Supreme Court lowers the bar on certification for collective actions

In a highly anticipated ruling, the UK Supreme Court has dismissed Mastercard's appeal against the principles established by the Court of Appeal (on appeal from the UK's Competition Appeal Tribunal ("CAT")) in relation to the approval of class actions by the CAT. The case will now be remitted to the CAT for reconsideration. The ruling potentially opens the door to a wave of large-scale opt-out actions under the UK's fledgling collective proceedings regime. 

Opt-out proceedings can be pursued on behalf of a class of unnamed, and even unidentified, claimants who are deemed to be included in the action unless they specifically opt-out. This is in contrast to opt-in actions, which require claimants to elect to join the action in order to be considered a member of the class.

Background

In September 2016, Mr Walter Merricks CBE applied to the CAT to bring a follow-on damages claim, on an opt-out basis, on behalf of 46 million UK consumers who suffered an estimated £14 billion in losses as a result of anticompetitive interchange fees imposed by Mastercard between 1992 and 2007.  

Mr Merricks brought his claim under Section 47B of the Competition Act 1998 (as amended by the Consumer Rights Act 2015), which introduced a framework allowing, for the first time, collective actions to be brought on an opt-out basis in the English courts for breaches of competition law. The opt-out scheme will automatically include all UK-domiciled members of the class as claimants unless they actively "opt-out". Before an opt-out claim may progress, the CAT must certify it by granting a collective proceedings order ("CPO"). In Mr Merricks' case, the CAT declined to grant a CPO, finding that the claim was not "suitable" to be brought in collective proceedings for two main reasons:

• first, the CAT was unconvinced that there was "sufficient data available" to enable Mr Merricks to apply his proposed methodology for calculating aggregate damages; and
• secondly, the CAT considered that Mr Merricks' proposed method for distribution of any aggregate damages award could not be sufficiently linked back to losses suffered by individuals in the class, so that such an award would offend against the compensatory principle.

Mr Merricks' appealed the CAT's ruling to the Court of Appeal.

Court of Appeal judgment

The Court of Appeal disagreed with the CAT's decision not to certify the claim, holding that the CAT had made multiple errors of law. In particular, it took the view that the CAT had adopted an incorrect approach in its assessment of the strengths of Mr Merricks' case on the extent of pass-on of the overcharge to consumers; and that it had applied the wrong test in relation to distribution of damages. 

On the pass-on issue, the Court of Appeal held that the CAT's approach of effectively carrying out a "mini-trial" of the merits at the certification stage was inappropriate. At the certification stage, a class representative need only show that a claim has a "real prospect of success". For Merricks, that meant that the proposed methodology for pass-on was capable of assessing the level of pass-on to the represented class, and that there was (or was likely to be) data available to operate that methodology.  

As regards the distribution of damages, the Court of Appeal held that aggregate damages do not need to be distributed on a compensatory basis and that, in any event, this was not a matter to be dealt with at the certification stage. Rather, distribution is a matter for the trial judge, and the question to be determined at the certification stage is "whether the claims are suitable for an aggregate award". An assessment of individual loss is not necessary.

Mastercard appealed the Court of Appeal's judgment before the Supreme Court.

Supreme Court judgment

The relevant provisions of the CAT rules require the CAT, when considering whether to certify a claim, to be satisfied that: i) the claims are brought on behalf of a definable class of claimants; ii) the claims raise common issues; and iii) the claims are suitable to be included in collective proceedings. Mastercard's appeal to the Supreme Court concerned the "suitability" requirement. 

When assessing the suitability of claims for collective proceedings, the CAT is required to consider "all matters it thinks fit". This includes the following factors:

• whether collective proceedings are an appropriate means for the fair and efficient resolution of the common issues;
• the costs and benefits of continuing the collective proceedings;
• whether any separate proceedings making claims of the same or a similar nature have already been commenced by members of the class;
• the size and nature of the class;
• whether it is possible to determine in respect of any person whether that person is or is not a member of the class;
• whether the claims are suitable for an aggregate award of damages; and
• the availability of alternative dispute resolution and any other means of resolving the dispute.

The Supreme Court judgment, handed down on 11 December 2020, broadly upheld the Court of Appeal's judgment. It held that the CAT did not apply the correct meaning of "suitability" when considering the appropriateness of Mr Merricks' claim for collective proceedings. The Supreme Court held that whether a claim is "suitable" is a question of whether it is suitable to be brought in collective proceedings as opposed to individual proceedings. The certification process is not about, and does not involve, a merits test. In particular, difficulties insufficient to prevent an individual claimant from bringing a claim are also insufficient to deny certification of collective proceedings.

The Supreme Court held that the CAT had failed to properly weigh the relevant factors in its consideration of "suitability". In particular, it held that the CAT had been wrong to find that pass-on to end customers was not a common issue in the claims. In so-doing, the CAT had failed to consider that both of the main issues in the case - overcharge and merchant pass-on - were common issues, which, the Supreme Court held, "would, or should, have been a powerful factor in favour of certification". 

The Supreme Court also provided guidance on the compensatory principle, confirming that actions for aggregate damages are not required to take into account the individual loss suffered by each class member. Indeed, the Supreme Court noted that "a central purpose of the power to award aggregate damages in collective proceedings is to avoid the need for individual assessment of loss".

Finally, the Supreme Court held that the CAT's "most serious" error of law was its failure to take into account the "broad axe" principle, whereby a claimant who has suffered loss should not be denied a chance to recover that loss because of difficulties with quantification. The court has a duty to do the best that it can for a claimant with the evidence that it has available; this may involve making broad assumptions and estimations where it is not practically possible to arrive at a precise figure for damages. The Supreme Court agreed with the Court of Appeal in this regard, which had observed that in denying a CPO on grounds of perceived deficiencies in Mr Merricks' data, the CAT had allowed potential difficulties with interpreting incomplete or complex data to lead it to a conclusion that fell on the wrong side of that principle. 

Commentary

Merricks will now return to the CAT to be reconsidered in the light of the guidance provided by the UK's highest court. The hearing is listed for 25 March 2021. Should the case now be certified, Mastercard will find itself defending a £14 billion claim, the largest damages claim in the history of the English civil courts, alongside numerous claims brought by merchants.

In dissenting opinions, Lord Sales and Lord Leggatt expressed concerns over the potential for abuse that may arise from a lower bar to certification, noting that collective proceedings often "confer substantial legal advantages on claimants and burdens on defendants which are capable of being exploited opportunistically". Whether such abuse occurs remains to be seen, but defendants will need to be on the lookout. In any event, lowering the threshold for certification is likely to see defendants seeking to exploit any non-compliance with the certification criteria, as well as exploring other ways of "stemming the flow" (e.g. through early summary judgment or strike-out applications) in order to avoid the significant costs associated with defending collective proceedings. 

The UK's class action regime remains in its infancy: no class action has yet been certified since the framework was introduced in 2015. The Supreme Court's judgment provides greater certainty as to the requirements that a claimant must meet in order for their claim to proceed, which is likely to result in an increase in the number of collective claims being brought. Indeed, just a few weeks after the judgment was handed down, a new £600 million collective claim against British Telecom for overcharges paid by landline customers was announced.

Seven other collective proceedings filed after Mr Merricks' application also await certification. The year ahead will therefore be critical in determining the landscape for collective actions in the UK. 

The Supreme Court's judgment can be found here. 

With thanks to Katy Walters and Hayden Dunnett of Ashurst for their contributions.