Competition Appeal Tribunal brings to a halt the vast consumer collective action against Mastercard

Written on 30 Jul 2017

Hot on the heels of the flood of retail claims against Mastercard – including Sainsbury’s successful £68 million claim last year and Arcadia’s unsuccessful claim earlier this year – an attempt to bring a “class action” on behalf of all consumers in the UK has been thrown out.  The claim was the second of a new type of claim for victims of companies who infringe competition law which we have previously reported on.

In the most recent judgment in Merricks v Mastercard (published on 21 July 2017) the Competition Appeal Tribunal refused to allow a claim to be pursued on behalf of 46 million UK adults.

This is the second attempt to bring “collective proceedings”, as they are formally known, in the UK that has failed in recent months.

Given the potential size of the claim it is perhaps not surprising that the claimant’s lawyers have indicated that they will seek to appeal the decision,

We consider below what the CAT has said, and what it might mean for the collective proceedings regime in future.

Mr Merricks’ class action claim

Building on a European Commission finding of anticompetitive credit and debit card fees charged by Mastercard, Walter Merricks argued that there must have been loss suffered by all UK consumers who bought goods from retailers accepting Mastercard, as those retailers sought to offset the anticompetitive charges by charging more to all their customers.

Mr Merricks chose the “opt-out” procedure, which allows the CAT to certify a claim, led by a “class representative”, on behalf of a group of unidentified claimants, who must opt out of the action if they want to pursue a claim of their own. Mr Merricks’ claim was funded by a third party funder, a process which we discuss in a separate article.  This was a relevant issue in Mastercard’s opposition to the collective proceedings.

The certification of the claim

As a first step the CAT must consider two things:

  • whether the claim, and the proposed group of claimants, should be certified as suitable for “collective proceedings”; and
  • whether the class representative is a suitable person to act on the class’s behalf.

In essence, the class must comprise claimants who can be readily and objectively identified, facing “common issues” and whose claims are sufficiently similar to comprise a definable class.  In addition, there needs to be an appropriate means of distributing damages among the class of claimants.

The CAT’s decision to refuse the class action

Economists appointed by Mr Merricks provided evidence relating to (1) the amount of that overcharge which had been passed on to the consumers by the retailers (“pass-on”), which was likely to vary by sector and business model, and (2) the total spending by those consumers which had been inflated by that overcharge.

Unsurprisingly, this calculation was expected to be complex and to be subject to a large degree of estimating and averaging. Mr Merricks argued that it was appropriate to allow the claimants this leeway because it was in the interests of justice to devise a cost-effective approach to estimating the damages and deciding how much should be paid to each individual.  Mastercard, on the other hand, argued that these factors meant that the 46 million consumers were not a single class, and that the huge variety of purchases made it impossible to devise a fair and equitable approach to calculating, or allocating, the alleged damages.  Such factors included the age, income profile, location and spending habits of the claimants.

In essence, Mr Merricks was arguing on the basis of a “top down” approach, saying: if there has been an overcharge by Mastercard it is clear that consumers will have suffered loss, even if the precise amount is hard to determine; and if the CAT does not allow the collective action to proceed, there will be no justice.

In contrast, Mastercard took a “bottom up” approach saying: awards of damages must (in the English system) be compensatory in nature; it is impossible to say with any degree of certainty how much overcharge would have been passed on to any particular consumer as there are so many different variables and supply chains; it would therefore be inappropriate to allow the action to proceed.

The CAT indicated Mr Merricks himself would have been an acceptable class representative. However, the CAT agreed with Mastercard that the action should not be certified.  It took the view that the issues of pass-on and “level of spend” would vary so widely that they could not be considered “common issues” which made the claim suitable for a CPO.  Whilst the CAT did not say that such a claim was impossible to bring, accepting that just some common issues would be sufficient, it had grave concerns about the calculations and distribution of any damages in the light of the sweeping assumptions suggested by the economists.  The CAT also felt that there was a risk that damages calculated in that way could compensate people for more than they had actually lost, which would prejudice Mastercard.

The question of the third party funder’s share

Third party funders of course expect to receive a return on their investment if a claim is successful, and in this case that return could have been as high as £135 million or even more. This money was to be paid out of “undistributed damages”, that is, any amount awarded against Mastercard but not actually reclaimed by the members of the class.

The default approach in the new legislation creating the “opt-out” action (the Consumer Rights Act 2015 (“CRA15”)) is that any undistributed damages should be given to charity, and there was a lack of clarity in the rules about what fees could be recovered by a funder..

Nonetheless, the CAT found that the funder could be paid out of the undistributed damages as a cost of the litigation, because Mr Merricks would be contractually obliged (following a mid-claim variation to the funding agreement) to make this payment. Although it recognised there was a certain circularity to the argument, since if it made no such order, Mr Merricks would have no such obligation, it decided that this was the intention of the new regime, and found support for this approach in the debate on the CRA15 in Parliament.

The future of collective claims

This is the second failed attempt to bring a class action in this country, but the future is not necessarily bleak for such claims. The CAT is mindful of the need for consumer protection, but the class needs to be properly defined – also a key issue in the earlier rejected claim (on behalf of buyers of mobility scooters).

Ultimately, the action proposed by Mr Merricks was about the broadest conceivable collective action – it was highly ambitious and, in our view, it was always highly unlikely that the CAT would allow such a broad and difficult claim at this early stage in the development of the new collective action regime in the UK.

Whilst Mr Merricks had encouraged the CAT to take “a broad axe” in judging his certification application, it is clear that the CAT is looking for more scalpel-like precision in these applications and the economic evidence supporting them. Further insight into the CAT’s thinking may also be gained in response to Mr Merricks’ application for permission to appeal the decision.

It is certainly too soon to conclude that the CAT will take a hard line on all consumer claims, but these early judgments show that claimants must come to the CAT with well-prepared arguments, and that the CAT will not turn a blind eye to real legal and practical hurdles to the claim, even if the result is that a claim cannot be brought at all.

On the other hand, the CAT’s comments on the third party funding agreement will be welcomed by consumers, lawyers and funders alike. The judgment will be a source of useful guidance when bringing such claims in future and may in fact encourage some which would otherwise not have been brought.