UK & Europe
Insurance & Reinsurance
The much-anticipated Supreme Court judgment, handed down on 11 December 2020, provides guidance on the legal tests to be applied by the Competition Appeal Tribunal (“CAT”) in deciding whether to certify class actions brought under the collective proceedings regime introduced in 2015.
The judgment should make it easier for class representatives to bring ‘opt-out’ class actions against corporate defendants whose anti-competitive conduct has caused loss to consumers. As the first collective proceedings case of this kind to reach the Supreme Court, the decision will be welcomed by claimants and litigation funders. The ruling will likely impact other applications for Collective Proceedings Orders (“CPO”) that have been stayed pending the decision.
In 2007, the European Commission (“EC”) found that Mastercard had acted in breach of EU competition law by setting high multilateral interchange fees (“MIF”) that were charged between banks for transactions involving the use of a Mastercard payment card. The EC found that some part of the MIF was likely to have been 'passed on' to the consumer in the form of increased prices. The EC’s decision was upheld on appeal by the European Courts.
In 2016, a former Financial Ombudsman, Walter Merricks CBE, sought to bring a £14 billion class action, on behalf of 46 million customers, before the CAT. The collective proceedings were brought on an 'opt-out' basis (whereby anyone who falls within the scope of the proposed class will be treated as a member of the class unless they expressly withdraw) and sought an aggregate award of damages, representing the loss suffered by the class as a whole, rather than individual damages. This action is being financed by litigation funders.
In order for the action to succeed, Merricks had to satisfy the CAT that it was suitable for collective proceedings and obtain a CPO. CPOs were introduced by the Consumer Rights Act 2015 (amending the Competition Act 1998), providing the possibility of 'opt-out' collective actions for competition law proceedings before the CAT. The Act provides that, once a class representative has filed the claim on behalf of the class “raising the same, similar or related issues of fact or law”, the CAT will consider whether the claim is suitable to be dealt with on a collective basis (whether opt-in or opt-out), taking into account the cost, size and nature of the class. The CAT Rules further provide that the CAT may certify claims as eligible for inclusion in collective proceedings where, having regard to all the circumstances (and the CAT Rules set out a non-exhaustive list of matters to be considered), it is satisfied by the proposed class representative that the claims sought to be included in the collective proceedings:
Following a preliminary hearing in 2017, the CAT did not accept the claim as being suitable for collective proceedings for two reasons. First, it held that the claims were not suitable for an aggregate award of damages, as it determined there was a lack of data to determine the level of 'pass-on' to consumers. Secondly, it held there was an absence of plausible means of calculating the individual loss suffered by claimants so as to devise an appropriate method of distributing any aggregate award of damages. Further, whilst not fatal to the certification, Mastercard also persuaded the CAT that the merchant pass-on issue was not a common issue.
The CAT determined there was no appeal route to its decision but the Court of Appeal disagreed and stated that it had jurisdiction to hear the appeal. On appeal, Merricks submitted that the decision of the CAT was incorrect, on the basis that it adopted the wrong approach to the assessment of the evidence and strength of the case, and the wrong test in relation to distribution of damages.
In April 2019, the Court of Appeal found in Merricks’ favour on both of the above issues and set aside the Order of the CAT refusing certification, finding the CAT had made five errors in law:
The Court of Appeal also held that certification is a continuing process: where a CPO is made, the CAT may subsequently terminate proceedings if, for example, there is insufficient data for the experts to calculate the rate of 'pass-on'.
The Court of Appeal remitted the application back to the CAT for a re-hearing and Mastercard was given permission to appeal the judgment to the Supreme Court.
Mastercard’s Supreme Court appeal was heard in May 2020. In its December 2020 decision, the Supreme Court (by a majority of 3:2) largely upheld the Court of Appeal’s findings, finding that the CAT had made errors in law in rejecting Merricks’ application for a CPO, and, similarly, remitted the case to the CAT for a re-hearing.
Specifically, the Supreme Court found:
However, unlike the Court of Appeal, the Supreme Court did not criticise the CAT for conducting a “mini-trial” at the certification stage. Whilst questioning and cross-examination of experts should be a rare occurrence at certification hearings, the present case justified an exception.
The Supreme Court also differed from the Court of Appeal’s finding that any consideration of distribution proposals for the purpose of certification was necessarily premature. Whilst generally true, there may be cases where the issues as to the suitability of the claims for a CPO will be better addressed when the whole of the representative’s proposed scheme, including distribution proposals, are looked at in the round.
The Supreme Court’s judgment supports the Court of Appeal’s decision to provide for a more permissive approach than previously articulated by the CAT in the assessment of whether claims are suitable for a CPO.
The majority’s decision to apply a “relative suitability” test is a major shift. Lord Sales and Lord Leggatt warned that this new approach will “very significantly diminish the role and utility of the certification safeguard”.
The reduced level of scrutiny of collective actions at the certification stage, and the confirmation that certification is a continuing process, may result in an increased risk of wasted time and costs if a claim is ultimately unable to proceed. The indication that CPO proceedings could be terminated due to inadequate data after pleadings, disclosure and expert evidence may create a significant costs risk.
Whilst the judgment may be concerning to potential defendants, some aspects may provide some comfort. At the certification stage, the CAT does not need to decide if the claim is appropriate for an aggregate award of damages. If liability is determined but an aggregate award is later judged to be unsuitable, the class representative will need to face the hurdle of proving losses on an individual basis. The Supreme Court judgment also suggests that, in certain circumstances, cross-examination of the representatives’ experts is permitted at the certification stage.
For now, we await the CAT's re-hearing in light of the Supreme Court's judgment. This judgment is also expected to be significantly influential on the pending applications for CPOs before the CAT (including, in the financial services space, the sizeable Foreign Exchange (FX) cartel claims) and will likely serve to encourage claimants and litigation funders in respect of further competition law based collective actions.
 The Competition Appeal Tribunal Rules 2015 (SI 2015/1648)