Supreme Court hears argument on whether £14 billion consumer competition class action should proceed against Mastercard

May 22, 2020

By David Went

The Supreme Court last week heard Mastercard’s appeal seeking to prevent a proposed class action on behalf of 46 million consumers valued at £14 billion from proceeding against it. The case is interesting not merely from the perspective of whether the “juggernaut” of a claim should proceed against Mastercard but also because of its impact on other competition law class actions waiting in the wings and its influence more generally on how the fledgling competition law class action regime will develop in the UK.

Competition law class actions or collective proceedings were introduced in the UK in October 2015, although no class action has yet been given the green light to proceed.  Proposed class representatives must apply to the Competition Appeal Tribunal for a collective proceedings order (“CPO”) entitling individual competition law claims to be combined in collective proceedings.  Claims can follow on from an infringement decision by a competent authority (such as the Competition and Markets Authority) or be brought on a standalone basis without a prior infringement decision.  It is necessary for the class representative to be authorised and for the claims to be certified for inclusion in collective proceedings.  Certification requires showing that the claims are eligible to be brought in collective proceedings, including that the claims raise “common issues” and are “suitable” to be brought in collective proceedings.  Collective proceedings can be brought on an opt-out basis (such that claimants falling within the class definition are automatically part of the proceedings unless they opt out) and can include a claim for an aggregate award of damages that does not require assessing loss at the individual claimant level.

The claim against Mastercard relates to a decision of the European Commission finding that between 1992 and 2008 Mastercard had unlawfully set a minimum rate of fees (the so-called multilateral interchange fee or “MIF”) that banks issuing Mastercard cards charge to banks servicing retailers and other merchants accepting Mastercard cards.  The MIF would in turn be incorporated into, and inflate, the merchant service charge imposed by retailers’ banks on their retailer customers.  Retailers’ banks were therefore being charged an unlawfully high MIF and passing this on in inflated fees to the retailers that bank with them.  While the European Commission decision related to a cross-border MIF within the European Economic Area, this cross-border MIF would be used as a benchmark in setting domestic MIFs.  The collective proceedings claim against Mastercard alleges that the domestic UK MIF relating to Mastercard transactions was unlawful and that the inflated part of the domestic merchant service charge (also referred to as the “overcharge”) was passed on in full or in part by retailers in prices charged to UK consumers (so-called “indirect purchasers”).

At first instance, the Tribunal determined that proposed collective proceedings brought by class representative and former financial ombudsman Walter Merricks CBE should not be permitted to proceed in light of two key issues.

The first issue related to the adequacy of the expert methodology advanced by experts retained by Mr Merricks.  In short, the proposed expert methodology involved calculating the overall value of payments made by consumers using Mastercard cards in the UK during each year of the 16-year period of the infringement (the “volume of commerce”), calculating the extent to which the overcharge paid by retailers and merchants had been passed on to consumers on a sector-by-sector basis, and applying a weighted average pass-through percentage to the volume of commerce depending on the different levels of pass-through in different sectors and the proportion that card expenditure in those respective sectors bore to the total.

The Tribunal determined that, when assessing the adequacy of the proposed expert methodology, it was appropriate to adopt the class certification test applied by the Supreme Court of Canada.  According to Canadian precedent, the expert methodology must offer some prospect of establishing loss on a class-wide basis so that, if the overcharge is eventually established at the trial of the common issues, there is a means by which to demonstrate that it is common to the class (i.e., that passing on has occurred).  The methodology cannot be purely theoretical or hypothetical but must be grounded in the particular case in question and there must be some evidence of the availability of the data to which the methodology is to be applied.  In considering whether this test had been satisfied by Mr Merricks, the Tribunal considered that an application for a CPO is not a mini-trial but that the applicant must do more than simply show that he or she has an arguable case as would be required, for example, if facing an application to strike out.

While accepting that the proposed expert methodology of calculating global loss via a weighted average pass through was methodologically sound, the Tribunal determined that the experts had not demonstrated that there were sufficient data available to run the methodology across virtually the entire UK retail sector for a period of 16 years.  In particular, the Tribunal found that the three main sources of data on which the experts proposed to rely (individual retailer actions against Mastercard, third-party disclosure, and publicly available data) were inadequate.  The individual retailer actions were mostly at a very early stage and generally related to time periods later than the period of infringement in the proposed class action.  Third-party disclosure on the scale necessary would be wholly impractical.  Publicly available data had already been examined in an expert report commissioned by the Office of Fair Trading and been found to be incomplete and difficult to interpret.

The second issue related to the proposed method of distributing the aggregate award of damages to consumers which involved dividing the overall damages each year on an equal basis among all consumers notwithstanding that consumers would have very different spending profiles.  The Tribunal considered that there was no plausible way of reaching even a rough-and-ready approximation of the loss suffered by each individual claimant, while the proposed distribution basis did not bear any relationship to actual compensation.  The Tribunal therefore concluded that the claims were not suitable to be brought in collective proceedings.

The Court of Appeal subsequently overturned the Tribunal’s judgment.  On the first issue, the Court of Appeal considered that the Tribunal was right to treat the Canadian jurisprudence on certification as informing the correct approach to apply in the UK.  According to the Court of Appeal, the proposed class representative need not at the CPO stage show more than he or she has a real prospect of success as required in other interlocutory settings prior to disclosure and filing of evidence.  This requires satisfying the Tribunal that the expert methodology is capable of assessing the level of pass through to the class and that there was, or was likely to be, data available to operate the methodology.  However, it is not necessary for the applicant at the CPO stage to produce all relevant evidence or to enter into any detailed debate about its probative value.  While the Tribunal had said that it should not carry out any form of mini trial, the Court of Appeal considered that this is in fact what the Tribunal had done as the experts were cross-examined at a pre-disclosure stage about their ability to prove the claim at trial by reference to sources of evidence which they had identified but had not yet been able fully to analyse or assess.  In essence, the Court of Appeal considered that the Tribunal had demanded too much of Mr Merricks at the certification stage and subjected the claim to a more vigorous examination than would have occurred at a strike-out application.

Second, the Tribunal was wrong to consider that an aggregate award of damages had to be distributed in accordance with tortious principles of compensation, i.e., to restore the claimants to the position they would have occupied but for the competition law breach.  Indeed, the power to make an aggregate award (which does not require the court to calculate individual loss) would be largely negated in large-scale opt-out proceedings of this kind if a calculation of individual loss was a pre-requisite for any authorised method of distribution and therefore for certification.  Moreover, the question of distribution should not be considered at the CPO stage but only once an aggregate award of damages has been made.

This was the setting for the one and a half day hearing conducted by video link before the Supreme Court last week.  On the first issue, Mastercard pressed the fact that the Tribunal and the Court of Appeal purported to apply the same test as laid down by the Supreme Court of Canada and so there had been no misdirection by the Tribunal or illegality.  Moreover, Mr Merricks had entirely failed to satisfy the test of availability of data to be applied in the expert methodology across the whole UK economy.  As with the Court of Appeal, there appeared to be some support on the part of the Supreme Court that the Tribunal had applied too intensive a review at the CPO stage and prior to disclosure.  It was also suggested to Mastercard that it might be possible for only parts of the claim to proceed if it ultimately transpired that there were insufficient data to run the methodology across all sectors of the economy.  Mastercard’s response was that Mr Merricks had chosen to bring what one of the Supreme Court judges described as a “juggernaut” of a claim and so it was incumbent on the class representative to satisfy the Tribunal that the claim could be sustained.  Mr Merricks submitted that, provided there was some evidence (as opposed to no evidence) of data being available to run the methodology, the requisite test was satisfied.  As regards the second issue, Mastercard submitted that the Tribunal was not in fact requiring damages in all cases to adhere to the tortious compensatory principle but that it was entirely appropriate for the Tribunal to take into account a distribution method proposed by the class representative at the outset when assessing whether claims were suitable to be brought in collective proceedings and to consider this aspect of the proposed collective proceedings under the broad suitability criterion.

Pending the Supreme Court’s judgment in this case, the collective proceedings regime has in effect been put on hold by the Tribunal – this was a point not lost on the Supreme Court judges during the hearing last week.  The Tribunal has placed the regime on hold on the basis that it would be difficult to “unscramble the egg” if other CPO applications were granted and cases started to proceed only for it to be subsequently necessary for the Tribunal to re-hear those CPO applications should the Supreme Court not endorse the approach to certification and distribution adopted by the Court of Appeal.  It is therefore not only Mr Merricks eagerly awaiting the outcome of Mastercard’s appeal but a number of other class representatives keen to proceed with their cases.  Moreover, if the Supreme Court ultimately adopts what is an arguably lighter touch approach to certification adopted by the Court of Appeal, this will likely embolden legal advisors and funders to bring more cases and lead to a burgeoning of the competition class action regime in the UK.

David Went is currently acting for the Road Haulage Association in its proposed collective proceedings before the Competition Appeal Tribunal and to which over 12,500 haulage operators have currently signed up.