£14 billion consumer claim against Mastercard likely to be given the green light

December 14, 2020

By David Went

The Supreme Court has agreed with the Court of Appeal that the Competition Appeal Tribunal (“Tribunal”) made errors of law when rejecting an attempt to bring a £14 billion collective proceedings claim against Mastercard on behalf of 46 million consumers.

The judgment, which was handed down on 11 December 2020 and sees the Supreme Court for the first time considering the collective proceedings regime since its introduction in October 2015, will undoubtedly make it easier for collective proceedings to be brought – even more so than under the requirements laid down by the Court of Appeal – and so may be viewed as a victory for consumers and businesses who suffer harm as a result of anti-competitive conduct.  Indeed, the judgment finds that certification of collective claims is not subject to a merits test (beyond a respondent being able to apply for strike out or summary judgment) and that the statutory test of suitability involves examining whether it is more suitable to bring claims collectively as compared with on an individual basis.  This latter point left the two dissenting Justices declaring that approaching suitability in this comparative way and which has no basis in the statutory text will “very significantly diminish the role and utility of the certification safeguard”.  The judgment will also release the backlog of collective proceedings cases which have all been put on hold by the Tribunal pending the outcome of this case in the Supreme Court.

The class representative, former financial ombudsman Walter Merricks, made his application for a collective proceedings order (“CPO”) against Mastercard in the Tribunal in September 2016.  It is only if a CPO is granted by the Tribunal that a collective proceedings case can proceed.

The claim, which was brought on behalf of all UK adult consumers for an almost 16-year period, was based on a European Commission decision which had found that Mastercard had violated EU competition rules by fixing the price paid by a card issuing bank to a retailer’s bank (the interchange fee) when people shop using a Mastercard card.  The bank issuing Mastercard credit or debit cards to individuals deducts the interchange fee fixed by Mastercard from the amount paid to the retailer’s bank and this in turn is deducted from the amount the retailer’s bank pays to the retailer for the sale of the particular product or service purchased by the individual.  The European Commission considered that all consumers purchasing products or services at retailers accepting Mastercard cards might pay higher prices because the retailers could decide to pass on the interchange fee in the prices charged to their customers.

The Tribunal at first instance nevertheless refused to grant the CPO because it considered that the individual consumer claims did not meet the statutory test of being “suitable to be brought in collective proceedings” for two reasons.  First, the Tribunal thought that the claims were not suitable for an aggregate award of damages – this is a new concept introduced as part of the collective proceedings retime and in essence allows the Tribunal to award an overall amount of damages across a class of claimants without determining the amount of loss in each individual case.  According to the Tribunal, the class representative’s experts had not demonstrated that adequate data would be available at trial across all retail sectors to calculate aggregate damages for the broad class on a sufficiently sound basis.  Second, the Tribunal considered that the proposals for distributing the aggregate award of damages did not satisfy the common law compensatory principle because the proposed equal distribution across all consumers paid no regard to differing levels of individual loss.

The Court of Appeal overturned the Tribunal’s judgment considering that the Tribunal had applied too stringent a screening test at the CPO stage when considering the availability of data for damages quantification and that there was no need for distribution of an aggregate award of damages to reflect to reflect the normal common law compensatory principles. The Court of Appeal also found that the Tribunal was incorrect to conclude that the extent to which the interchange fee had been passed on by retailers to consumers could not be treated as a common issue, that the Tribunal should not have conducted what in effect the Court of Appeal regarded as a mini trial (including cross-examination of experts), and that the Tribunal should not have refused the CPO at the certification stage on the basis of the proposed damages distribution method.

The Supreme Court started by making some important points in relation to the collective proceedings regime, which may be summarised as follows:

• The collective proceedings regime enables two or more persons to bring claims together and enables whole classes of consumers and businesses to vindicate their rights to compensation and the large cost of the litigation to be funded before an expert tribunal.
• The Tribunal is the expert gatekeeper deciding on whether claims should proceed.
• A CPO is neither the beginning nor the end of the Tribunal’s case management powers.  Even after granting a CPO, the Tribunal can vary or revoke it, while the Tribunal has wide case management powers during the course of the proceedings, including the power to order disclosure in the widest possible form.
• Canadian jurisprudence is persuasive given Canada’s greater experience of class actions and the substantial similarity of purpose underlying the respective pieces of legislation in Canada and the United Kingdom.  (As an aside, the Canadian regime typically adopts a light-touch approach to certification.)
• The collective regime should not be regarded as imposing restrictions on claimants as a class that would not be imposed when bringing individual claims.
• Provided claimants in individual actions can establish an entitlement to trial (i.e., that the claim discloses a triable issue involving more than nominal loss, passes the strike-out test, and is not susceptible to summary judgment), the courts do not deprive them of a trial merely because of forensic difficulties in quantifying damages.  It is perfectly acceptable to resort to informed guesswork rather than scientific calculation particularly where the court is required to consider a hypothetical or counterfactual situation as in the case of competition law damages actions.  Class representatives should not have any greater burden than individual claimants in this respect.  In other words, where a class representative and claimants in individual actions would face the same forensic difficulties in quantifying damages, this is no reason to refuse a CPO.
• If the Tribunal were to refuse certification because of potential difficulties in quantifying damages at trial, it is likely to make certain that the rights of consumers arising out of a proven infringement of competition law will never be vindicated.
• When considering whether claims are suitable to be brought in collective proceedings and suitable for an aggregate award of damages, it is not a matter of considering this in the abstract but rather considering whether collective proceedings are more suitable relative to individual actions and whether collective proceedings are more suitable for an award of aggregate damages relative to individual damages.  This is a new formulation and was clearly a contentious point among the Supreme Court Justices with two of them dissenting.
• The collective proceedings regime radically modified how damages can be calculated by introducing aggregate awards.  It dissolves disadvantages compared with individual damage assessments both for the court and all the parties, while the choice between an individual or aggregate assessment will typically come down to proportionality.  The only requirement is that the aggregate award should be fair and reasonable.
• CPO applications are not subject to a merits test, although respondents can apply for strike out and/or summary judgment at the CPO application stage and the Tribunal can consider the strength of the claims when deciding whether collective proceedings should be brought on an opt-out or opt-in basis.  The only hurdles at the CPO stage are that the claims are brought on behalf of an identifiable class, that they raise common issues, and that they are suitable to be brought in collective proceedings.  The additional suitability factors listed in the Tribunal’s Rules (including suitability for an aggregate award of damages) do not all need to be satisfied.

After laying out these guiding principles, the Supreme Court found that the Tribunal had made a number of legal errors:

• The Tribunal was wrong in finding that pass-on was not a common issue.  Given that the extent of common issues is one of the suitability factors when considering whether to grant a CPO, this error of law was likely to have had a material impact on the Tribunal’s judgment.
• The Tribunal was wrong to treat the suitability of the claims for aggregate damages as if it were a hurdle rather than merely a factor to be weighed in the balance.
• The Tribunal was wrong not to construe suitability in the relative sense and therefore failed to consider whether individual proceedings were a relevant alternative (plainly not given the per capita damages), and whether collective and individual claims would equally face the same problems in quantifying damages.
• The Tribunal failed to take into account the general principle that the court must do what it can with the evidence available when quantifying damages.  The Supreme Court considered that claimants in individual actions would equally have been presented with the same forensic difficulties in quantifying damages and so this could not be a reason for refusing a CPO.  The fact that data are likely to be incomplete and difficult to interpret or that gathering the data may involve burdensome and expensive disclosure are not good reasons for a court to refuse a trial to an individual or to a large class who have a reasonable prospect of showing they have suffered some loss from an already established breach of statutory duty.
• The Tribunal was wrong to consider that the compensatory principle is an essential element when distributing aggregate damages.

The Supreme Court did not, however, criticise the Tribunal (as the Court of Appeal had done) for conducting a trial within a trial at the certification stage, although it did think that cross-examination of experts would be rare.  In this case it was appropriate not least as the Tribunal managed to obtain greater clarity and improvements in the quantification methodology.

It is worth noting that there was strong dissent by two of the Supreme Court Justices on two key fronts.  First, the question of suitability of collective proceedings should not involve examining whether collective proceedings are more suitable than individual claims.  Whether an individual claimant has a claim that is sufficiently strong to go to trial is a different question, involving a different test, from whether a class of claims is eligible to be brought in collective proceedings.  Second, where an applicant cannot show a realistic prospect that the expert methodology can be used across an extremely broad class, there are a number of significant risks in allowing the claims to proceed collectively, including that the sheer size of a case could be used to intimidate a respondent into submission, the case might in fact prove to be unviable at a later stage but only after significant costs and resources had been expended, and that there would be no confidence in damages quantified using the expert methodology.

The importance of the Supreme Court’s judgment should not be underestimated as it is likely to have unlocked the key to allowing many collective proceedings to proceed and to make the regime the success the government had hoped for.  The claim against Mastercard will now be remitted to the Tribunal for reconsideration, although it is difficult to see how the Tribunal could not now grant a CPO and allow the claim to proceed.  The judgment will also allow the Tribunal to start hearing those other CPO applications (involving trucks, trains, and foreign exchange) that had been in holding pattern and will no doubt embolden class representatives to launch CPO applications in new cases.