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Collective Actions in the Supreme Court

The big news from today’s UK Supreme Court collective action decision in Mastercard v Merricks [2020] UKSC 51 is not only that Mr Merricks won and defeated the appeal, but that the Supreme Court approached the issues in a far more claimant-friendly way than even the Court of Appeal had done. 

The headlines are that, when a person applies for a collective proceedings order:

  • The statutory question for the Tribunal is not whether the claims are “suitable” to be brought as collective proceedings in some general sense; it is whether they are more suitable to be brought as collective proceedings than as individual claims.  This marks a major shift, and it caused the dissenting judges to warn that the new approach will, very significantly diminish the role and utility of the certification safeguard”.
  • The applicant does not need to meet any particular merits or evidential threshold, other than the ordinary tests applicable if the respondent applies for strike out or summary judgment.
  • If the applicant is seeking an aggregate award of damages, he/she does not need to show that it will be possible to distribute the damages to class members in a way which reflects or even approximates each individual’s actual loss.

Most readers will know the background.  Mr Merricks wants to bring opt-out collective proceedings (i.e. a class action) against MasterCard in respect of the loss allegedly suffered by some 46.2 million UK consumers, which he estimates will come to several billion pounds.  The Competition Appeal Tribunal refused to certify the claim.  The Court of Appeal held that the CAT had erred in law.  For more background see our earlier blogs here and here

The Supreme Court agreed with the Court of Appeal.  It is an unusual – perhaps unique – decision in that two judges (Lord Briggs and Lord Thomas) delivered judgment in favour of Mr Merricks, and two (Lord Sales and Lord Leggatt) delivered a strongly-expressed dissent.  The reason why Mr Merricks won is that Lord Kerr was the fifth judge on the panel which heard the appeal, and he had expressed his agreement with Lords Briggs and Thomas before his untimely death on 1 December.

The decision will undoubtedly be a much-needed shot in the arm for the collective action regime, which has been a major disappointment since its introduction in 2015 (still not a single case has been certified).  However, there will also be a lot of scope for debate in future cases.  Having been in both the Merricks case (for the intervener, Which?) and also in the other collective action case, Pride (see here), this is my initial take on today’s judgment.

Statutory framework

It is helpful to recap a couple of elements of the statutory framework.  Collective proceedings are governed by section 47B of the Competition Act 1998.  A person who wants to act as a representative in collective proceedings needs to apply for certification.  There are a few hurdles to overcome, but the one which the Merricks case is concerned with, and which is likely to be the main hurdle in most of these claims, is at s.47B(6):

“Claims are eligible for inclusion in collective proceedings only if the Tribunal considers that they raise the same, similar or related issues of fact or law and are suitable to be brought in collective proceedings.”

So, for present purposes, to be certified (i) the claims must raise common issues (i.e. “the same, similar or related issues of fact or law”), and (ii) the claims must be suitable to be brought in collective proceedings.  The main focus of the Merricks judgment is on the suitability requirement, although it also touches on the common issues requirement.

In relation to the suitability requirement, the Tribunal Rules contain a list of potentially relevant considerations.  Rule 79(2) states:

“In determining whether the claims are suitable to be brought in collective proceedings […] the Tribunal shall take into account all matters it thinks fit, including –

(a)        whether collective proceedings are an appropriate means for the fair and efficient resolution of the common issues;

(b)        the costs and the benefits of continuing the collective proceedings;

(c)        whether any separate proceedings making claims of the same or a similar nature have already been commenced by members of the class;

(d)       the size and the nature of the class;

(e)        whether it is possible to determine in respect of any person whether that person is or is not a member of the class;

(f)        whether the claims are suitable for an aggregate award of damages; and

(g)        the availability of alternative dispute resolution and any other means of resolving the dispute, including the availability of redress through voluntary schemes whether approved by the CMA under section 49C of the 1998 Act or otherwise.”

Item (f) in the above list refers to whether the claims would be suitable for an “aggregate award of damages”.  That is a reference to another important feature of the statutory framework: under s.47C of the Act, if collective proceedings are successful then instead of requiring the defendant to pay each class member their individual loss, it could be required to make one overall payment to the representative reflecting the overall (or aggregate) loss of the class.  That lump sum would then be distributed between class members by the class representative.

The essential reasoning in Merricks

The Tribunal rejected Mr Merricks’ application for certification for two broad reasons.

Distribution to class members

One of the Tribunal’s reasons was that, even if one could calculate the aggregate damage suffered by the proposed class as a whole, it would be impossible to calculate the loss suffered by each individual class member, even on an approximate basis.  The problem with that, according to the Tribunal, was that the aggregate award could not be distributed among class members in accordance with ordinary compensatory principles.  Mr Merricks’s own proposed method of distribution is very blunt: he intends to divide the overall sum between class members, distinguishing between them only on the basis of how many years they were in the class for.  That essentially means that the older you are the more money you will get, regardless of your spending habits, so the proposed method of distribution cannot be described as compensatory.

The Supreme Court held that the Tribunal’s approach to this issue contained an error of law.  As Lord Briggs said at [58], the ordinary compensatory principle is “expressly, and radically, modified” by the collective action regime.  In particular:

“Where aggregate damages are to be awarded, section 47C of the Act removes the ordinary requirement for the separate assessment of each claimant’s loss in the plainest terms. Nothing in the provisions of the Act or the Rules in relation to the distribution of a collective award among the class puts it back again. The only requirement, implied because distribution is judicially supervised, is that it should be just, in the sense of being fair and reasonable.”

Lord Briggs acknowledged at [77] that, in some cases, even if there is an aggregate damages award then it might be appropriate to distribute the award in such a way as to make some approximation towards individual loss.  But that will depend on what is fair and reasonable in the circumstances, and compensatory distribution is not a requirement of the scheme.

Evidence to prove loss

The other reason relied on by the Tribunal to refuse certification was that the claims were not suitable for an aggregate award of damages, and also not suitable to be brought in collective proceedings, because the Tribunal was not satisfied that there was sufficient data available for Mr Merricks’s economic experts, using the approach they had identified, to establish the overall damages on a sufficiently sound basis.

In reaching that conclusion, the Tribunal had applied a test which all of the parties agreed should be applied, drawn from Canadian class action jurisprudence.  The key part of the Canadian approach was that:

“[…] the expert methodology must be sufficiently credible or plausible to establish some basis in fact for the commonality requirement. This means that the methodology must offer a realistic prospect of establishing loss on a class-wide basis so that, if the overcharge is eventually established at the trial of the common issues, there is a means by which to demonstrate that it is common to the class (ie that passing on has occurred). The methodology cannot be purely theoretical or hypothetical but must be grounded in the facts of the particular case in question. There must be some evidence of the availability of the data to which the methodology is to be applied.”

It worth pausing here to comment on the archaeology of this particular test.  In the Pride case (the first certification claim before the Tribunal) the defendant sought to persuade the Tribunal to follow US case-law, which establishes a high threshold for class action certification.  The Tribunal rejected that invitation, noting that the UK framework is closer to the Canadian regime, which has a much lower threshold.  The Tribunal then endorsed the statement, set out above, from the Canadian caselaw.  The Tribunal was, therefore, always intending to adopt a low threshold.

However, there was always something unsatisfactory about treating the Canadian approach as a sort of legal test in this country.  For one thing, as Lord Briggs explains, it is used for slightly different purposes in the Canadian framework: if you read the test carefully you will notice that it is directed at whether loss is common to the class, which is not really what the “suitability” issue in the UK framework is about.  And for another thing, the “test” for certification in this country is set out in the 1998 Act and in the Tribunal Rules, which do not refer to this particular legal threshold, or indeed to anything similar.

Nonetheless, the parties in Merricks agreed on the applicability of the Canadian test, and the argument was over whether it had been met.  The Tribunal found that it had not.  The Court of Appeal decided that the Tribunal had erred in that decision. 

The Supreme Court discarded the Canadian test.  Lord Briggs’s starting point is that collective proceedings are designed to provide access to justice where the ordinary forms of individual civil claim have proved inadequate, and that “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” [45].  Lord Briggs points out that, in an ordinary claim, provided that the pleadings can pass any strike-out or summary judgment application, the matter is permitted to go to trial.  As the point is put at [47]:

“Where in ordinary civil proceedings a claimant establishes an entitlement to trial in that sense, the court does not then deprive the claimant of a trial merely because of forensic difficulties in quantifying damages, once there is a sufficient basis to demonstrate a triable issue whether some more than nominal loss has been suffered. Once that hurdle is passed, the claimant is entitled to have the court quantify their loss, almost ex debito justitiae.”

Lord Briggs then introduces a lengthy discussion about how courts often have to do the best they can with the evidence before them, however inadequate it may be.  None of this is new, but it will be happy reading to claimants in any competition case.  The court may have to “do the best it can upon the basis of exiguous evidence” [47], “resort to informed guesswork” [48], use the “broad axe” [51], and “do the best it can on the available evidence” [54].  The upshot of all of this is that, at [54]:

“There is nothing in the statutory scheme for collective proceedings which suggests […] [that] a case which has not failed the strike out or summary judgment tests should nonetheless not go to trial because of difficulties in the quantification of damages.”

In other words, and avoiding Lord Briggs’s triple negative, the only merits or evidential thresholds which must be met at the outset of a claim are the strike out and summary judgment tests.  And even that overstates the position somewhat, because the Supreme Court also makes clear that the strike out and summary judgment tests are not an integral part of the certification process itself, and they would only arise if the defendant had actually sought strike out or summary judgment (see [59]).

The meaning of “suitability”

There is also an important wider point that comes out of Lord Briggs’s judgment.

If you take the view, as Lord Briggs does, that claims for collective proceedings should not face any hurdles that would not be faced in ordinary civil claims, then it is not immediately clear what the Tribunal is meant to be doing when it asks whether the claims are “suitable” for collective proceedings.  If I issued a new claim this afternoon I would not have to show that it was “suitable” to go to trial, so on what basis is the Tribunal meant to decide whether claims are “suitable” for collective proceedings?

The answer is that “suitable” in s.47B(6) of the Act means “suitable to be brought in collective proceedings rather than individual proceedings”.  As Lord Briggs explains at [56]:

“This is because collective proceedings have been made available as an alternative to individual claims, where their procedure may be supposed to deal adequately with, or replace, aspects of the individual claim procedure which have been shown to make it unsuitable for the obtaining of redress at the individual consumer level for unlawful anti-competitive behaviour.”

Similarly, where the word “suitable” is used in Rule 79(2)(f) (the Tribunal must consider “whether the claims are suitable for an aggregate award of damages”) it means “suitable for an award of aggregate rather than individual damages”.  At [57] Lord Briggs suggests that the main issue in this regard will be one of proportionality, by which I think he means whether the benefit of securing individualized compensation is worth the costs that such an exercise would involve.

This approach to suitability, which is an important aspect of Lord Briggs’s analysis, is also the heart of the reason for Lords Sales and Leggatt’s dissent.  Lord Sales summarises their view at [118]:

“it does not follow that, because collective proceedings are an alternative to conventional proceedings brought by or on behalf of individuals, they are intended to be available in any case where they would be less unsatisfactory than such individual proceedings. As we have noted, collective proceedings confer substantial legal advantages on claimants and burdens on defendants which are capable of being exploited opportunistically. In the absence of wording which says so, we cannot accept that demonstrating that the members of the proposed class would face greater difficulties pursuing their claims individually must be regarded as sufficient to justify allowing their claims to be brought as a collective proceeding, with the advantages that this confers. Such an approach would very significantly diminish the role and utility of the certification safeguard.”

The wider consequences

The benefits of the Merricks judgment will not be limited to large-scale consumer claims.  In a wide range of cases the applicant will be able to say that it would be better for the claims to be brought as collective proceedings, and perhaps also for there to be an aggregate award, than for individual claimants to be left to bring their own claims.

In future cases, the Tribunal is likely to look at three main factors to decide whether the claims are suitable for certification (at least on an opt-out basis).  First and most obviously, the lower the damage suffered by any individual class member, the more suitable the claims will be for collective proceedings.

Secondly, there is the question of how ‘individualised’ the damage is.  As Merricks demonstrates, having highly individualised loss is not a bar to certification.  It is, however, a factor that will be placed in the balance.  This could be a particular issue if, for example, the proposed claimant class is made up of companies which have themselves passed on the overcharge in different amounts to their own customers.  There is no reason in principle why a class of that nature could not receive compensation through an opt-out collection action, but it will be somewhat more difficult to persuade the Tribunal that it is the suitable procedure.

Thirdly, where a claim involves issues which are not common to the class, that may also be a factor leaning against certification.  In particular, it may be inefficient for the claims to be tried collectively simply for the purpose of resolving the limited common issues.

There are several grey areas.  One is the extent to which, when the Tribunal asks whether it would be better for the claims to be brought as collective proceedings versus individually, it can take account of the possibility of other means of challenge.  Lord Briggs’s focus is on the kind of small value consumer claim typified by Merricks, where one can say with confidence that no individual will want to run up enormous costs to vindicate their claim.  At the other end of the spectrum there will be high value individual claims which could be brought by large companies with deep pockets.  But in between those two extremes, a reasonable number of competition damages claims are brought by companies acting together to vindicate their rights whilst minimising their exposure to costs.  It is open to argument whether, on Lord Briggs’s approach, the Tribunal could decide that although a proposed class of claimants might not each individually bring their own claim, it would be preferable for them to get together into groups to bring claims; or perhaps for one claim to proceed as a test claimant; or perhaps for collective proceedings to be brought on an opt-in rather than an opt-out basis. 

Another uncertainty is whether the Tribunal could take into account the degree of estimation that the proposed collective proceedings would require.  This is something of a knotty point.  The Supreme Court has emphasised that the court’s role is to assess damages in a broad-brush way, and it therefore sets a strong tone against refusing certification simply on the grounds that the collective proceedings will require damages to be estimated.  However, it is worth noting that one factual feature of the Merricks case was that the applicants’ expert said that the process of working out aggregate damages in that case would be the same as the process which would be required if any individual had brought a case.  That will not be the case in every proposed collective action.  Take, for example, a case where the proposed claimant class is made up of companies which have passed on the overcharge in different amounts to their own customers.  If one of those claimants were to bring its own claim then the Tribunal would be able to assess the degree of pass-on by that company using the company’s own data.  In contrast, if collective proceedings were brought for the whole class of claimants then the process of estimating damages would be likely to be far more broad-brush.  It is open argument whether the defendant could say, in such a case, that it is unfair for damages to be determined on such a broad-brush basis when they could be determined in a more tailored way, if class members were to bring their own claims.

The Pride case gives another interesting example of the grey areas.  What happened in that case, in summary, was that certification was refused because the Tribunal decided that the binding findings in the infringement decision did not support the full breadth of the theory of harm that was being advanced.  The Tribunal essentially invited the applicant to return with a smaller class, but instead the applicant withdrew the application.  It is interesting to ask whether, if the Tribunal had applied the approach now endorsed in Merricks, it would have rejected the application.  The Tribunal’s analysis involved delving into the economic evidence, and testing the strength of the legal case, which is probably not something that would happen post-Merricks.  But on the other hand, it seems likely that the respondent could have achieved the same result by making a strike out or summary judgment application to be heard at the same time as the application for certification.  Similar issues, raising questions of mixed fact and law, are likely to arise in other collective action cases, and it therefore seems likely that strike out or summary judgment applications will be an additional feature of future certification hearings.

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Collective (in)action? The CAT’s recent judgments on collective proceedings orders

At first glance, two recent judgments from the CAT may give the impression that the new UK class action regime is dead in the water. However, on closer inspection there is much in these judgments that prospective claimants will welcome.

The first decision was in the Pride mobility scooters case (see Tom Coates’ blog here). The CAT made clear that it might have been prepared to grant a collective proceedings order (“CPO”), but on a basis so narrow that the claimants chose not to proceed. In the second decision, Merricks v Mastercard Inc & Ors [2017] CAT 16, the CAT rejected the CPO application, bringing an end to what would have been an extraordinarily ambitious claim—on behalf of 46.2 million people, seeking aggregate damages of approximately £14 billion, for Mastercard’s unlawful setting of fallback multilateral interchange fees in breach of Article 101 TFEU.

Under the new provisions in s.47B of the Competition Act 1998, a CPO application must satisfy the CAT of two criteria. They are, in brief, that (i) the person bringing the proceedings is an appropriate representative of the class of claimants, and (ii) the claims are eligible for inclusion in collective proceedings.

In Merricks, as in Pride, the applicants succeeded on the first criterion but failed on the second. The CAT adopted a relatively liberal approach to certifying the class representative in both cases: a former ombudsman and consumer protection advocate in Merricks (§§93-94), and an advocate for pensioners’ rights in Pride (§§125-139).

The CAT was also satisfied with the litigation funding arrangements in both cases (Pride, §§140-145; Merricks, §§95-140); although it strongly criticised the “impenetrable” drafting of the American-style funding agreement in Merricks, and was only prepared to approve it in light of amendments proposed at the hearing: §§121-127. Prospective claimants will welcome the fact that, in neither Pride nor in Merricks was the CAT unduly concerned by the prospect of a shortfall between the applicants’ costs cover and respondents’ likely costs.

Where both claims failed, however, was on the eligibility criterion. This second criterion is further broken down in rule 80 of the CAT Rules 2015, which provides that claims will be eligible for inclusion in collective proceedings where they (a) are brought on behalf of an identifiable class of persons; (b) raise common issues; and (c) are suitable to be brought in collective proceedings.

In both cases, the CAT was prepared to accept that the claims were brought on behalf of an identifiable class of persons. In Pride that conclusion was uncontroversial, given that the class was defined as “any person who purchased a new Pride mobility scooter other than in the course of a business in the UK between 1 February 2010 and 29 February 2012” (§§5, 85). In Merricks, however, the CAT’s apparent acceptance of the class was no small matter. The class included all individuals who were over 16 years old at the time of the transaction, resident in the UK, and who purchased goods or services from UK businesses which accepted MasterCard cards, at any time over a 16 year period (§1). This included more than 46 million potential claimants; and yet, the CAT was untroubled by the “identifiable class” criterion.

As to the requirement that the claims raise common issues, in both cases the CAT emphasised that the appropriate approach was that followed in Canada, rather than the much stricter approach in the United States (Merricks, §58; Pride, §105). Although only three of the six issues in Merricks could properly be regarded as common, the CAT considered that to be sufficient.

In Pride, the applicant faced the difficulty of proving causation in circumstances where the regulator had focused on a small sample of infringing agreements (“the low-hanging evidential fruit”: §109), and the claimants were time-barred from pursuing anything other than a follow-on claim for the infringement (§110). The CAT’s decision on this issue may well create difficulties for other follow-on vertical infringement claims, but that category of claims is likely to be quite narrow.

In Merricks, the CAT was concerned about the methodology by which the applicant proposed to assess individual losses. The methodology needed to distinguish between three sets of issues: “individuals’ levels of expenditure; the merchants from whom they purchased; and the mix of products which they purchased” (§88). Regrettably, there had been “no attempt to approximate for any of those in the way damages would be paid out” (§88). The CAT observed that the experts’ oral evidence in response to questions from the Tribunal was “considerably more sophisticated and nuanced than that set out, rather briefly, in their Experts’ Report” (§76), but it still could not be satisfied that the damages sought would broadly reflect “the governing principle of damages for breach of competition law”, that is, “restoration of the claimants to the position they would have been in but for the breach” (§88). The judgment sounds a valuable warning to future claimants of the necessity for a detailed and precise methodology for calculating both individual and aggregate losses.

The CAT showed little sympathy for the applicant’s argument that refusing the CPO would result in a vast number of individuals who suffered loss going uncompensated, since there was no realistic prospect of claimants pursuing Mastercard individually. The CAT observed shortly that this was “effectively the position in most cases of widespread consumer loss resulting from competition law infringements” (§91).

The judgments in Pride and Merricks provide important guidance on the CAT’s likely approach to CPOs in future. In spite of the outcomes in both cases, the CAT’s ready acceptance of the proposed class representatives, its flexibility in regard to litigation funding, and its affirmation of the Canadian approach to collective action, are all likely to give heart to prospective claimants. Further, the judgment in Merricks leaves the door open to mass claims in the future, while signalling the heightened importance which expert evidence on calculating losses is likely to assume in such cases.

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