Mastercard class action refused

​The Competition Appeal Tribunal has rejected an application for a Collective Proceedings Order for the largest legal action ever commenced in England. What now for class actions in the UK?

Update

The Court of Appeal delivered its judgment on 4 July 2018, see here for analysis.

The Competition Appeal Tribunal (CAT) has rejected an application for a Collective Proceedings Order (CPO) that would have enabled the largest legal action ever commenced in England to proceed. The Tribunal was not satisfied that the methodology put forward by the claimants to calculate damages took sufficient account of differences between members of the proposed class. Where does the failure of this claim leave the regime introduced by the Consumer Rights Act 2015, that permitted “opt out” collective actions in the UK for the first time, and what are the wider ramifications for the development of class actions in England?

A fresh start?

In October 2015, actions against companies for anti-competitive behaviour became the first form of permitted “opt out” class actions in the UK, allowing a representative to bring a claim on behalf of a defined class without requiring the consent of each individual within that class. This followed the failure of the previous regime, introduced into the Competition Act by the Enterprise Act 2002, that enabled a "specified body" to bring representative claims in the CAT on an opt-in basis, where each claimant needs to agree to be part of the claim. The only claim ever brought under this regime, by consumer organisation Which?, was against JJB Sports for fixing the prices of replica football shirts and was settled, but was widely viewed as unsuccessful, with few consumers joining the action. Which? said that it would not bring any further representative cases under those statutory provisions.

Under the regime introduced by the Consumer Rights Act 2015, damages claims can be brought by a wider set of representatives, including a member of the class harmed, on either an opt-out or an opt-in basis, at the CAT’s discretion. However, collective proceedings must be authorised by the CAT and commenced by a representative authorised by the CAT. It is at this stage that the claim against Mastercard has failed.

The Mastercard claim

The claim arose from a decision of the EU Commission that Mastercard had breached EU competition law in setting default fees for card transactions between EU jurisdictions. As a result, it was alleged that consumers had paid too much for all manner of goods and services in the UK, as retailers had increased their prices so as to absorb the card fees, which it was alleged were influenced by the intra-EU fee levels. A claim was commenced in the name of Walter Merricks, the former financial services ombudsman, and certification was sought for the claim to proceed on an opt-out basis. The class was defined as any individual aged 16 or over and resident in the UK for at least three months, who between May 1992 and June 2008 bought goods or services from a business accepting Mastercard cards. The claim was valued at £14bn.

The Tribunal refused to make a CPO, finding that the claims were not suitable to be brought in collective proceedings. It stated that on an application for a CPO, the applicant does not have to establish his case to anything like a trial standard, but has to do more than simply show he has an arguable case. In particular, the expert evidence adduced by the claimant must show a methodology for calculating damages that is sufficiently plausible to satisfy the Tribunal that there is the required commonality across the proposed class. In arriving at this test as the appropriate one, the Tribunal drew upon Canadian caselaw, in the absence of suitable English precedents.

This does not mean that a full analysis by experts of the damages to be claimed must be presented at the CPO hearing. However, a methodology must be presented that is viable and for which sufficient data is available. While the Tribunal expressed itself satisfied that various aspects of the proposed methodology were viable by approximating some values and accepting some variances as being insignificant, there were two areas with which it remained unpersuaded.

The first was the degree to which merchants passed on the costs of card fees to consumers, which would vary between merchants depending upon a wide range of factors. The claimants’ proposed methodology was to create a weighted average for the pass-through by merchants using data from various sectors and apply that across the board. The Tribunal concluded that while this was sound in theory, in reality to apply it across 16 years of the entire UK retail market was simply too complex an exercise to be feasible.

The second part of the claimants’ proposed calculation of damages with which the Tribunal was unsatisfied was the varying level of spend between consumers, which would obviously determine how much extra they had actually paid as a result of increased prices due to card fees. The claimants argued that this was a matter of distribution that should not prevent the claim getting underway where the total loss could be determined. But the Tribunal found that there was “no plausible way of reaching even a very rough-and-ready approximation of the loss suffered by each individual claimant” using the claimants’ proposed method.

Funding

A separate aspect of the Tribunal’s deliberations related to the funding of the claim. Mastercard objected to the authorisation of Mr Merricks as a suitable representative, based on the terms of the funding agreement between him and a third party funder. This agreement provided that, in return for a £35m investment in the claim, the funder would be entitled to a return of the greater of £135m or 30% of the undistributed proceeds of the claim up to £1bn and 20% of any unclaimed amount beyond £1bn.

The Consumer Rights Act 2015 allows the Tribunal to award “all or part of any costs, fees or disbursements incurred by the class representative in connection with the collective proceedings” out of any unclaimed damages. Mastercard argued that this did not permit funding costs to be awarded, but the Tribunal disagreed, finding that the language of the statute was broader than the provisions covering the recovery of costs in ordinary litigation. The funding agreement did not create the necessary liability upon the representative to pay such costs, but the Tribunal expressed itself satisfied with a proposed amendment that would make the representative so liable, contingent upon recovering it from the unclaimed damages.

Mastercard also complained that the £10m of adverse costs cover in the claimants’ funding agreement would be inadequate. The Tribunal clearly accepted the principle that a funded claimant must be able to show that the funding agreement provides adequate costs protection for a defendant, but rejected this ground for objection in the absence of evidence that Mastercard’s costs were likely to exceed £10m.

What now for class actions?

The inevitable conclusion from this case is that UK class actions have suffered a setback, as the Tribunal refused to grant a CPO in this flagship case. That may not be the full picture, however.

The sheer breadth of this proposed action was what led to its downfall. The class was practically as broad as could be imagined, encompassing all consumers of any goods and services over a sixteen year period. The length of the period for which losses was claimed was itself an issue: practices of retailers changed significantly, as did the use of cards by the public. It is clear that claimants will need to propose a sufficiently detailed methodology for calculating not just the total loss suffered by the class, but the loss suffered by each member.

However, there is much in the Tribunal’s decision to cheer those intending to bring such actions. Not least, all arguments that the representative was unsuitable failed. The vast sums required by funders to support such actions drew no criticism or even comment from the Tribunal, who made clear that the rule in general civil litigation that funding costs cannot be recovered has no application in class actions, where such costs can come from unclaimed damages.

It is possible that the Tribunal’s decision will be appealed. In the meantime, others will be considering the impact of the decision upon their own potential claims, but not all will be discouraged.

The Government’s stated intention to extend class actions into areas beyond competition claims probably stalled with the legislative onslaught of Brexit. This decision is certainly not the end of the road for opt out class actions in the UK, though.

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