Key milestone for opt-out collective regime as first certification judgment handed down

The Competition Appeal Tribunal (CAT) yesterday handed down the first of several anticipated decisions on applications for collective proceedings orders (CPO(s)) in 1266/7/7/16 Walter Hugh Merricks CBE v Mastercard Incorporated and Others. The judgment comes almost five years since Mr Merricks first filed his application to bring a collective claim against Mastercard on behalf of a group of UK consumers relating to interchange fees.

The CAT has authorised Mr Merricks to act as the representative of a class of over 46 million consumers in a claim running to many billions of pounds, provided that a suitable undertaking as to liability for adverse costs is given by his litigation funder. 

This is a key milestone for the country’s relatively young collective proceedings regime. Subject to any further appeals, Mr Merricks’ claim can now proceed to the substantive proceedings - something that has yet to occur for any collective claim since the regime was introduced in October 2015.

Background to Mr Merricks’ CPO application

Most competition practitioners will be familiar with the progress of Mr Merricks’ CPO application. Originally heard by the CAT in 2017, the CAT declined to certify the proceedings on the basis that there was insufficient data for the expert’s proposed methodology to quantify damages, and that Mr Merricks had failed to demonstrate a plausible means of calculating losses to allow for the distribution of an aggregate award. 

However, Mr Merricks obtained permission from the Court of Appeal (CoA) to appeal the CAT’s judgment, which subsequently allowed his appeal in April 2019. The CoA heard the appeal and determined that the CAT had (in effect) held Mr Merricks to too high a standard and erred in the approach to assessing the CPO application – including (amongst other bases) that once it is accepted that aggregate damages can be awarded, the CAT was wrong as to insist that aggregate damages must be distributed on some kind of compensatory basis. 

The Supreme Court upheld the CoA’s judgment in December 2020, remitting Mr Merricks’ application for a CPO to the CAT. The Supreme Court confirmed that the certification process does not involve a merits test (save that the CAT may hear applications for strike-out/summary judgment alongside a CPO application, and the strength of the claim may be assessed in the context of determining whether proceedings ought to be brought on an opt-out or opt-in basis). It also delivered a resounding endorsement of the principles underpinning the introduction of the collective proceedings regime; including the importance of the regime in ensuring redress where individual claims may be too small to justify the expense of a separate lawsuit. 

Issues at the remittal hearing

Mr Merricks’ CPO application was re-heard before the CAT in March 2021 in light of the principles and guidance set down by the Supreme Court judgment. Mr Merricks’ application was no-longer opposed by Mastercard, except in relation to two issues:

  1. whether Mr Merricks could amend his claim to include in his proposed class claims for those consumers who had died prior to the claim form being issued (the deceased persons issue); and
  2. whether the claim could include compound interest to be pursued on a common basis (the compound interest issue).

In addition to these two arguments, the CAT also considered two further developments which had occurred since Mr Merricks’ CPO application was first considered in 2017, both of which were relevant to whether Mr Merricks ought to be authorised as the class representative: 

  1. First, the CAT considered - but disposed of - submissions from an objector, which centred upon Mr Merricks’ handling of a complaint in one of his prior roles, but which the CAT held evidenced no conflict of interest and had no bearing on Mr Merricks’ suitability to act as class representative.
  2. Second, as Mr Merricks’ arrangements for the payment of the costs of the proceedings and his ability to pay Mastercard’s recoverable costs if ordered to do so are relevant considerations for the purposes of certification, the CAT also considered Mr Merricks’ new litigation funding agreement (LFA) with Innsworth Capital, which had replaced Mr Merricks’ prior funding arrangements that had been in place at the time of the first CPO hearing.

The CAT’s ruling on the remittal hearing

Given the few issues in dispute, yesterday’s judgment is relatively short in length.

With regard to the deceased persons issue, Mr Merricks had initially argued that his original claim form, although intended to exclude deceased persons, could in fact be read to include them. However, the CAT disagreed. Mr Merricks then attempted to amend his claim form at the remittal hearing to include ‘deceased persons’ (specifically, those who were deceased before his claim was issued). The CAT held that the claims of such consumers would vest in their estate on death, and as such, a claim for damages could not be brought in their name as part of an opt-out claim. A class could include representatives of the estates of deceased persons; but this was not the amendment proposed by Mr Merricks and thus, his application was denied. Further, the CAT held that, even if it were possible to have claims by deceased persons included in collective proceedings, Mr Merricks’ application to amend his claim form was made after the expiry of the limitation period and so could not be granted.

With regard to the compound interest issue, in the absence of any “credible or plausible method of estimating what loss by way of compound interest was suffered on an aggregate basis”, the CAT determined that (applying the Supreme Court’s judgment), this head of claim was not suitable for an aggregate award. The claim was not rejected due to the limitations of any data that might be available but the absence of a method being advanced to arrive at an estimate. The CAT noted that in such an instance, as the Supreme Court judgment had made clear, “that is not a basis for denying certification: the Tribunal has to do its best with the data that is available”. Rather “the relevant question is:if [the class members] hadn’t suffered the overcharge, what would they have done with the additional money that they would have received?”.

The CAT emphasised the finding in the Supreme Court judgment that “the requirement of suitability of a claim for aggregate damages in rule 79(2)(f) is to be interpreted in a relative sense, meaning “suitable for an award of aggregate rather than individual damages.” The CAT held that there was, however, a distinction here between the main claim and the proposed claim for compound interest: “it is accepted, in the light of the SC Judgment, that the claim for the principal loss [by Mr Merricks] is suitable for collective proceedings. But unlike the claim for the Overcharge, we consider that the claim here for loss by way of compound interest cannot be fairly resolved in these collective proceedings”.

As such, a claim for compound interest could not be included without a viable method having been put forward to estimate such loss on an aggregate basis.

With regard to Mr Merricks’ LFA, the CAT noted that it was satisfied that the £45.1 million available to the claimant ought to be adequate to fund the proceedings (and presented a surplus on Mr Merricks’ projected costs of £32.5 million). With regard to the wording of the LFA, the CAT had - at the remittal hearing - expressed a concern as to the conditions relating to Innsworth Capital’s ability to terminate the LFA but Innsworth Capital and Mr Merricks had agreed, as a consequence, to amend this to alleviate the CAT’s concern.

As to adverse costs, Mastercard had raised a concern that although the LFA contained a substantial indemnity for adverse costs in Mr Merricks’ favour, should an award be made against Mr Merricks, then Mastercard could not directly enforce the terms of the LFA. Mastercard therefore sought an undertaking from Mr Merricks’ funder to the CAT that it would discharge a liability for costs ordered against Mr Merricks. Innsworth Capital made clear at the remittal hearing that it had no objection to giving a suitable undertaking, and on that basis the CAT indicated in the judgment that Mr Merricks’ application for a CPO was granted subject to such an undertaking being given. 

A major milestone

This judgment undoubtedly marks an important moment for opt-out collective redress in the UK. Whilst the judgment is brief, its significance lies in it being the first CPO application to have been granted, thus allowing Mr Merricks’ claim to progress to the substantive stage of proceedings. 

Mr Merricks’ application was one of several applications for a CPO currently pending before the CAT. Further CPO judgments are due to be handed down in the Trains claims (the first applications for CPOs based on ‘standalone’ claims), the FX claims (the first applications for CPOs involving a ‘carriage dispute’ between two proposed class representatives, with both seeking to bring claims on an opt-out basis) and Mr Le Patourel’s claim against BT in respect of landline telephone charges. Further opt-out collective claims have been filed with the CAT against, amongst others, tech giants, Qualcomm, Apple and Google, and two CPO applications relating to proposed opt-out and opt-in claims in relation to the Trucks cartel.

It is anticipated that other CPO judgments will be handed down by the CAT in the months ahead and that the country’s opt-out collective proceedings regime - for some time held back pending the resolution of the appeals in Mr Merricks’ claim - will now truly take off.

With thanks to Nicola Boyle and Luke Grimes for their contribution to this piece.

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