COMPETITION LITIGATION UPDATE
The English Courts will continue this year to consider several issues that will shape the future of private damages actions for infringements of competition law.
The most prominent of these is the correct approach to certifying ‘collective proceedings’ (i.e. class actions) for follow-on damages claims in the Competition Appeal Tribunal (CAT). That is the current issue in the high profile Merricks v Mastercard litigation, which will come before the U.K. Supreme Court on 12 and 13 May. Certification involves the CAT deciding at a preliminary stage whether to allow claims to proceed as a collective proceeding. It requires, in particular, the Tribunal to be satisfied that a) the claims raise the same, similar or related issues of fact or law and b) are suitable to be brought in collective proceedings.
When collective proceedings in the CAT (including on an ‘opt-out’ basis) were introduced by the Consumer Rights Act (CRA) in 2015, it was thought this would lead to a flood of follow-on damages class actions. However, uncertainty around the test for certification and the fact it has to date received almost no judicial attention means no real flood has yet materialised. Therefore, the Supreme Court’s decision will be crucial in determining the future viability of collective proceedings and whether many more such cases will be seen, particularly in the context of follow-on damages claims affecting large numbers of consumers. This has caused something of a ‘logjam’ of other collective proceedings, which were commenced following the CRA reforms but have effectively been put on hold pending the expected guidance from the Supreme Court (see below).
Merricks therefore promises to be a very influential decision that will be closely watched by many—not just the millions of consumers who might stand to benefit if the case continues, but the other parties bringing and defending large collective proceedings in the CAT and those involved in funding them. Indeed, an official from the U.S. Department of Justice has recently opined that the case may have “important effects” on the ability of U.S. companies to compete globally and would be of interest to competition enforcers around the world. In comparing the U.K.’s developing collective action procedure with the well-established class action framework in the U.S., the official noted that U.S. courts sometimes rely on difficulties in determining and distributing individual damages as a reason to refuse certification.
To bring you up to date on the litigation:
- In December 2007, the European Commission (EC) decided (the “EC Decision”) that between 1992 and 2007, Mastercard’s setting of a “multilateral interchange fee” (MIF) had the effect of creating a minimum (and therefore inflated) price that merchants had to pay to their bank for accepting Mastercard credit and debit cards, which was to the detriment of merchants and subsequent purchasers. The EC determined that the MIF was a restriction of competition in breach of EU competition law.
- On the basis of the EC Decision, in September 2016, Mr Merricks issued an opt-out follow-on collective proceeding in the CAT against Mastercard, seeking aggregate damages of £14 billion. Mr Merricks claims to represent a class of approximately 46.2 million people, who were over the age of 16 and resident in the U.K. for a continuous period of at least 3 months between 22 May 1992 and 21 June 2008, and during that time purchased goods or services from businesses in the U.K. which accepted Mastercard (whether or not they used a Mastercard card to make their purchase(s)).
- In 2017, the CAT had to certify whether the claims Mr Merricks represented could continue as a collective proceeding, by deciding whether it was satisfied that the claims raised the same, similar or related issues of fact or law and were suitable to be brought in collective proceedings. It decided that the claims could not continue as a collective proceeding, on two bases. First, there was insufficient evidence to determine the extent to which the inflated MIFs charged to merchants were passed on to consumers in each case (the “pass-on issue”). Therefore, the amounts claimants were overcharged were not the same, similar or related issues of fact. Secondly, the claims, being claims for an aggregate (or “top-down”) award of damages, were not suitable to be brought in collective proceedings because there was no plausible way of calculating the distribution of any damages awarded to claimants—whose actual losses would have varied from person to person—in a way which ensured that claimants received damages that reflected their actual losses (the “distribution issue”). Mr Merricks’ proposal that claimants receive a “per capita” amount was impermissible. It would violate the compensatory principle in competition cases by not bearing any relationship to the amount necessary in each case to restore each claimant to the position they would have been in but for Mastercard’s breach.
- In April 2019, the Court of Appeal (CA) overturned the CAT’s decision. On the pass-on issue, the CA ruled that the CAT was not required at the certification stage to apply, as it had done, a “vigorous process of examination” to the claim. The representative only needs to show that he has a reasonable prospect of success. In this regard, the CAT had given insufficient weight to the accepted preliminary expert evidence that overcharges had been passed on to consumers and had ignored the fact that certification is an ongoing process, which can be varied or revoked at a later stage. As to the distribution issue, the CA found that nothing in the Competition Act 1998 or the CAT’s rules required that distribution of damages be on a compensatory basis. This was informed by the fact that individual claims (as with many cases of widespread consumer loss resulting from competition law infringements) would be uneconomic to bring on their own and that collective proceedings were introduced to facilitate a means of redress which could attract and be facilitated by litigation funding. Had Parliament considered it necessary to limit the scope of collective proceedings to those claims where damages could be assessed on a basis that would be permitted in an individual claim, then it would have said so. In any event, certification only required an assessment of the suitability of an aggregate award of damages; the issue of the distribution of any award was for the trial judge.
The Supreme Court will be asked to decide the correct legal test for certifying claims for inclusion in collective proceedings and the correct approach to the issue of distribution of an aggregate award at the certification stage. If it adopts the Court of Appeal’s approach, rather than the CAT’s, we are much more likely to see the much-anticipated flood of cases. Watch this space.
Other competition litigation that is garnering attention or will do so in the coming months:
- Mastercard Interchange Litigation: the long-running dispute between Mastercard and several major U.K. supermarkets, over the same MIF which is the subject of the Merricks litigation, has been one of the biggest cases in the U.K. courts in recent years. It finally reached the Supreme Court in January. The issues were whether the MIF was a restriction of competition and whether exemptions under EU competition law apply. Judgment is pending.
- The ‘Trucks Cartel’ Case: in another much-anticipated set of collective follow-on damages claims concerning an alleged truck-pricing cartel engaged in by five major truck manufacturers, the CAT decided in March that recitals to an EC settlement decision are binding as a matter of EU law and that it could be an abuse of process to contend otherwise. The CAT’s consideration of which recitals were binding, and the extent to which an abuse of process can arise—the first time both matters have been considered in detail by a U.K. court—will be instructive in other follow-on claims. A certification hearing is expected to be held in late 2020, pending a decision in Merricks.
- The ‘FX Cartel’ Case: in the two separate collective proceedings recently commenced against six major banks for damages in respect of alleged unlawful FX spot trading, the CAT ordered in March that disputes over who should represent the claimants and the test for certification of the claims for collective proceedings (as pending before the Supreme Court in the Merricks litigation) should be dealt with together at a hearing in March 2021. Yet another reason why the Supreme Court’s decision in Merricks will be important.
- The ‘Power Cables Cartel’ Case: at a 12 week trial in the CAT starting in November 2020, National Grid and Scottish Power will be seeking £225 million in damages from a number of major European, Japanese and Korean producers of high-voltage power cables, resulting from alleged overcharges for cable supplies between 1999 and 2009. The substantive issues to be heard at the trial will also be instructive for future follow-on claims, as will anticipated pre-trial decisions on disclosure. This case follows closely behind a similar case brought by BritNed against one of the cable producers in respect of the same conduct. In the Autumn of 2019, the Court of Appeal confirmed the High Court’s damages award (the first private award of damages in a U.K. follow-on case), being a small fraction of the amount claimed by BritNed. In doing so, it also confirmed the compensatory nature of cartel damages and rejected any punitive approach to their calculation.
We will be following closely Merricks v Mastercard and the other cases above. If you would like to know more about any of the issues these cases raise, please do not hesitate to get in touch with any of the contacts below.