On 18 August 2021, the CAT certified its first follow-on class action under the UK’s collective action regime. Walter Merricks’ application for certification was initially refused in 2017. But following appeals up to the Supreme Court, the CAT reconsidered his application in light of the now-established criteria for certification, as clarified by the Supreme Court in its 11 December 2020 judgment.[1] This article sets out the background to the CAT’s decision on remittal, summarises the CAT’s main findings, and provides observations on possible implications.

Background to the Merricks proceedings

In September 2016, Walter Merricks submitted an application to commence collective proceedings against Mastercard Inc. for damages caused by the unlawful conduct identified in the European Commission’s 2007 multilateral interchange fee (MIFs) decision. Mastercard was found to have breached Article 101 TFEU by setting MIFs above the competitive level, which in turn increased the fees charged to merchants when they accepted Mastercard payment cards. Mr Merricks sought damages on behalf of all individuals aged 16 and over, resident in the UK between 22 May 1992 and 21 June 2008 that purchased goods and/or services from UK business accepting Mastercard payment cards. The class comprises approximately 46 million individuals and the aggregate damages award sought amounts to approximately £14 billion.

In July 2017, the CAT dismissed Mr Merricks’ application.[2] It found that the claims were unsuitable for collective proceedings on two grounds:

  • Unsuitable for an aggregate award of damages. According to the CAT, Mr Merricks had failed to show a sufficient likelihood that sufficient data would be available to quantify losses reliably. In particular, the CAT was concerned that it would be impossible to determine how much of the overcharge was passed on by different retailers to class While the CAT found the applicant’s damages quantification methodology sound in principle, it concluded that conducting the exercise in practice would be hugely complex due to the variations in consumer spend and the amount of overcharge passed on by different merchants. The CAT held that Mr Merricks had on that basis failed “to establish some basis in fact for the commonality requirement” on the pass on issue.[3]
  • Damages failed to correspond to individual loss. The CAT found that Mr Merricks’ proposed distribution of any aggregate award did not correspond to the governing principle of English law damages in tort that individuals should be restored to the position that they would have been in but for the harmful act (the “compensatory principle”). The applicant proposed that any aggregate damages award be divided on a per capita basis among all members of the class for each year of the claim period, irrespective of their individual spend or purchasing patterns. The CAT found that such a distribution offered no plausible way of reaching even a rough approximation of the loss suffered by each individual.

Mr Merricks appealed the CAT’s decision and in April 2019 the Court of Appeal set aside the CAT’s order refusing certification. The Court of Appeal found that the CAT had applied an unduly strict approach to the required commonality of issues between claimants, and loss suffered by each individual class member:[4]

  • Commonality and suitability criteria were The Court of Appeal criticised the CAT for having carried out a “mini-trial”[5] and applying too stringent a test on the quality of evidence to be provided at the certification stage. The proposed representative “should not […] be required to demonstrate more than he has a real prospect of success.”[6] In other words, Mr Merricks had to satisfy the CAT that the expert methodology was capable of assessing the level of pass-on to the represented class and that there was likely to be data available to operate that methodology. It did not have to produce the data or demonstrate its probative value. The Court of Appeal also found that “pass-on to consumers generally satisfied the test of commonality of issue necessary for certification”.[7]
  • No need for damages to correspond to individual The Court of Appeal held that the CAT’s consideration of whether an appropriate method of distribution existed at the certification stage was incorrect. It found that the question of distribution was one for the trial judge after making an aggregate award. The CAT was also wrong to find that distribution should be carried out in a way that corresponded to each individual class member’s loss.

Mastercard appealed to the Supreme Court, seeking to reinstate the CAT’s refusal of certification. On 11 December 2020, the Supreme Court dismissed the appeal. In doing so, the Supreme Court clarified the criteria for certification under the UK collective action regime:

  • Forensic difficulties quantifying loss should not prevent certification. The CAT erred in refusing certification due to the lack of data availability and challenges quantifying Courts are used to quantifying losses in challenging circumstances, sometimes with resort to “informed guesswork.”[8]

More suitable for collective rather than individual proceedings. Lord Briggs, for the majority, found that the CAT misinterpreted the suitability requirement. Claims need not be suitable in an abstract sense, but in the relative sense that a claim is more suitable to be brought in collective proceedings than in an individual claim. This interpretation, Lord Briggs found, was consistent with the purpose of the UK’s statutory regime, where collective proceedings were an alternative to individual claims, when the latter were “unsuitable for the obtaining of redress at the individual consumer level for unlawful anti-competitive behaviour.”[9]

  • Compensatory principle does not apply for aggregate damages. The Supreme Court unanimously held that the CAT could make an award of aggregate damages even if it was impossible to allocate those damages in a way that corresponded to the losses sustained by each individual claimant. Lord Briggs indicated that the “the compensatory principle is expressly, and radically, modified” under the UK regime to provide access to justice in circumstances where ordinary forms of civil claim have proved inadequate for that purpose.[10]

The CAT’s certification on remittal

In view of the Supreme Court’s findings, Mastercard did not oppose certification. Nevertheless, four issues remained to be determined:

  • Funders’ undertaking. Before certifying a claim, the CAT must be satisfied that it is “ just and reasonable” for the proposed class representative (“PCR”) to be authorised. Since collective proceedings are typically brought by an individual and/or special purpose vehicle backed by litigation funders, an important question for the CAT to determine is whether the PCR has the ability to pay the defendant’s recoverable costs if ordered to do so.[11] This issue arose in Merricks because the original funding arrangement (which the CAT approved subject to amendments) was replaced by a new funder and funding While the new funder had increased the adverse cost cover from £10 million to £15 million, Mastercard had no right under the agreement to enforce against the new funder. To address this, the CAT made the granting of collective proceedings conditional on the funder giving a suitable undertaking as to liability for Mastercard’s costs.
  • Deceased persons On remittal, Merricks sought to include the claims of deceased persons within the class (i.e., those person who died within or since the infringement period), which would increase the class size by approximately 13.6 million to 59.8 million. The CAT found that as a matter of principle it should be possible to include the claims of deceased persons within collective proceedings, but the claims would have to be brought by the estates of the deceased persons. The class cannot simply include persons who are no longer alive because, under the CAT Rules, the CAT must specify the date for determining whether a person is domiciled (i.e., resident) in the UK. The CAT found that, giving the words their ordinary meaning, a dead person cannot be “resident in the UK”. Accordingly, the CAT refused to include deceased persons within the class.
  • Limitation issue. The CAT found that, even if it were possible to have claims of deceased persons included in collective proceedings, Mr Merricks’ application to add new class members was made after the applicable limitation period had expired. The limitation period under the CAT Rules expired two years after the European Court of Justice’s dismissal of Mastercard’s appeal of the Commission’s infringement Mr Merricks sought to argue that the CAT Rules were more flexible than the Civil Procedure Rules in allowing new parties to be joined after expiry of the limitation period. The CAT disagreed, finding that under CAT Rule 38(6)-(7) such additions are only permissible (1) to correct a mistake, (2) where the claim cannot be properly tried without the new party, or (3) the original party has died and its interest passed to the new party.[12]
  • Compound interest issue. At the remittal hearing, Mastercard sought to exclude Mr Merricks’ claims for compound interest, which comprised c. £2.2 billion of the aggregate claim,[13] on two grounds: (1) that compound interest was not a common issue across the class, and (2) no credible methodology had been put forward for quantifying compound The CAT held that compound interest constitutes a distinct head of loss, which must be separately established.[14] As for individual proceedings, compound interest cannot be presumed in collective proceedings. The CAT clarified that it would “expect a plausible or credible methodology to be put forward” at the certification stage as to how compound interest would be quantified “even if it may need refinement later.”[15] The CAT found that Mr Merricks’ expert methodology failed to meet this test because it assumed that any class member who was a borrower or saver (and therefore could in theory have claimed compound interest) would have used the small amount of money by which their purchases would have been cheaper (i.e., absent the overcharge) to reduce their borrowings or increase their savings. In other words, the methodology assumed the answer to the question that the methodology was designed to answer.[16] Accordingly, the CAT found that, absent a plausible methodology, the compound interest claim was unsuitable for an aggregate award and therefore should not be certified.

Observations

While, in light of Mastercard’s non-opposition, the question of certification was no longer in issue by the time of the remittal hearing, the CAT’s certification nevertheless sheds light on how the CAT sees its screening role in the UK collective action regime following the Supreme Court’s judgment. Most importantly, the CAT found that the “Pro Sys” test “has now been recognised in the context of the UK regime.”[17] This is a helpful clarification. The Pro Sys test originates from Canadian jurisprudence and requires that “the expert methodology must be sufficiently credible or plausible to establish some basis in fact for the commonality requirement.”[18] While Lord Briggs regarded the Canadian jurisprudence as “persuasive”, he indicated that his analysis of the certification criteria was based “firmly on the true construction of the UK legislation.”[19] The UK legislation does not expressly deal with the relevant threshold that an expert methodology must satisfy.

Some interpreted Lord Briggs’ judgment to exclude the Pro Sys test from the UK regime. This followed from Lord Briggs’ finding that “it should not lightly be assumed that the collective process imposes restrictions upon claimants as a class which the law and rules of procedure for individual claims would not impose.”[20] (And individual claimants need not provide a damages methodology before their claim can proceed.) Others considered Lord Briggs’ judgment to be silent on Pro Sys, as the CAT had already found that Merricks’ methodology was sound. However, the CAT decision appears to go one step further and deems the Supreme Court to have approved the Pro Sys test as a feature of the UK regime. This is an important development, putting the onus on PCRs to produce a workable methodology at the certification stage. An issue still to be determined is what threshold the expert methodology must meet to show “some basis in fact” for the commonality requirement. In other words, what is the “minimum evidentiary basis.”[21]

Finally, since Merricks’ compound interest methodology was not credible or plausible, the CAT was not required to determine whether Merricks’ compound interest claim raised common issues. It merely indicated that this would “involve consideration of the proper interpretation of what constitutes a common issue pursuant to the CA Judgment.”[22] This alludes to the issue still to be determined of whether the commonality requirement is satisfied merely because claims raise a common question (i.e., whether the class should recover compound interest and in what amount) or whether that question must also be answerable on a common basis. The CAT notes that the proper interpretation of commonality is “not an easy question”, but observed “if only a minority of class members suffered loss by way of compound interest […] we would find it difficult to see how a claim for compound interest can raise a common issue across the class.”[23] The CAT will likely have to grapple with this question in the cases to come.

[1] For further information, see the Cleary Gottlieb UK Competition Law Newsletter for December 2020.

[2] Walter Merricks v Mastercard and others [2017] CAT 16.

[3] The CAT relied on precedent from the Supreme Court of Canada in Pro-Sys Consultants Ltd v Microsoft Corp. [2013] SCC 57 at [18].

[4] Walter Merricks v Mastercard and others [2019] EWCA Civ 674 (Merricks CoA). In November 2018, the Court of Appeal had dismissed Mastercard’s contention that the only recourse to challenge the CAT’s certification decision was via judicial review. The Court of Appeal held that it has jurisdiction to hear appeals against certification decisions because such decisions constitute decisions in collective proceedings “as to the award of damages” for the purposes of section 49(1A)(a) Competition Act 1998, with respect to which appeals can be made on a point of law (see [2018] EWCA Civ 2527).

[5] Merricks CoA, para 52.

[6] Ibid., para 54.

[7] Ibid., para 47.

[8] Ibid., para 48.

[9] Ibid., para 56. Lord Sales and Lord Leggatt dissented. They considered suitability to include an assessment of whether “determining the claims collectively in accordance with the collective proceedings regime [is] likely to achieve the fair determination of the claims at proportionate cost” (para 116) (emphasis added).

[10] Walter Merricks v Mastercard and others [2020] UKSC 51, para 58.

[11] CAT Rule 78(2)(d).

[12] CAT Rule 38(6)-(7).

[13] This is the delta between the claim with simple interest vs compound interest.

[14] Sempra Metals v Inland Revenue [2007] UKHL 34.

[15] Walter Merricks v Mastercard and others [2021] CAT 28, para 93.

[16] Ibid., para 92.

[17] Ibid., para 93.

[18] Supreme Court of Canada in Pro-Sys Consultants Ltd v Microsoft Corp. [2013] SCC 57, para 18.

[19] Walter Merricks v Mastercard and others [2020] UKSC 51, para 42.

[20] Ibid., para 45.

[21] Walter Merricks v Mastercard and others [2021] CAT 28, para 90.

[22] Ibid., para 98 (emphasis added).

[23] Ibid.