf of the class who must be authorised by the CAT where it considers the appointment ‘just and reasonable’.  For more information on the regime, see our Law Now here.

The claim against MasterCard

The application for a CPO was brought by Mr Walter Merricks, a former Financial Ombudsman, who claimed damages for MasterCard’s breach of Article 101 of the Treaty on the Functioning of the European Union, which prohibits agreements that have their object or effect the restriction, prevention or distortion of competition within the EU.  The claims covered by the application were ‘follow-on’ claims (as opposed to stand-alone claims) because the competition infringement that was alleged to have caused the loss had already been established by a 2007 decision of the European Commission.

The infringement related to MasterCard’s setting of its intra-EEA MIF, a fee that forms part of the merchant service charge (“MSC”) that a cardholder’s bank pays to a merchant’s bank upon transferring payment for the cardholder’s purchase.  Setting a MIF at a certain level prevents cardholders’ banks from developing individual pricing policies for the services they provide to merchant banks; the MIF effectively creates a pricing floor. As the level of the MIF is reflected in the MSC, there is also the potential for consumers ultimately to pay higher prices where the MSC charge is passed on to them by retailers.  This issue of pass on (or pass-through) was the subject of much scrutiny and argument in the present case (see below). 

The European Commission’s decision (confirmed by a 2014 decision of the Court of Justice of the EU) was that MasterCard’s setting of its intra-EEA MIF was a decision of an association of undertakings that infringed competition law.  For further information on multilateral change fees and the competition issues they raise, see our earlier Law Now here.   

Mr Merricks’ application was made on an ‘opt out’ basis, which means the members of a class are not required actively to ‘opt in’ to an action (as was the case prior to 2015).  In opt out cases, individuals are considered members of the class where they meet certain criteria, unless they actively choose to ‘opt out’.  The proposed class in the MasterCard action was estimated at 46,200,000, comprising “individuals who between 22 May 1992 and 21 June 2008 [i.e. the period of MasterCard’s infringement] purchased goods and/or services from businesses selling in the UK that accepted MasterCard cards, at a time at which those individuals were both: (1) resident in the UK for a continuous period of at least three months, and (2) aged 16 years or over.”  It was argued that although around 95% of the value of the claim against MasterCard related to the UK MIF (the applicable MIF where a card issued in the UK is used to pay a merchant in the UK) and not the intra-EEA MIF that was the subject of the Commission’s decision, the UK MIF was the consequence of the EEA MIF, so the loss flowed from that infringement. 

MasterCard’s primary objection to the application for a CPO related to the certification of the claims.  It argued that:

  1. the award of aggregate damages in this case would be “inimical to the compensatory nature of damages and impossible to assess on any reliable basis”; and
  2. the proposed distribution mechanism to individual members of the class would also be inimical to the compensatory nature of damages as the amounts received by individuals would bear no reasonable relationship to their actual loss.

The CAT’s judgment


Common issues

The CAT gave judgment on 21 July 2017.  At the outset of its analysis, it emphasised the importance of expert evidence in assisting it to scrutinise an application for a CPO with care, to ensure that only appropriate cases go forward.  The CAT cited a judgment of the Supreme Court of Canada (Microsoft) as prescribing a test for what is required of such evidence where it is relied upon to argue that the claims raise common issues:

… the expert methodology must be sufficiently credible or plausible to establish some basis in fact for the commonality requirement.  This means the methodology must offer a realistic prospect of establishing loss on a class-wide basis […] The expert methodology cannot be purely theoretical or hypothetical, but must be grounded in the facts of the particular case in question. There must be some evidence of the availability of the data to which the methodology is to be applied.

The CAT considered that an individual claimant would be required to establish six issues in bringing a claim against MasterCard, namely:

  1. that the level of the EEA MIFs had an effect on the level of the UK MIFs (for both MasterCard credit and debit cards);
  2. the amount by which those MIFs were higher than the counterfactual IFs that would have applied in the absence of an infringement;
  3. the level of pass-through of these MIF overcharges in the MSC charged by Acquiring [merchant] Banks to the merchants where the claimant bought goods and services;
  4. for each merchant at which the claimant purchased goods and services, the degree to which that merchant passed through those overcharges and the percentage impact on its prices;
  5. the amount that the claimant spent at each of those merchants; and
  6. if the claimant held a MasterCard credit card, what if any interest payments were made and what if any benefits were received under that particular card.

The CAT held that only the first issue would be common to all claimants.  By contrast, there would be huge variation between claimants as regards issues four and five.  For example, the experts confirmed that the degree to which merchants pass on overcharges depends on factors such as market structure, conditions of supply and demand, pricing regimes, the type of business (e.g. motoring or food and drink) and geographical region.  In short, the CAT considered it was “far from the case” that the individual claims against MasterCard raised common issues. 

Suitability for Collective Proceedings

The CAT emphasised that the lack of common issues did not in itself mean the case would be unsuitable for a CPO.  It accepted that Mr Merricks could avoid the issue of pass-through by persuading the CAT to arrive at an aggregate award of damages first, then consider how to distribute it to the class members (a ‘top-down’ approach).  However, the CAT required Mr Merricks to establish that there was:

  1. a sustainable methodology which could be applied in practice to calculate a sum which reflects an aggregate of individual claims for damages; and
  2. a reasonable and practicable means for estimating the individual loss which can be used as the basis for distribution.

Aggregate award

The experts considered that an aggregate award of damages for the whole class could be ascertained by establishing an estimated “weighted average pass-through percentage” reflecting the different levels of pass-through in different markets.  Although the CAT accepted this as “methodologically sound” in theory, there would be significant practical hurdles to overcome to conduct the analysis required to reach that percentage.  The experts would need (i) information gleaned from other actions against MasterCard; (ii) disclosure from third parties in different sectors of the economy; and (iii) published data and studies. 

In respect of these three sources, the CAT noted: (i) the timeframes of the other MasterCard claims did not overlap extensively and they were far away from being resolved and having the relevant evidence addressed; (ii) the extent of the third party disclosure requests required would make this a “a very burdensome and hugely expensive exercise”; and (iii) of the published data and studies that were available, they were incomplete and difficult to interpret.  The CAT therefore concluded that applying the weighted average pass-through method to the entire UK retail sector over a period of 16 years would be a “a hugely complex exercise” and they were unpersuaded there was sufficient data available for the methodology to be applied on a sound basis so as to calculate an aggregate award. 


Even if a methodology could be applied to achieve an aggregate award, it must also be shown that there is a reasonable and practicable means of calculating individual compensation.  The CAT was not persuaded by Mr Merricks’ argument that it should approach the problem with “sound imagination” and “a broad axe”, which approach the courts sometimes adopt in assessing financial damage when the task of quantification is difficult.  In this case, the CAT held that there was “no plausible way of reaching even a very rough-and-ready approximation of the loss suffered by each individual claim from the aggregate loss”; the class comprises individuals with different levels of expenditure, spent on different products and services and purchased from different merchants over a long period of time.  The problem was exacerbated by the fact Mr Merricks’ approach to the calculation of the loss was presented on a ‘top-down’ basis, i.e. establishing the aggregate award first and then seeking to divide it, rather than establishing a common issue concerning loss suffered by each individual member and totalling those amounts.

Ultimately, the CAT was not persuaded that the application would result in damages being paid to the claimants in accordance with the governing principle of damages for breach of competition law, namely that the claimant should be restored to the position they would be in but for the breach. 

Accordingly, the CAT found that the claim was not suitable for the CPO procedure.

Authorisation of the Class Representative

Having concluded that the application would not be certified on the above basis, the CAT considered for completeness the issue of the authorisation of the class representative.  MasterCard opposed Mr Merricks as a class representative because it objected to the terms of the funding agreement he had entered into with a third party funder (the Agreement”).

MasterCard argued that some provisions in the Agreement meant that, should the litigation progress, the Agreement would fall short of covering MasterCard’s recoverable costs.  MasterCard claimed that any damages not claimed by the class within a specific period could not be paid by Mr Merricks to his third party funder on the basis they did not constitute “costs and expenses incurred by the representative in connection with the proceedings” under s.47C(6) Competition Act 1998, which would entitle the funder to terminate the agreement.  The CAT rejected this argument, noting that the Government had “clearly envisaged that many collective actions would be dependent on third party funding, and it is self-evident that this could not be achieved unless the class representative incurred a conditional liability for the funder’s costs, which could be discharged through recovery out of the unclaimed damages”.

The CAT also rejected MasterCard’s argument that £10 million would be inadequate to cover its potential recoverable costs (MasterCard not even having submitted a costs budget), as well as its argument that the Agreement gave rise to conflicts of interest as the payment of the funder’s fee out of the damages would not be in the class’ best interests; there were clear acknowledgments in the Agreement that Mr Merricks had to act independently and in the class’ best interests.


The MasterCard judgment serves as a further reminder to potential applicants that certification is a significant procedural hurdle.  Although the CAT emphasised that the certification hearing should not be a “mini-trial”, the applicant must still do more than show it has a mere arguable case.  As was the case in Mobility Scooters, the issue of certification came down to the expert economic evidence.  In adopting the Microsoft test, the CAT appears to have set a standard as to the rigour and detail that will be expected of such evidence.  The expert methodology:

  1. must be sufficiently credible or plausible to establish some basis in fact for the commonality requirement;
  2. must offer a realistic prospect of establishing loss on a class-wide basis; and
  3. cannot be purely theoretical or hypothetical, but must be grounded in the facts of the particular case in question.

In addition, there must be evidence of the availability of the data to which the methodology is to be applied, and a method of distribution that offers a reasonable and practical way of ensuring compensation for the individual members of the class. 

This is no small task for applicants.  Although the CAT emphasised that it would not expect a full economic analysis to be conducted for the purpose of a CPO application, it made clear that applicants are required to make a “proper effort” prior to the CPO hearing to determine whether such an analysis is even practicable.  At the same time, the CAT places importance on the cost/benefit analysis in determining suitability; the costs of litigation should justified by the potential size of the aggregate award.  This factor is what ultimately led the applicant in Mobility Scooters to withdraw its application, following the CAT’s determination that the evidence indicated the potential class was not nearly as large as the applicant had attempted to frame it, cutting the size of the potential aggregate award significantly.  In MasterCard, although not expressly examined as a factor in determining suitability, the CAT clearly considered that the extent of data gathering and analysis required would be a “burdensome and expensive” exercise that was not justified.

The MasterCard judgment is a significant blow for a regime that was already struggling to get off the ground.  However, it does not necessarily spell the end for collective competition actions in the UK.  The facts of MasterCard presented several specific challenges; the sheer size of the potential class and the length of the infringement period meant it was always going to be an uphill struggle for Mr Merricks to establish common issues. In terms of suitability, despite the significant time dedicated to the preparation of expert reports and oral expert evidence, the CAT considered the evidence did not go far enough to persuade them that the proposed methodology was sufficiently sound in all the circumstances. Mr Merricks has indicated that he is considering the possibility of an appeal, so the claim may yet continue. 

The challenges identified will not necessarily be present in future cases, each of which will be examined on their own facts.  It is still entirely possible that a collective action will make it through the certification stage (and legislation was enacted for that purpose).  Those applicants who take heed of the CAT’s expectations set out in the MasterCard judgment, and invest the requisite time and cost in rigorous expert evidence, are the ones most likely to be successful.

In the meantime, third party litigation funders will be reassured by the CAT’s conclusions on the funding agreement terms, which the CAT confirmed did not present an obstacle to Mr Merricks being an appropriate class representative. The CAT’s approach and confirmation that “many collective actions would be dependent on third party funding” may encourage funders who might otherwise have been uncertain as to how their involvement would be viewed by the CAT.  Funders will be weighing this up against the considerable front-loading of funding that may be required of them given the cost investment needed to overcome the certification hurdle.  Only another case will show whether they see it as worth the risk.

The CAT’s judgment is available here.