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Attention Class!

05 July 2019 by Robert Bell

Attention Class!

New life breathed into UK competition class actions?

Although well-established in the US, competition class actions have struggled to find their feet in the UK since being introduced by the UK Government some four years ago. They were seen as a revolutionary and more flexible way in our legal system for a large number of claimants to obtain full compensation for their loss from the anti-competitive behaviour of cartelists and others.

They were introduced in advance of the EU Damages Directive which sought to introduce in all Member States effective mechanisms for consumers to obtain redress for anti-competitive conduct.

Early signs have not been good. It looked like UK class actions might be slow to develop and have an uncertain future. However the recent Court of Appeal case in Walter Merricks v MasterCard Inc & Ors [2019] EWCA 674 (‘the Mastercard case’) has provided guidance regarding the application of the law to the UK’s class action regime and has lowered the test for those wishing to advance class actions before the Courts in the future.

It has arguably breathed new life into the faltering UK class action system indicating that it could have a meaningful future.

Sowing Seeds

Competition class actions were first introduced into UK law by the Consumer Rights Act 2015 (‘the Act’) and are referred to in the Act as collective actions. The aim of these actions was to allow multiple claimants to be compensated for the anti-competitive conduct of the defendants who had engaged in cartel or other anti-competitive behaviour. It was anticipated they would be most used (but not exclusively so) in follow on actions. These are cases brought to recover damages following the finding of liability for anti-competitive conduct by a UK competition regulator or the EU Commission.

From a public policy point of view they were designed to ensure that those which caused damage through anti-competitive behaviour should have to pay full compensation for their unlawful behaviour. This mechanism was also represented as promoting the rights of the consumer. Hitherto, claims for damages in these types of cases had been the preserve of large corporate claimants but class actions were particularly attractive for consumer type claims where the individual amount claimed was small but in aggregate was a sizeable claim in damages.

The claims would be advanced by a representative on behalf of the class and, if and when, judgement was given and damages awarded, the representative would divide up the amount to the class. Any remaining funds not distributed would be paid to an organization designed to widen access to justice as defined by the Act, currently the Access to Justice Foundation. There were a number of pitfalls which were foreseen in bringing class actions. Among them were the identity and role of organisations which would provide the money to underwrite the litigation, the identity of who the appropriate representative should be as well as their exposure to costs in the event of an adverse judgement. Last, but by no means least was the problem of how the Courts were to certify who were the appropriate members of a class to bring a claim. It has been this last criterion that has caused much uncertainty.

Class Actions So Far

The class actions so far have not produced the star studded cast of the corporate world you might have expected. To date there have only been two applications to bring a class action (seeking what the Act calls collective proceedings orders) heard before the Competition Appeals Tribunal (the CAT).There are, however, three more awaiting a hearing. The first case was brought by Dorothy Gibson acting as representative for a class for purchasers against Pride Mobility Products Limited in relation to mobility scooters. That failed to achieve certification by the CAT and the action was ultimately discontinued. The second was the Mastercard case which was also rejected at the certification stage. However, the former financial ombudsman, Walter Merricks, who brought the Mastercard case, appealed this ruling to the Court of Appeal.

Mastercard Case

In 2007, the European Commission found that Mastercard had infringed EU competition law over a 15 year period effectively “setting a minimum price merchants must pay to their acquiring bank for accepting payment cards in the [EEA] by means of interchange fees”. These interchange fees, it is alleged, were passed on to consumers. So, in 2016 Merricks applied for a collective proceedings order to act as the class representative on behalf of UK residents aged 16 years and above who had purchased goods and/or services over the relevant time period from businesses active in the UK accepting Mastercard cards. This was the first major class action brought under the Act. It would create a class of potentially 46 million consumers and be worth in excess of £14 billion. If allowed to proceed it would be the largest ever claim brought before the UK courts. Quantifying the exact value of each claimant’s loss, however, would be impossible to assess. Therefore Mr. Merricks proposed a method of assessing the damages suffered by each class member. He proposed to make annualized distributions to all class members for the years that they were in the class. This involved working out:

  • the total volume and value of all relevant Mastercard transactions accepted by businesses selling in the UK during the infringement period (the “Volume of Commerce” or “VOC”);
  • the extent to which the VOC was subject to the overcharge in respect of Mastercard domestic or EEA multilateral interchange fees; and
  • then calculating the proportion of the overcharge that was passed on to the proposed class.

Having considered Merrick’s methodology the CAT dismissed the application for certification. They held that Mr. Merricks had failed to show that he could reasonably estimate damages in the aggregate for the class as a whole on the available data and, in particular, the level of the interchange fees passed on by merchants to consumers. Secondly, the CAT held it was impossible to realistically suggest that this methodology would have produced appropriate compensation for each class member as they would each receive the same for each year.

Court of Appeal

The Mastercard case came before the English Court of Appeal on appeal from the CAT. In a judgement which surprised many the Court of Appeal decided on 16 April 2019 that the CAT had been wrong in rejecting certification of the claim brought against Mastercard. The Court of Appeal used Canadian case law as a guide. This was because the class action regime there was an established part of their legal landscape and it had previously considered a number of issues relevant to this case. The Court held following its review that the CAT had been wrong to demand too much of the proposed class representative at the certification stage and in particular the availability of data which the CAT said the claimant should produce to ground their case.

The CAT should only have asked whether the proceedings had a realistic prospect of success. However, they had embarked upon a detailed consideration of the issues and had in effect conducted a mini-trial.

Significantly, the Court of Appeal went on to find that the CAT had wrongly held that an aggregate damages award had to be distributed on a compensatory basis to each individual claimant. It concluded that the rights of the individual claimants were adequately achieved by the aggregate award itself. In any event the CAT did not need to consider how damages would be distributed at the certification stage.

What Happens Next

Therefore, unless there was any application by Mastercard for the matter to be appealed to the Supreme Court the case was to be returned to the CAT with the direction to reconsider their decision on certification in light of the Court of Appeal’s comments.

This is a watershed judgement for the future of class actions in the UK and is likely to be of significant influence in this and other future certification decisions. It sets out clear guidance for the CAT in the way they should look at key considerations/grounds for certification under the UK class action regime. Regardless of the eventual decision in the Merricks case against Mastercard the Court of Appeal’s decision will provide clarity relating to the requirements for future certification applications. In particular it can be expected to influence the approach of the CAT in relation to the other pending cases awaiting certification.

The fact this case has been remitted back to the CAT for reconsideration does not necessarily mean that it will achieve certification. Nor is it in any way an indication of the eventual outcome of the trial itself, if the matter does proceed. But the Court of Appeal’s decision has laid down clear guidelines as to how the CAT must consider this case for certification and lowered the bar for those wishing to bring class actions and achieve certification. 

Robert Bell is a partner at Bryan Cave leighton Paisner LLP

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