In April, the Court of Appeal overturned the Competition Appeal Tribunal's ("CAT") decision to refuse to grant a Collective Proceedings Order ("CPO") in proceedings brought by Walter Merricks against three MasterCard companies in relation to multilateral interchange fees ("MIFs"). The case, in which Mr Merricks is seeking an aggregate award for damages and interest of over £14 billion, has been remitted back to the CAT for a re-hearing of the application for a CPO.
| what you need to know - key takeaways |
- At the certification stage a class representative only has to demonstrate the claim has a real prospect of success, and does not require a "mini trial".
- The power in collective proceedings to make an aggregate award of damages would be largely negated if this also required a calculation of individual loss. Aggregate damages do not have to be distributed on a compensatory basis.
- Distribution of damages is not a matter to be dealt with at the certification stage.
- This judgment appears to reduce the hurdles which potential collective actions need to overcome before being granted a CPO.
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Background
In 2007, the EU Commission found that the level of the EEA multilateral interchange fee ("MIF") set by MasterCard amounted to a breach of competition law. An interchange fee is charged between banks administering a card payment under the MasterCard scheme. If no fee is agreed between these banks, a MIF is applied as the default. MIFs are generally passed on to the retailer as part of the merchant service charge ("MSC") which merchants are required to pay to their bank as a fee for processing card transactions. The Commission considered that these charges (MSCs and therefore MIFs) were likely to have been passed on to consumers in the form of increased prices.
Accordingly, Mr Merricks applied to the CAT for a CPO as the proposed representative for an opt-out collective proceedings against MasterCard, on behalf of a class representing some 46.2 million individual claims totalling over £14 billion in damages and interest.
The CAT's refusal to grant a CPO
In July 2017, the CAT dismissed Mr Merricks' CPO application for two principal reasons: (a) the methodology for calculating pass-on of overcharges to consumers could not be effectively applied due to a perceived lack of data; and (b) the distribution of an aggregate award could not be sufficiently linked back to the losses suffered by individuals and therefore damages could not be awarded in accordance with the compensatory principle. Permission to appeal was initially refused by the CAT, but ultimately granted by the Court of Appeal.
The Court of Appeal's judgment
In its judgment, the Court of Appeal emphasised that a certification hearing does not require a "mini-trial" which risks an unnecessarily vigorous examination of a prospective action.
Pass-on
The Court found that the Tribunal at the CPO stage is required to satisfy itself that any proposed methodology offers a realistic prospect of establishing loss to the class as a whole. It was inappropriate at this stage to require the proposed representative to specify in detail what data would be available for each of the relevant retail sectors during the infringement period to establish pass-on to consumers. The Court applied the Canadian case of Pro-Sys Consultants Ltd v Microsoft Corp. [2013] SCC 57, which requires "some evidence of the availability of data to which the methodology [for calculating loss] is to be applied".
Commonality
The Court held that, in proceedings where an aggregate award of damages is claimed, there is no need to establish loss on an individual basis. The common issue in Mr Merricks' action is "[p]ass-on to consumers generally", not calculating whether each individual has suffered loss.
Distribution
The Court emphasised that the vindication of the rights of individual claimants in collective proceedings can be achieved by the aggregate award itself (if appropriate), and that litigation by way of individual consumer claims against MasterCard would be practically impossible in this case. Indeed, the power in collective proceedings to make an aggregate award of damages would be largely negated if this also required a calculation of individual loss. Furthermore, the Court considered that distribution is not a matter for a CPO hearing, nor does it need to be on a compensatory basis. The certification stage only requires consideration of "whether the claims are suitable for an aggregate award" and "does not include the assessment of individual loss".
Final thoughts
With more collective actions proposed, the Court of Appeal's clarifications potentially represent a substantial development for future applicants in due course. However, MasterCard are understood to be seeking permission to appeal the Court of Appeal's decision to the Supreme Court. The CAT is already demonstrating a reluctance to decide further CPOs in the meantime, having effectively stayed two CPOs in the Trucks follow-on damages litigation pending the MasterCard application.
With thanks to Angus Rance and Helen Chamberlain of Ashurst for their contribution.
