Mastercard faces competition ‘opt out’ class action damages trial

The ruling by the Competition Appeal Tribunal (CAT) is the first in which it has conditionally certified collective proceedings for damages resulting from a competition law infringement on an 'opt-out’ basis.

The decision was issued in favour of former financial ombudsman Walter Merricks, who has been involved in a long-standing dispute with Mastercard in relation to his bid to seek follow-on damages in respect of excessive ‘interchange fees’ imposed by Mastercard on the use of debit and credit cards between 22 May 1992 and 21 June 2008.

The CAT previously rejected Merricks’ bid to bring collective proceedings for damages against Mastercard on behalf of 46.2 million UK consumers who he claimed suffered loss as a result of the interchange fees Mastercard charged. However, the Supreme Court ruled late last year that the CAT had made five errors of law in arriving at its decision and returned Merricks’ CPO application to the CAT for reconsideration.

Following a re-hearing, the CAT has now conditionally granted Merricks a CPO, though on amended terms from his original application. During the latest proceedings the CAT allowed Mastercard to narrow the scope of the class action by excluding claims on behalf of deceased persons and compound interest on damages. 

On the basis of established legal principles, the CAT held that deceased persons cannot be included in the class definition. While representatives of deceased persons’ estates can in principle be included in collective proceedings, that is not how the current claim was framed – it simply treated deceased persons as individuals within the class. Moreover, an attempt to add such representatives as new class members in the current proceedings would be time-barred.

The compound interest claim was premised on the argument that, absent the interchange fee ‘overcharge’ by Mastercard, class members would have had more funds available to pay off debts or contribute to their savings. However, the CAT found that, unlike the aggregate claim for the overcharge, there was no “credible or plausible method of estimating what loss by way of compound interest was suffered on an aggregate basis” and so the claim was excluded. The CAT noted that, even if compound interest were included, it would be difficult to see how such a claim could raise a “common issue” across the entire class.

With the scope of Merricks’ claim reduced, it is estimated that the aggregate value of the claim is now approximately £12 billion and not around £16 billion. The claim for compound interest alone accounted for approximately £2.2 billion.

The CAT also considered whether arrangements with Merricks’ new litigation funder, Innsworth Capital, are sufficient to finance the ongoing proceedings and cover potential adverse costs orders, as well as whether they contain appropriate safeguards to avoid potential conflicts of interest between the funder’s commercial incentives and the class members in the event of a potential settlement or termination of the funding agreement. The CAT was satisfied on these points, but acknowledged Mastercard’s concern that, under the terms of the new litigation funding agreement, it would have no direct recourse against Innsworth to discharge a liability for costs ordered against Merricks. Innsworth agreed to give a suitable undertaking to address Mastercard’s concerns.

The collective proceedings will now proceed to trial so long as Merricks’ litigation funders provide a suitable undertaking as to his liability for costs. 

Competition law expert Alan Davis of Pinsent Masons, the law firm behind Out-Law, said: “This important CAT ruling gives a green light for UK’s first ever – and largest – opt-out antitrust damages class action to proceed to trial on substantive legal issues. It also provides valuable guidance on the CAT’s approach to issues around class definition and litigation funding for a growing number of pending class actions.”

“The judgment also illustrates how defendants can use the CPO certification hearing before the CAT to narrow the class definition and reduce the aggregate damages sought. In this case the potential savings are in the billions of pounds, but even in smaller mass actions the ability to narrow the scope of claims at such an early stage could significantly reduce defendants’ potential damages exposure as well as litigation costs,” Davis said.

The CAT has exclusive jurisdiction over the collective proceedings regime, which was introduced for UK competition law claims by the Consumer Rights Act 2015. However, before such a claim can proceed, the CAT must first ‘certify’ the claim by issuing a CPO. Before issuing a CPO, the CAT must be satisfied that it is just and reasonable that the individual seeking to act as representative is authorised to do so; and that the claims are eligible for inclusion in collective proceedings. The CAT may revoke a CPO, and so terminate the collective proceedings, at any stage.

Litigation expert Emilie Jones of Pinsent Masons said: “This case will also be closely watched by those interested in the wider development of the UK mass actions landscape. The collective proceedings regime in the CAT is currently the only example of opt-out collective proceedings in the UK. However, there is a growing debate beyond the competition space about whether steps should be taken to make it easier for groups of consumers to bring claims on a collective basis, including potentially by way of wider opt-out mechanisms.”

“For example, the UK government is currently consulting on whether further routes to collective consumer redress should be opened up, as part of its broader consultation on reforming competition and consumer policy, and in Scotland there is debate about whether recent group proceedings legislation should be implemented in such a way as to allow opt-out proceedings. This echoes developments in the EU where member states are currently having to review their mass actions procedures to ensure compliance by 2023 with the new EU collective redress Directive,” she said.

“Businesses are understandably concerned about the increased exposures that opt-out procedures can bring.  One factor which may be influential in any consideration of the widening of opt-out procedures is how effective they are in actually delivering customer redress, which turns in part on how many consumers in the affected class come forward to claim damages at the end of an action. How much of the £12bn claimed in the Mastercard case is ultimately distributed to consumers may therefore be influential in the future development of the UK mass actions landscape. There will also be learnings, relevant to the introduction and development of any future opt-out procedures, about how effective the safeguards built into the CAT collective proceedings regime are. For example, the scrutiny to which the claimants’ funding arrangements were subjected and the sizeable reduction in the value of the claim at certification stage in this case may provide some comfort to businesses as well as guidance for legislators,” Jones said.

Co-written by Tadeusz Gielas of Pinsent Masons.