On 12 and 13 May 2020, the UK’s Supreme Court will hear Mastercard’s appeal in the class action brought by Walter Hugh Merricks CBE. The appeal concerns “certification hearings” under the UK’s opt-out class action regime for competition damages claims, and how the courts should decide whether a particular class action should be certified. The Supreme Court’s ruling will be a very important indicator on the viability of other pending competition class actions.
This Law-Now details the issues to be addressed in the appeal and the background to the Merricks claim. We will provide a further update when the Supreme Court hands down its ruling on this important issue.
Background: the UK’s competition class action regime
The UK’s competition class action regime was introduced into the Competition Act 1998 by the Consumer Rights Act 2015. Most strikingly, the regime permits group claims to be brought on an “opt-out” basis, akin to a U.S.-style class action where a representative acts on behalf of a class. All persons within the class (natural and legal) are bound by any final judgment or settlement unless they actively opt-out. “Opt-out” class actions are powerful procedural devices for coalescing disaggregated losses. They tend to be driven forward by claimant law firms working in cooperation with litigation funders.
A proposed representative seeking to bring such a class action must apply to the Competition Appeals Tribunal (“CAT”) for a Collective Proceedings Order (“CPO”) certifying the claim. In hearing an application, key considerations for the CAT are whether: (a) it is “just and reasonable” to authorise the proposed representative (the “Representative Test”); (b) the claims “raise the same, similar or related issues of fact or law” (the “Commonality Test”); and (c) the proposed claim is “suitable to be brought in collective proceedings” (the “Suitability Test”).
The UK certification procedure is still in its infancy but the CAT’s ruling in Merricks (and also in the Dorothy Gibson CPO application, which was the first claim filed under the opt-out regime) provided reasonable clarity on the Representative Test. The main battlegrounds on the CPO stage in Merricks are on commonality and suitability, where the Supreme Court will hopefully bring clarity.
Mr Merricks’ claim
In September 2016, Mr Merricks applied to the CAT to bring an opt-out collective action arising out of the European Commission’s 2014 decision that Mastercard’s multilateral interchange fees (MIFs) for cross-border transactions were set at an unlawfully high level over a 16-year period (22 May 1992 to 20 June 2008). The proposed class is vast, comprising an estimated 46.2 million people. Mr Merricks estimates aggregate damages of £14 billion.
In July 2017, the CAT rejected Mr Merricks’ CPO application. The Court of Appeal found in his favour in April 2019 (see our commentary available here). In July 2019, Mastercard obtained permission to appeal that decision to the Supreme Court.
We briefly summarise below the rulings of the CAT and the Court of Appeal.
The CAT’s decision
In its decision of 21 July 2017 (link), the CAT refused to grant a CPO. As to the Commonality Test, the CAT ruled that there was only one issue that was “truly a common issue to all claims”, but a single common issue did not in and of itself preclude certification.
As to the Suitability Test, the CAT considered whether the claim was suitable for an award of aggregate damages. The CAT ruled that the Suitability Test was not met for two primary reasons. First, the CAT considered Mr Merricks’ proposed methodology for calculating aggregate damages, but was unpersuaded from the evidence adduced that there “is sufficient data available for the [proposed methodology] to be applied on a sufficiently sound basis.” Second, Mr Merricks proposed that any award of aggregate damages be distributed to class members on a per capita basis. The CAT ruled that this approach, which did not pay heed to individual spending habits and therefore harm suffered, offended the English law approach of awarding damages on a compensatory basis.
The Court of Appeal’s judgment
Before hearing any substantive appeal, the Court of Appeal had to rule on whether or not it had jurisdiction to hear any appeal or whether, as Mastercard contended, Mr Merricks’ only recourse to challenge the refusal to grant a CPO was in judicial review. In late 2018, the Court of Appeal held that it did have jurisdiction to hear an appeal and it granted Mr Merricks permission to appeal.
The substantive appeal was argued in February 2019. The Court of Appeal found in favour of Mr Merricks (link), setting aside the CAT’s refusal to grant a CPO and remitting the application back to the CAT for a re-hearing.
The Court of Appeal held that the CAT had “demanded too much of the proposed representative at the certification stage”. It was not considered appropriate for the CAT to require the proposed representative and their experts “to specify in detail what data would be available” for the infringement period at the certification stage.
The Court of Appeal held that an aggregate award of damages neither required damages to be calculated nor distributed on an individual basis. It went on to find that distribution is a “matter for the trial judge to consider following the making of an aggregate award of damages… [and] it was both premature and wrong for the CAT to have refused certification by reference to the proposed method of distribution…”. Put differently, issues of distribution required answers but those answers were to be provided at trial rather than at the certification stage.
The Court of Appeal stated that the CAT had in effect conducted a “mini-trial” and had erroneously applied a “more vigorous process of examination” than would have applied on a strike out application. The CAT had ruled that “collective proceedings on an opt-out basis can bring great benefits, if successful… but like almost all substantial competition damages claims they can be very burdensome and expensive for defendants… The eligibility conditions… require the Tribunal to scrutinise an application for a CPO with particular care, to ensure that only appropriate cases go forward”. The Court of Appeal held that this was too exacting an approach and emphasised the safeguard that certification is “a continuing process”: a CPO may be varied or revoked if it subsequently transpires that it does not meet the certification criteria.
The Supreme Court hearing
The Supreme Court hearing will be broadcast live via the Supreme Court’s website (available here). CMS’s UK Supreme Court blog, jointly run with Matrix Chambers, will be posting a live feed of the hearing (available here), with updates and commentary on its developments. We will also be posting highlights on the UK Supreme Court blog’s Twitter feed (available here).
The Supreme Court’s hearing of the standard required when bringing an opt-out collective action in the CAT and the test for certification will clarify the framework for bringing competition class actions in the UK. This will be of interest to claimants and defendants alike, as well as litigation funders. The Court of Appeal took a significantly more generous approach than the CAT. However, the Supreme Court’s approach will be key, and could represent a turning point in the future of the collective competition damages regime which to date has yet to certify a claim. Beyond the Merricks claim, the Supreme Court’s judgment will impact other collective class actions which are pending certification by the CAT but have been stayed for the time being and other claims which are planned. All parties concerned will no doubt be awaiting the Supreme Court’s judgment with bated breath.
 Aggregate damages is an award of damages without undertaking an assessment of individual damages for each person within the class.