Landmark Supreme Court decision takes an applicant-friendly approach to collective proceedings

By Peter Willis, Jonathan Speed, Megan Curzon

12-2020

The UK Supreme Court has handed down a landmark judgment, finding that the Competition Appeal Tribunal (CAT) incorrectly rejected an application for certification to bring collective proceedings. This decision sets out important clarifications on the framework to be applied by the CAT when certifying such proceedings, and indicates that requirements should be applied more flexibly, creating a more consumer-friendly landscape for these group-actions.

Mastercard Incorporated and others v Walter Hugh Merricks CBE UKSC 2019/0118

UK competition class-actions

In 2015 an opt-out collective redress procedure was implemented for competition law claims in the Competition Appeal Tribunal, under section 47B of the Competition Act 1998 (the Act). These collective proceedings make it easier for consumers to bring claims for anti-competitive conduct. It is often very expensive or labour-intensive to bring individual claims, and it can therefore be disproportionate for an individual to litigate unless the loss is significant.

In order to bring collective proceedings, an applicant must apply to the CAT to certify the claim and demonstrate that the claims are eligible for inclusion in the proceedings. To meet this requirement, a two-limb test must be satisfied:

  1. the claims must raise common issues of fact or law; and
  2. the claims must be suitable to be brought in collective proceedings.

To meet the suitability requirement at the second limb of the test, Rule 79 (2) of the CAT Rules sets out a list of factors that may be taken into account including: whether collective proceedings would mean the fair and efficient resolution of the common issues; the size and nature of the class; and whether the claims are suitable for an aggregate award of damages (i.e. to be paid as a lump sum to the class representative and subsequently distributed among the class members). The aggregation of damages point was at the heart of these discussions.

Background

In 2007, the European Commission found that default interchange fees that Mastercard required acquirers to pay to card issuers for cross-border transactions amounted to anti-competitive behaviour at the level at which they were set at the time. The Claimant claimed that the fee was passed on by acquirers to retailers, and by retailers to consumers (by increasing the prices of the goods they bought) and that they had suffered loss as a result. Mr Merricks applied to the Competition Appeal Tribunal in 2016 for certification to bring collective proceedings on behalf of an estimated 46.2 million affected UK consumers against Mastercard.

The CAT refused to provide certification on the basis that the claims were not suitable to be brought in collective proceedings. The Court of Appeal overturned this decision, finding that the CAT’s assessment contained several errors of law. Mastercard subsequently appealed to the Supreme Court, and the judgment was handed down on 11 December 2020.

Supreme Court decision

The Supreme Court upheld the decision of the Court of Appeal, agreeing that the CAT’s decision was undermined by errors of law. Lord Briggs gave the leading judgment with which the majority of the Court agreed. This was an unusual judgment as both Lord Briggs and Lord Thomas were in favour of the Claimant but Lord Sales and Lord Leggatt dissented. The fifth judge was Lord Kerr who sadly died before the judgment was handed down, but who had previously expressed his agreement with the views of Lord Briggs and Lord Thomas. The reasoning of the decision considered a number of key issues:

Assessment of individual damages

In the first instance, the CAT noted that it was not possible to adequately calculate the individual loss suffered by each class member. Mr Merricks had proposed to distribute any award granted equally among members for each year they were in the class, and the CAT found that this distribution was not in accordance with normal compensatory principles.

The Supreme Court disagreed with the CAT’s approach. Lord Briggs considered that the normal compensatory approach to individual claims was inappropriate for collective actions, as compensatory principles had been modified by the regime. Under section 47C of the Act there was no requirement to separately assess each member of the class’s loss. The sole requirement as a result of judicial consideration was that the distribution should be “just in the sense of being fair and reasonable”.

Quantification of aggregate damages

The CAT considered there was insufficient data to support Mr Merricks’ proposed methodology for accurately determining overall damages. As a result, the claims were not suitable for an aggregate award of damages, and consequently also not suitable for collective proceedings.

Lord Briggs disagreed with the CAT’s assessment. He considered that a claimant should not be deprived of a trial “merely because of forensic difficulties in quantifying damages”, as there were a number of circumstances where quantification of damages could not be easily calculated using scientific analysis alone (for example, when assessing personal injury damages) and as recognised by the case law, the Courts had historically done their best to assess damages based on the evidence before them, even where that was not as good as they might have liked. It was also noted that such evidential issues would not pose restrictions for an ordinary claimant, and it should not be easily assumed by the CAT that the collective proceedings regime would impose additional restrictions upon claimants as a class.

Lord Briggs confirmed that there was nothing in the statutory scheme to prevent a case which had not failed a strike out or summary judgment test from going to trial to have damages quantified. The Court also recognised however that such a test was not part of the certification process in itself and that an application would need to be brought by the Defendants in accordance with the normal procedure.

The meaning of “suitable”

The decision also provided clarification of the meaning of the phrase “suitable”, within the context of collective proceeding suitability (i.e. that the claim is suitable to be brought in collective proceedings or suitable for an aggregate award of damages). Lord Briggs confirmed that the term should be interpreted to mean: a claim being suitable to be brought in collective proceedings rather than individual proceedings; or being suitable for an award of aggregate rather than individual damages. When applied to this case, it was held that the CAT had failed to consider whether individual proceedings were a relevant alternative, which they were not, and whether the same difficulties on quantification would affect an individual claimant. A relevant factor on suitability in the broader sense will be proportionality - where there are consumers that have claims worth a few hundred or a few thousand pounds then it would not be proportionate to bring those claims individually and collective proceedings may be more suitable.

Consideration of Common Issues Test

Mastercard did not accept in the case that merchants had passed on their overcharge to consumers (“the merchant pass on issue”). The Supreme Court found that the CAT had made an error of law in determining that the merchant pass on issue was not common and, had they made the correct decision, this would have meant that both the main issues were common issues which would have been a powerful factor in favour of certification. The Supreme Court recognised that there was no requirement that all the significant issues in the claim should be common issues but clearly if the common issues are limited in scope or significance this will be a factor that points against certification.

Comment

This landmark decision is the first collective proceedings case of this kind to reach the Supreme Court, and the commentary has provided important guidance on interpreting the requirements for the regime.

The comments of Lord Briggs in this decision are undoubtedly good news for applicants seeking certification from the CAT to bring collective proceedings. The decision appears to have broadened the scope of cases which may be able to utilise the regime, in particular permitting greater flexibility in terms of how aggregated damages are likely to be quantified at this preliminary stage. In light of the Supreme Court’s findings, an application may be successful even where it is not possible to accurately quantify damages, and smaller classes may now find it easier to establish suitability (i.e. that the claims are more suitable to be brought collectively rather than individually). This may lead to greater use of collective proceedings outside the consumer claims arena, for example where smaller groups of different corporates join forces to reduce the costs of damages claims which might more typically have been brought separately by claimants within the same corporate group. This would seem to be a pragmatic approach to reduce the number of competition claims proceeding through the Courts in relation to the same cartel, but caution needs to be exercised as the Court’s assessment will of course turn on the facts of each case.

This decision is of course based on the specific wording in the Competition Act and the CAT Rules and it is too early to tell whether this represents a shift change to a more generous approach by the Courts to other types of class actions. For example, the test for a representative action under CPR 19.6 is that the potential claimants must have the “same interest in the claim”. This restriction has been construed narrowly by the Courts and generally precludes cases being brought by a wider class of claimants (see for example where the same interest test was not met in the Air Cargo litigation (Emerald v British Airways [2010] EWCA Civ 1284)). It will be interesting to see whether the spirit of this decision will infuse the other eagerly awaited Supreme Court decision in the collective claims area in Lloyd v Google, where the Claimant is claiming damages for loss of control of personal data of several million iPhone users under the Data Protection Act by way of a representative action.

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