ALL FOR ONE AND ONE FOR ALL: UK SUPREME COURT GUIDANCE ON COLLECTIVE PROCEEDINGS IN COMPETITION APPEAL TRIBUNAL 

In our May 2020 Competition Litigation Update, we covered the hearing of the landmark Supreme Court case of Mastercard Incorporated v Walter Hugh Merricks [2020] UKSC 51.

The Supreme Court has now handed down its judgment in the case which concerned the test for the certification of collective proceedings within the context of a follow-on damages claim in the Competition Appeal Tribunal (CAT)^[1]. The Supreme Court has dismissed Mastercard’s appeal; the case will now go back to the CAT, which will reconsider Mr. Merricks’ application for a Collective Proceedings Order (CPO) in light of the Supreme Court’s guidance as to the relevant test.

The decision addresses key questions about the legal requirements for the issuing of a CPO and should now open the door to other collective follow-on damages claims in the CAT. In so doing, it may well prove to have significantly altered both the competition litigation and class action landscapes in the U.K.

Background

Facts

In December 2007, the European Commission (EC) issued a decision finding that multilateral interchange fees (MIFs) incorporated by Mastercard into their card payment arrangements between 1992 and 2007 constituted a breach of EU competition law.

Following the EC’s decision, Mr. Merricks commenced opt-out follow-on collective proceedings in the CAT for £14 billion in aggregate damages under the Competition Act 1998 (the “1998 Act”), acting as the class representative on behalf of approximately 46 million U.K. consumers (U.K. resident consumers who purchased goods and services from retailers which accepted Mastercard cards between 1992 and 2008). Mr. Merricks argued that the increased costs, or overcharge, which banks incurred as a result of Mastercard’s breach were passed on to retailers, who in turn passed on these costs to consumers, who therefore ultimately paid a higher price for goods and services than they otherwise would have done.

Procedural History

Collective proceedings must be certified by the CAT through issuance of a CPO on the basis of two requirements under the 1998 Act:

• It must be just and reasonable for the claimant to act as class representative; and
• The claims must raise common issues of fact or law, such that they are suitable for inclusion in collective proceedings.

The CAT found that the first limb of the test was satisfied. Turning to the second limb, the CAT held that of the two main issues, only the alleged increase in certain MIFs, which Mr. Merricks claimed had resulted from Mastercard’s infringement (the “Overcharge Issue”), created a common issue between the claimants. It did not accept that the other issue, the extent to which such increased costs were passed on to consumers (the “Pass-On Issue”), raised a similarly common issue.

The CAT went on to find that, although they shared a common issue, the claims were not suitable for inclusion in collective proceedings. It reached its conclusion on two key bases—i) the claims were not suitable for an aggregate award of damages, as there was insufficient data available for the aggregation methodology proposed by Mr. Merricks to be applied on a sufficiently sound basis and ii) Mr. Merricks’ proposed basis for distribution of any damages would not adequately reflect each individual claimant’s loss and was therefore contrary to the compensatory principle under the common law. The CAT found that each of these issues was sufficient on its own to require that the CPO application be refused.

On appeal to the Court of Appeal, the CAT’s decision was overturned.^[2] Mastercard then appealed to the Supreme Court.

Judgment

Dismissing Mastercard’s appeal, the Supreme Court largely agreed with the Court of Appeal’s decision, concluding that the CAT made several errors of law. It remitted the matter back to the CAT, which will now reconsider the CPO application.

Lord Briggs, giving the leading judgement, noted that the relevant test for certification needed to be applied within the context and purpose of collective proceedings, which were a “special form of civil procedure for the vindication of private rights, designed to provide access to justice…where the ordinary forms of individual claim have proved inadequate…” As claims under collective proceedings could, in theory, be pursued individually under the Civil Procedure Rules (CPR), “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.”

An individual claimant seeking follow-on damages would need only show that their claim passed the test for strike-out and/or summary judgment (namely that the claim raised a triable issue that they had suffered some loss from the breach of duty) in order for the claimant to be entitled to have their claim heard at trial. A claimant cannot be deprived a trial of their claim merely because of “forensic difficulties” in quantifying damages. The court has long established principles and tariffs for calculating damages in cases where “quantification defies scientific analysis,” including, in extreme cases, through an element of guesswork. The “fundamental requirement of justice” that the court must do its best on the evidence available to quantify damages is commonly known as the ‘Broad Axe’ principle.

Lord Briggs noted that the Broad Axe principle was equally applicable in collective proceedings. Therefore, certification did not require that such a case should be prevented from going to trial due to difficulties in quantifying damages. He held that preventing claims from proceeding to trial in such circumstances would likely ensure that the rights of consumers could never be vindicated in the case of such infringements because individual claims are likely to be a ‘practical impossibility’.

Lord Briggs went on to highlight three key considerations under the 1998 Act:

• Certification does not involve a merits test, as required under a strike-out or summary judgment application. Such a test will only be relevant where the CAT elects to hear a strike-out or summary judgment application at the same time as it considers the CPO, or when considering the choice between ‘opt-in’ and ‘opt-out’ proceedings;
• The CAT is expected to conduct a ‘value judgment’ about whether the claims are suitable to be brought in collective proceedings, taking into account the non-exhaustive list of factors in the 1998 Act. The listed factors “are not separate suitability hurdles…which the applicant…must surmount.” In particular, it is not a condition that the claims are suitable for an award of aggregate damages; this is merely one factor to be taken into account; and
• The commonality of issues in the claim is relevant both at the first stage of the certification test, as a preliminary hurdle, and at the second stage, where the extent to which collective proceedings would be an appropriate means for the fair and efficient resolution of such common issues will be an important factor under the suitability test.

On the basis of those principles, Lord Briggs identified numerous errors of law in the CAT’s decision:

• Contrary to the CAT’s decision, the Pass-On Issue was a common issue and, in applying the certification test, the CAT had therefore failed to recognize that both of the main issues in the case were common issues;
• The CAT had erroneously treated the suitability of aggregate damages as a hurdle rather than simply one of several factors relevant to the suitability test;
• In applying the suitability test, the correct approach was to ask whether collective proceedings were suitable relative to the alternative of bringing individual claims. Had the CAT done so, it would have concluded that individual proceedings were not a relevant alternative and would, in any case, face the same difficulties as to quantification as arose in the collective claim;
• The CAT failed to apply the Broad Axe principle, and thereby incorrectly relied upon forensic difficulties as to the quantification of damages to conclude that claimants, who otherwise had “a real prospect of (some) success,” ought to be denied a trial; and
• The CAT was wrong in finding that the compensatory principle is an essential element in the distribution of aggregate damages. The 1998 Act radically alters the established common law compensatory principle by removing the requirement to assess individual loss in an aggregate damages case, and there is nothing to suggest that the approach ought to differ for the purposes of distribution. A central purpose of aggregate damages is to avoid the need for individual assessment of loss.

Contrary to the Court of Appeal, however, Lord Briggs did not find that cross-examination of Mr. Merricks’ experts at the certification stage was inappropriate, stating instead that such cross-examination had helped to improve and clarify the quantification methodology proposed. The Court of Appeal was also wrong in finding that consideration at the certification stage of proposals for the distribution of any damages award would inevitably be premature—while this would generally be true, there may be cases where suitability of the CPO would be better assessed by looking at the whole of the representative’s proposals in the round, including their method for distributing damages.

In light of these findings, the appeal was dismissed, and the CPO application was remitted back to the CAT.

In a separate joint opinion disagreeing with Lord Briggs’ reasoning in part, two members of the panel took the view that the CAT had correctly applied the test regarding the suitability of an aggregate award of damages, and was therefore entitled to find that the claim was not suitable to be brought via collective proceedings^[3]. In their Lordships’ opinions, at the certification stage the CAT needed to be satisfied that the expert methodology was capable of assessing the level of pass-on to the claimants, and that there was or was likely to be data available to operate that methodology. Where this was not the case, an aggregate award of damages would not be suitable, and if, as in this case, aggregate damages were the only relief said to be appropriate by the applicant, it follows that the claims would not be suitable to be brought in collective proceedings.

Conclusion

This was the first collective proceedings claim in the context of a follow-on damages claim to reach the Supreme Court and provides important clarification of the CPO certification process, with potentially wide-reaching implications. This judgment is therefore of potential interest not only to the millions of consumers who might stand to benefit if the CAT now grants Mr. Merricks a CPO (and he goes on to receive a substantial damages award), but also to actual or potential claimants, defendants and/or funders of other large collective proceedings currently before the CAT or which may now be brought following the claimant-friendly decision of the Supreme Court.

Although a flood of claims was originally anticipated after the introduction of collective proceedings, it ultimately did not materialize. It is believed that such hesitation from potential claimants arose in part from the uncertainties which have now been addressed by the Supreme Court.

The Supreme Court has now set the bar for certification of collective proceedings lower than where the CAT had considered it should be. This is therefore likely to send a positive signal as to the viability of such claims, and we may finally witness the anticipated increase in follow-on damages class action proceedings. The flip side of this may be the impact on potential leniency applicants’ incentives, who may be deterred from blowing the whistle in cartel cases due to the perceived increased risk from exposure in collective damages claims in the U.K.