Can U.S. class action law serve as guidelines for the UK indirect purchaser Mastercard case?
Few would argue with the proposition that antitrust indirect purchaser class actions in the U.S. raise more difficult questions of commonality, impact, and manageability than direct purchaser class actions, even though there may have been harm sustained at both levels. Accordingly, and particularly as a result of the Supreme Court’s 1977 Illinois Brick[1] decision generally prohibiting indirect purchaser damage actions under federal law, indirect purchaser class actions usually are not certified for class treatment under Rule 23 of the Federal Rules of Civil Procedure (Rule 23). Moreover, even in those states that have antitrust statutes allowing indirect purchaser actions, such suits often have been denied class certification.
In a recent article, Makan Delrahim, the Assistant Attorney General in Charge of the Antitrust Division of the U.S. Department of Justice ("the Division"), provided a commentary on the decision of the English Court of Appeal in the Mastercard case, which is now on appeal before the UK Supreme Court.[2] The focus of the Division's article compared the treatment of class certification issues in indirect purchaser cases in the U.S. and UK, and urged that the UK courts be wary of class actions because they create a risk of "in terrorem" settlements of potentially meritless claims. But it is questionable whether there are sufficient similarities between the nature of private antitrust law in the U.S. and the UK to justify such comparisons. Specifically, unlike the U.S., there is no treble damage risk in the UK, and the UK has a "loser pays" rule. Additionally, in the UK, but not in the U.S., a defendant can seek contribution from co-defendants in the event of an adverse judgment.
As to class actions in particular, one of the principal differences between the UK collective proceedings rules and Federal Rule 23 in the U.S. is that there is no requirement of a preponderance of common issues in the UK. All that is required is that there be some common issues among the class members.[3] Moreover, motions for class certification are not generally decided in the U.S. until after there has been discovery on class issues, including damage methodology. But the collective proceedings order at issue in the UK Mastercard case was decided before the class representative took any discovery whatsoever. Indeed, the U.S. approach to discovery prior to certification has been specifically disavowed in the UK.[4]
Significantly, in an effort to avoid the often contentious disputes in the U.S. over the calculation of damages in class action litigation in the U.S., Section 47C(2) of the UK Competition Act of 1998 provides: "The Tribunal may make an award of damages in collective proceedings without undertaking an assessment of the amount of damages recoverable in respect of the claim of each represented person."[5]
Finally, and of considerable importance, the questions now before the UK Supreme Court in the Mastercard case are questions of procedure under UK law. Procedural rules reflect the cultural and legal traditions of a particular jurisdiction and, unlike the U.S., UK procedure does not distinguish between direct and indirect actions.
The issues raised on the Mastercard appeal involve the interpretation of provisions of a collective proceeding under the Competition Act and Competition Appeal Rules of 2015 that markedly differs from Rule 23 in numerous material respects. The UK statute has entirely different standards for certification, including different rules on: the showing required of the plaintiffs' experts at the certification stage of a proceeding; determining aggregate damages, and thereafter addressing the distribution of aggregate damage awards to individually injured members.
In sum, the UK appears to have decided for public policy reasons that, if given the choice between denying any recovery to claimants with potentially small value claims because of possible imprecision in the calculation of some claimants' individual damages, and allowing such claims to proceed beyond the certification stage, the better approach is to accept a modicum of imprecision and allow the collective action to proceed, rather than to refuse to certify the action and therefore rule out recovery altogether. Such an approach remedies overall damage to the market by providing compensation to actually injured victims and deprives wrongdoers of their ill-gotten gains from the market wide harm they have caused. This, of course, also reinforces the deterrent effect of the sanctions that may have been imposed by the government competition authority with respect to the same misconduct.
UK collective proceedings
Opt-out collective proceedings in the UK under the Competition Act of 1998 (as amended by the Consumer Rights Act of 2015) proceed on an opt-out basis for UK residents, but non-UK-domiciled class members may opt-in to the proceedings. Such claims are heard before the Competition Appeal Tribunal ("the CAT"), a specialist tribunal composed of judges and so-called Ordinary Members who are expert in economics, law, business, accountancy and other related fields.
In collective proceedings in the UK, as previously noted, the equivalent of class certification takes place early in the proceeding by way of an application for a collective proceeding order ("CPO"), at which point the CAT may grant a CPO only if it would be just and reasonable for the applicant to be authorized as the class representative, and the claims which the applicant seeks to combine are eligible for inclusion in collective proceedings.[6] The eligibility requirement is satisfied if the CAT finds that the individual claims raise the same, similar or related issues of fact or law, and are suitable to be brought in collective proceedings.[7] In assessing suitability, the CAT can take into account all matters it thinks fit, including whether the claims are suitable for an aggregate award of damages.[8]
To date only two certification hearings have taken place before the CAT and both were refused. Further applications for CPOs have been made, but none have yet been heard as the Tribunal chose to pause all certification hearings pending the UK Supreme Court's ruling in the Mastercard Case.
The Mastercard case
The Mastercard case is an opt-out collective proceeding brought before the CAT in 2016 seeking approximately £14 billion (roughly $18 billion) on behalf of a class of 46 million UK consumers. It is a follow-on claim based on a 2007 decision of the European Commission finding that Mastercard's multilateral interchange fees (MIFs") applicable to cross-border payment card transactions violated Article 101 of the Treaty for the Functioning of the European Union by restricting competition between acquiring banks and raising the price of card acceptance charged to retailers. Mastercard appealed the EU Commission decision to the General Court and ultimately to the European Court of Justice, and was unsuccessful in both appeals.
At the time that the collective action was commenced, Mastercard had also been sued in the UK courts in individual actions by some of its largest retail merchants using the reasoning in the Commission Decision to claim for UK interchange fee damages. Mastercard notably lost the first trial resulting in a £68.6 million judgment to Sainsbury's, the UK supermarket chain. This was upheld in the Court of Appeal, and that case is now on appeal to the UK Supreme Court. Walter Merricks, the proposed class representative and former financial ombudsman with a long career of public service, argues that the merchants passed on Mastercard's overcharge to their customers in the form of higher retail prices.
In July 2017, the CAT refused to grant a CPO.[9] Two principal reasons were expressed: first, the CAT found that at the hearing Mr. Merricks had not pointed to sufficient data to facilitate the use of the methodology proposed by his experts to determine how the overcharges may have been passed on to consumers;[10] and, second, the CAT ruled that Mr. Merricks had not put forward any plausible means of calculating the losses sustained by class members on an individual basis so as to allow for the distribution of an aggregate award of damages.[11]
However, the Court of Appeal overturned the CAT's ruling and remanded the case back to the CAT for a second certification hearing. The Court of Appeal held, inter alia, that the CAT had applied too strict a test at the CPO stage, and that the class representative only had to demonstrate that the claims have a "real prospect of success"[12] In essence, the Court of Appeal held that the CAT had erroneously required too much of the proposed class representative at the certification stage.[13] The Court of Appeal also held that there was no requirement under Section 47C(2) of the UK Competition Act for the class representative to show at the certification stage how an aggregate award of damages would be allocated and distributed to individual class members following certification. All that was necessary at the certification stage was to show that the claims were suitable for an aggregate award of damages.[14]
Mastercard's appeal of the Court of Appeal's ruling was heard by the Supreme Court in May of this year, and the Supreme Court's ruling will set the standard as to the test to be applied by the CAT at the certification stage in the Mastercard case and in the further collective cases which will proceed to certification hearings. If the Mastercard case is remanded to the CAT, then it may be certified and permitted to continue to trial. Alternatively, the CAT could refuse to certify the action for a second time, or may certify only part of the proposed class. If the claim is permitted to continue to trial, it can be expected that factual discovery will be taken from Mastercard and third parties, including retailers, in order to develop data relevant to damages.
Conclusion
The Mastercard case presents the UK Supreme Court with the opportunity, early in the life of the UK's young collective proceedings regime, to ensure that the test for proposed class actions is set at an appropriate level. That level ought to be one which takes into account the complexities of calculating loss in competition law claims and the unequal position of class representative and defendant from an evidentiary point of view. It ought also be one that does not prove unduly burdensome for would-be representatives such that valid claims fail, rights to compensation are not vindicated, and the proceeds of anticompetitive conduct remain with the wrongdoer.
It is certainly within the province of the UK courts to choose an approach that fulfills the purpose of the enabling act—ensuring that there is an effective means of consumer access to compensation, collectively and individually, for violations of the UK competition laws. In doing so, little, if any, attention should be paid to the totally different U.S private antitrust enforcement scheme.
Footnotes
[1] Illinois Brick Co. v. Illinois, 431 U.S. 720 (1977).
[2] See M. Delrahim, Merricks v. Mastercard: "Passing On" the U.S. Experience, Competition Policy Int’l, May 2020 (the "Division article"). See generally Merricks v. Mastercard Incorporated and others, [2019] EWCA Civ 674 (the Mastercard Judgment).
[3] The Competition Appeal Tribunal Guide specifies at 6.37: "Where only certain issues in the claims constitute common issues, there is no requirement that those must predominate over the remaining individual issues in order for it to be suitable for the part of the claims covering the common issues to be brought in collective proceedings."
[4]See Gibson v. Pride Mobility Products Limited [2017] CAT 9, dated 31 March 2017, at Paras 102-04.
[5] As introduced by the Consumer Rights Act of 2015.
[6] Section 47B(5) of the Competition Act 1998.
[7] Section 47B(6) of the Competition Act 1998.
[8] Rule 79(2)(f) of the Competition Appeal Tribunal Rules 2015.
[9] Walter Hugh Merricks v. Mastercard Inc. and others [2017] CAT 16, dated 21 July 2017.
[10] Id. at Paras. 75-78.
[11] Id. at Paras. 87-89.
[12] Merricks v. Mastercard Inc. and others [2019] EWCA Civ 674, at Para. 44.
[13] Id.
[14] Id. at Paras 46-47.
