UK: Merricks v Mastercard: UK Class Actions Back Under The Spotlight

The English Courts have reignited the prospects of a £14 billion class action against Mastercard.

In a much anticipated ruling, on 16 April 2019, the Court of Appeal of England and Wales (the Court) granted an appeal by Walter Merricks, the representative for over 46 million U.K. consumers, against Mastercard in relation to alleged overcharging of interbank fees between 1992 and 2008. The Court favoured a broad approach to class certification, lowering the standard of scrutiny favoured by the lower court, the Competition Appeal Tribunal (CAT). The Court found that class claimants need only show a real prospect of success to secure class certification. Detail as to how the class would substantiate its proposed economic model (in this case, a relatively complex theory as to what credit card surcharges would be passed on by merchants to consumers) or scheme of award distribution, if successful, was not required.

Subject to a possible appeal to the U.K. Supreme Court, the case will now return to the CAT, which will decide whether the class action should proceed through the "certification stage" to a full trial and, if so, whether Mastercard is liable to pay any damages.

The Mastercard case places U.K. class actions back under the spotlight, refuelling the debate as to whether such actions may gain prominence after a slower than anticipated start and, in turn, raising questions as to how English law and practice will develop in this area.

Background

In December 2007, the European Commission (EC) found that by setting default interbank fees whenever consumers paid for goods or services using their Mastercard in the European Economic Area (the "Multilateral Interchange Fees", or MIFs), Mastercard restricted price competition between the banks and violated EU competition law. Mastercard's appeals against the EC Decision to the European courts were unsuccessful.

EC Decisions are treated across the EU Member States as prima facie evidence of anti-competitive conduct in "follow-on" private actions for damages. As a result, Merricks relied on the 2007 EC Decision when commencing the U.K. class action in September 2016. On behalf of approximately 46.2 million U.K. consumers, Merricks sought damages for the allegedly inflated prices paid by those consumers because the unlawful MIFs were either mostly or entirely passed on to them. Damages for the overcharge and interest were estimated at over £14 billion — reportedly the largest civil damages claim ever brought in the U.K.

Merricks' claim was brought on an "opt-out" basis. Opt-out class actions in relation to competition/antitrust infringements — collective actions on behalf of everyone matching a certain description unless they expressly opt out of the proceedings — were only introduced in the U.K. in October 2015. They contrast with "opt-in" class actions — consisting only of members matching the description who expressly elect to join the action — which had already existed for several years.

Both opt-out and opt-in claims must be (i) brought by an appropriate authorised representative and (ii) "certified" by the CAT as eligible for inclusion in collective proceedings. Certification requires, amongst other things, that the claims are brought on behalf of an identifiable class of persons, raise common issues and are "suitable" to be brought in collective proceedings. If the CAT is satisfied that the conditions are met, it may make a "collective proceedings order" (CPO), thus allowing the claim to proceed to a full trial.

For two principal reasons, in July 2017 the CAT refused to grant Merricks a CPO. First, the CAT was unconvinced that expert evidence could adequately demonstrate the "pass-on" of MIFs from merchants to consumers, so as to justify the aggregate damages claimed. Merricks had attempted to rely on a "top-down" approach to calculate the total overcharge to consumers, and therefore the total damages appropriate, but the CAT was not persuaded that sufficient information to support this approach existed. Second, Merricks' proposed method of distributing damages — calculating the aggregate amount attributable to each year from 1992 through 2008 and distributing that on a per capita basis to each individual falling within the class in the given year — would not have correlated to each individual's loss, thus contradicting the compensatory principle of damages for torts under English law.

Court of Appeal Decision

Pass-On

The Court said that a proposed class representative need only demonstrate that a claim has a "real prospect of success" at the certification stage. In support, the Court cited several Canadian authorities (Pro-Sys v. Microsoft, in particular), noting that the similarities with the English class action regimes were "obvious". The Court endorsed top-down calculations of aggregate damages even though they did not require proof of individual losses — to insist on such proof would "run counter to the provisions" of the U.K. regime.

Applying this standard, Merricks only needed to convince the CAT that both (i) the expert methodology concerning pass-on of MIFs to consumers was "capable" of assessing the level of pass-on and (ii) the data to operate that methodology would, or would likely, exist at trial. Merricks did not need to produce or identify all of the relevant evidence. Instead, an analysis of pass-on to consumers on an individual basis is "unnecessary when what is claimed is an aggregate award", and pass-on to consumers "generally satisfies the test of commonality of issue necessary for certification". Nor did the certification stage require a "mini trial", which was, in the Court's opinion, "more or less what occurred" before the CAT. In sum, the Court said the CAT had misdirected itself as to the applicable test for certification and "demanded too much" of Merricks for that stage of the case.

Distribution of Damages

The Court noted the absence in the relevant legislation of any requirement that aggregate damages should be distributed according to what an individual claimant has lost. Although such a compensatory system "will probably be the most obvious and suitable" distribution method in cases where each individual's loss is readily calculable, it is not mandatory. If such a prerequisite did exist, then the power to make an aggregate award would be "largely negated" in class actions of this kind.

As the CAT "clearly did" consider that an aggregate award had to be distributed to claimants so as to restore individual loss suffered by them, the Court concluded that its approach was both "premature and wrong".

Comment

The Court's judgment appears to significantly lower the initial threshold for class actions to proceed in the U.K. Class representatives need only establish a "real prospect of success" — a relatively low bar to overcome, particularly given the significant time and costs incurred in class actions.

Although the Court's judgment endorsed the Canadian view that certification is a continuing process, in practice this may provide cold comfort to parties. The suggestion by the Court that terminating a class action "once the pleadings, disclosure and expert evidence are complete and the Court is dealing with reality rather than conjecture" does not fully reflect the fact that completing the pleadings, disclosure and expert evidence stages in litigation is a costly and time-consuming exercise. Class representatives and their funders should take note of the potentially significant liability to pay adverse costs if the CPO is revoked after completing such expensive steps in the process.

Only time will tell whether the Court's judgment results in an increase in the number of class actions commenced in the U.K.; however, developments should be monitored closely. Thus far, no opt-out claim has proceeded beyond the certification stage. However, with a low bar to entry, and in a climate where the subject matter for anticompetitive behaviour continues to be widened by the U.K. anti-trust regulator, the Competition and Markets Authority, there may follow a noticeable uptick in U.K. class action litigation.

Of further note is the Court's departure from the compensatory principle of damages for torts under English law, by allowing a distribution of damages that does not correspond to a particular individual's loss. The acceptance of this principle is a significant development in English law and creates novel ground for the English courts and practitioners alike.

Finally, the case confirms the increasingly welcoming approach of the English courts and U.K. Parliament towards third-party funding. The Court specifically noted, for example, that the revised U.K. class action regime was "obviously intended to facilitate a means of redress which could attract and be facilitated by litigation funding". The U.K. litigation funding market has grown significantly in recent years, with current estimates indicating that the capital available for funding now stands at over £1.3 billion. Third-party funding is a particularly valuable avenue for U.K. consumers, given that opt-out class actions cannot be funded by arrangements whereby lawyers receive a portion of any damages received. In the U.S., by contrast, a material part of class settlements can be awarded as fees to counsel for the class.

On a number of fronts, the Court's judgment provides, at least temporarily, some much-needed clarification. Given the infancy of the U.K. class action regime, such clarity should be welcomed whilst also expecting further twists and turns. Mastercard has already indicated that it intends to appeal the Court's decision, and separate opt-out CPO applications due to be heard by the CAT later this year are likely to supplement the issues decided by the Court. In the first opt-out case to go before the CAT, it commented about the process that "everyone is learning on the way". For the moment at least, this still seems apposite.

Sym Hunt, a trainee solicitor in London, participated in the preparation of this memorandum

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

To print this article, all you need is to be registered on Mondaq.com.

Click to Login as an existing user or Register so you can print this article.

Authors
Similar Articles
Relevancy Powered by MondaqAI
 
In association with
Related Topics
 
Similar Articles
Relevancy Powered by MondaqAI
Related Articles
 
Related Video
Up-coming Events Search
Tools
Print
Font Size:
Translation
Channels
Mondaq on Twitter
 
Mondaq Free Registration
Gain access to Mondaq global archive of over 375,000 articles covering 200 countries with a personalised News Alert and automatic login on this device.
Mondaq News Alert (some suggested topics and region)
Select Topics
Registration (please scroll down to set your data preferences)

Mondaq Ltd requires you to register and provide information that personally identifies you, including your content preferences, for three primary purposes (full details of Mondaq’s use of your personal data can be found in our Privacy and Cookies Notice):

  • To allow you to personalize the Mondaq websites you are visiting to show content ("Content") relevant to your interests.
  • To enable features such as password reminder, news alerts, email a colleague, and linking from Mondaq (and its affiliate sites) to your website.
  • To produce demographic feedback for our content providers ("Contributors") who contribute Content for free for your use.

Mondaq hopes that our registered users will support us in maintaining our free to view business model by consenting to our use of your personal data as described below.

Mondaq has a "free to view" business model. Our services are paid for by Contributors in exchange for Mondaq providing them with access to information about who accesses their content. Once personal data is transferred to our Contributors they become a data controller of this personal data. They use it to measure the response that their articles are receiving, as a form of market research. They may also use it to provide Mondaq users with information about their products and services.

Details of each Contributor to which your personal data will be transferred is clearly stated within the Content that you access. For full details of how this Contributor will use your personal data, you should review the Contributor’s own Privacy Notice.

Please indicate your preference below:

Yes, I am happy to support Mondaq in maintaining its free to view business model by agreeing to allow Mondaq to share my personal data with Contributors whose Content I access
No, I do not want Mondaq to share my personal data with Contributors

Also please let us know whether you are happy to receive communications promoting products and services offered by Mondaq:

Yes, I am happy to received promotional communications from Mondaq
No, please do not send me promotional communications from Mondaq
Terms & Conditions

Mondaq.com (the Website) is owned and managed by Mondaq Ltd (Mondaq). Mondaq grants you a non-exclusive, revocable licence to access the Website and associated services, such as the Mondaq News Alerts (Services), subject to and in consideration of your compliance with the following terms and conditions of use (Terms). Your use of the Website and/or Services constitutes your agreement to the Terms. Mondaq may terminate your use of the Website and Services if you are in breach of these Terms or if Mondaq decides to terminate the licence granted hereunder for any reason whatsoever.

Use of www.mondaq.com

To Use Mondaq.com you must be: eighteen (18) years old or over; legally capable of entering into binding contracts; and not in any way prohibited by the applicable law to enter into these Terms in the jurisdiction which you are currently located.

You may use the Website as an unregistered user, however, you are required to register as a user if you wish to read the full text of the Content or to receive the Services.

You may not modify, publish, transmit, transfer or sell, reproduce, create derivative works from, distribute, perform, link, display, or in any way exploit any of the Content, in whole or in part, except as expressly permitted in these Terms or with the prior written consent of Mondaq. You may not use electronic or other means to extract details or information from the Content. Nor shall you extract information about users or Contributors in order to offer them any services or products.

In your use of the Website and/or Services you shall: comply with all applicable laws, regulations, directives and legislations which apply to your Use of the Website and/or Services in whatever country you are physically located including without limitation any and all consumer law, export control laws and regulations; provide to us true, correct and accurate information and promptly inform us in the event that any information that you have provided to us changes or becomes inaccurate; notify Mondaq immediately of any circumstances where you have reason to believe that any Intellectual Property Rights or any other rights of any third party may have been infringed; co-operate with reasonable security or other checks or requests for information made by Mondaq from time to time; and at all times be fully liable for the breach of any of these Terms by a third party using your login details to access the Website and/or Services

however, you shall not: do anything likely to impair, interfere with or damage or cause harm or distress to any persons, or the network; do anything that will infringe any Intellectual Property Rights or other rights of Mondaq or any third party; or use the Website, Services and/or Content otherwise than in accordance with these Terms; use any trade marks or service marks of Mondaq or the Contributors, or do anything which may be seen to take unfair advantage of the reputation and goodwill of Mondaq or the Contributors, or the Website, Services and/or Content.

Mondaq reserves the right, in its sole discretion, to take any action that it deems necessary and appropriate in the event it considers that there is a breach or threatened breach of the Terms.

Mondaq’s Rights and Obligations

Unless otherwise expressly set out to the contrary, nothing in these Terms shall serve to transfer from Mondaq to you, any Intellectual Property Rights owned by and/or licensed to Mondaq and all rights, title and interest in and to such Intellectual Property Rights will remain exclusively with Mondaq and/or its licensors.

Mondaq shall use its reasonable endeavours to make the Website and Services available to you at all times, but we cannot guarantee an uninterrupted and fault free service.

Mondaq reserves the right to make changes to the services and/or the Website or part thereof, from time to time, and we may add, remove, modify and/or vary any elements of features and functionalities of the Website or the services.

Mondaq also reserves the right from time to time to monitor your Use of the Website and/or services.

Disclaimer

The Content is general information only. It is not intended to constitute legal advice or seek to be the complete and comprehensive statement of the law, nor is it intended to address your specific requirements or provide advice on which reliance should be placed. Mondaq and/or its Contributors and other suppliers make no representations about the suitability of the information contained in the Content for any purpose. All Content provided "as is" without warranty of any kind. Mondaq and/or its Contributors and other suppliers hereby exclude and disclaim all representations, warranties or guarantees with regard to the Content, including all implied warranties and conditions of merchantability, fitness for a particular purpose, title and non-infringement. To the maximum extent permitted by law, Mondaq expressly excludes all representations, warranties, obligations, and liabilities arising out of or in connection with all Content. In no event shall Mondaq and/or its respective suppliers be liable for any special, indirect or consequential damages or any damages whatsoever resulting from loss of use, data or profits, whether in an action of contract, negligence or other tortious action, arising out of or in connection with the use of the Content or performance of Mondaq’s Services.

General

Mondaq may alter or amend these Terms by amending them on the Website. By continuing to Use the Services and/or the Website after such amendment, you will be deemed to have accepted any amendment to these Terms.

These Terms shall be governed by and construed in accordance with the laws of England and Wales and you irrevocably submit to the exclusive jurisdiction of the courts of England and Wales to settle any dispute which may arise out of or in connection with these Terms. If you live outside the United Kingdom, English law shall apply only to the extent that English law shall not deprive you of any legal protection accorded in accordance with the law of the place where you are habitually resident ("Local Law"). In the event English law deprives you of any legal protection which is accorded to you under Local Law, then these terms shall be governed by Local Law and any dispute or claim arising out of or in connection with these Terms shall be subject to the non-exclusive jurisdiction of the courts where you are habitually resident.

You may print and keep a copy of these Terms, which form the entire agreement between you and Mondaq and supersede any other communications or advertising in respect of the Service and/or the Website.

No delay in exercising or non-exercise by you and/or Mondaq of any of its rights under or in connection with these Terms shall operate as a waiver or release of each of your or Mondaq’s right. Rather, any such waiver or release must be specifically granted in writing signed by the party granting it.

If any part of these Terms is held unenforceable, that part shall be enforced to the maximum extent permissible so as to give effect to the intent of the parties, and the Terms shall continue in full force and effect.

Mondaq shall not incur any liability to you on account of any loss or damage resulting from any delay or failure to perform all or any part of these Terms if such delay or failure is caused, in whole or in part, by events, occurrences, or causes beyond the control of Mondaq. Such events, occurrences or causes will include, without limitation, acts of God, strikes, lockouts, server and network failure, riots, acts of war, earthquakes, fire and explosions.

By clicking Register you state you have read and agree to our Terms and Conditions