No class act: CAT refuses certification for collective damages claim against MasterCard
On 21 July the Competition Appeal Tribunal (CAT) dismissed an application for a collective proceedings order (CPO) for a collective action for damages against MasterCard, based on a breach of the competition rules, ruling that the claim was not eligible for collective proceedings.
Collective Proceedings Orders in the CAT
This is only the second class certification judgment under the new collective damages regime introduced by the Consumer Rights Act 2015. The new regime aimed to broaden the range of private actions that may be heard by the CAT notably, in this context, by permitting "opt-out" collective actions brought on behalf of each member of a class, except any member who opts out. This is in addition to opt-in actions, which were already permitted. A new procedure was also introduced under which the claimant must apply to the CAT for a CPO to permit the claim to proceed. The CAT may only make such an order if it considers that the claimant is an appropriate person to act as the representative and the claims are eligible for inclusion in collective proceedings.
The first application for a CPO, brought by Dorothy Gibson as a follow-on to the Competition and Markets Authority (CMA) decision in Mobility Scooters, failed – the application was withdrawn after the CAT adjourned the proceedings to allow Mrs Gibson to reformulate her claim and the definition of the sub-classes of claimants (with which the CAT had found fault).
The claim against MasterCard
The claim was commenced by Walter Merricks CBE, on an opt-out basis, on behalf of UK-resident consumers who had used MasterCard payment cards in transactions with merchants in the UK between May 1992 and June 2008. It was framed as a follow-on action to the EU Commission's 2007 decision that MasterCard had breached EU competition law with its EEA multilateral interchange fee (MIF), because the MIF had the effect of setting a price floor for interchange fees paid by merchants accepting MasterCard cards. Follow-on claims in the CAT rely on an infringement decision by a UK competition authority (particularly the CMA) or the EU Commission to establish the competition law breach on which the claim is based, leaving the claimant to show the losses incurred as a result of that breach. Although the UK MIF was not part of the EU Commission decision, it was alleged that the level of the UK MIF was a consequence of the EEA MIF and the loss to UK consumers was therefore caused by the breach established by the EU Commission decision.
Why did the CAT conclude that the claim was unsuitable for collective proceedings?
In deciding Mr Merricks' application for a CPO the CAT had to:
- determine whether he was a suitable applicant (i.e. whether it was just and reasonable for him to act as class representative in these proceedings); and
- satisfy itself that the claims raised the same, similar or related issues of fact or law ("common issues") and were therefore suitable to be brought in collective proceedings.
On the first condition, the CAT ruled that Mr Merricks, by his experience, was well qualified to give appropriate instructions to lawyers on behalf of the class and eminently suited to act as class representative.
On the second condition it ruled that the claim was not suitable for collective proceedings. The CAT was not satisfied that there was sufficient commonality in the claims, particularly in relation to the actual losses suffered by individual members of the class, including the extent of any pass-through of the alleged overcharge in the MIF to those members. Further, the methodology that was proposed to address this, of estimating damages on an aggregate basis and distributing the damages to individual members of the class on an annualised basis, was not suitable for collective proceedings as it would not be sufficiently sound in practice to adequately compensate individual members for their actual losses. Three individual issues (the individual levels of expenditure; the merchants from whom they purchased; and the mix of products they purchased) made it impossible to see how payments could be made to individuals on any reasonable basis, and there was no attempt to approximate the loss of individual claimants from the aggregate loss calculated under the proposed methodology. This meant that damages would not be paid out in accordance with the governing principle of restoring claimants to the position they would have been in "but for" the breach.
Implications for litigation funding arrangements
Of importance to future collective actions is the CAT's decision insofar as it relates to the funding arrangements. MasterCard argued that the funding agreement for the collective proceedings (including any liability in costs), gave rise to three issues: (i) it would not enable Mr Merricks to fund the litigation or pay MasterCard's recoverable costs because it could be terminated by the funder; (ii) even if it could, the limit of £10 million was inadequate; and (iii) the terms of the funding agreement gave rise to a conflict of interest.
The CAT dealt with all three objections in Mr Merricks' favour. Having allowed him the opportunity to amend the funding agreement to deal with (i), points (ii) and (iii) were dealt with in short order. On the adequacy of the cover, the CAT noted that the sum was, on any view, very large and the CAT had no basis to find that it was likely to be inadequate; if at some later stage MasterCard considered that the sum was inadequate on the basis of costs already expended, it could then have the issue addressed by making an application to the CAT. On the potential conflict of interest, the CAT referred to the clear provisions of the funding agreement that Mr Merricks would act independently and have sole control of the litigation in the best interests of the class and to the CAT's role in awarding damages or approving a negotiated settlement in an opt-out collective claim.
Having already decided against making the CPO, the CAT did not need to deal with the above points, but in dedicating a significant part of its judgment to doing so it has provided a clear and welcome indication that a properly structured funding agreement will not undermine a collective action.
This is another significant win for MasterCard in the interchange fee litigation, coming after the High Court's decision in January which found that the UK and Irish MIFs at issue in that case did not restrict competition. As the second claim that has failed to obtain certification as a collective proceeding it demonstrates (again) that the CAT is examining applications with particular care to ensure only appropriate cases go forward on a collective basis.
As in Dorothy Gibson, the CAT noted that more appropriate guidance for collective proceedings in the UK can be obtained from the position in Canada than from the US, again citing the Canadian Supreme Court decision in Pro-Sys Consultants Ltd v Microsoft Corp (2013) on the use of expert evidence. This reinforces that collective proceedings in the UK will not develop along the same lines and scale as class damages actions in the USA. It is also noteworthy that (unlike in Dorothy Gibson), the CAT did not adjourn the application to enable Mr Merricks to reformulate the claim. The CAT's caution should calm any concerns that it might be overly permissive in the certification of claims under the new rules, but may raise questions in other quarters as to the effectiveness of the new rules in facilitating collective proceedings for a wider range of competition damages claims, particularly in cases involving widespread consumer loss.
Although the first two collective proceedings applications have failed, the CAT has provided valuable guidance in both cases on the way in which it will determine whether a class representative is suitable and whether there is sufficient commonality between the claims. In the context of opt-out claims, the requirement for claimants to produce a clear and coherent plan (underpinned by sufficient data and a robust econometric model) in order to distinguish between different categories of claims, and to demonstrate that damages will be compensatory in nature, raise a number of obvious challenges in markets where there is significant diversity in terms of the products or services affected by the cartel conduct. However, these challenges are certainly capable of being addressed in the context of opt-in collective proceedings, and we expect to see more collective claims being brought in the future.