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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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Collective Proceedings in the CAT: mobility scooters roll on for now

Last Friday the CAT handed down a judgment on the first ever-application for a collective proceedings order under the new regime introduced by the Consumer Rights Act 2015. The judgment will generally be welcomed by potential claimants, but it has a sting in the tail which may cause serious difficulties for class actions in other vertical infringement cases.

The new collective proceedings regime, contained in section 47B CA98 and CAT Rules 75-98, was one of a suite of claimant-friendly measures aimed at improving the remedies for individual victims of competition infringements whose losses were low (other measures included, for example, the new fast-track procedure). Consistently with the regime’s objective, the CAT, although stopping short of reaching a final decision, said much about the scheme which will encourage claimants.

The proposed collective action is a follow-on claim against Pride, formerly the UK’s largest supplier of mobility scooters. The OFT (the national competition regulator) had found that Pride infringed the Chapter I prohibition by object by entering into 8 vertical agreements with retailers forbidding them from advertising mobility scooters online at prices below RRP. Those 8 agreements were in fact the result of a market-wide policy that Pride had been operating and which it had communicated to all of its retailers.

The key issues before the CAT were (broadly) the authorisation of Dorothy Gibson as the class representative (under section 47B(5) and CAT Rule 78), and certification of the claims for inclusion in collective proceedings on the basis that they raised common issues. On both issues, the CAT’s approach to the claimants was benevolent.

The CAT first dismissed the defendant’s preliminary objection. Pride pointed out that both the OFT decision and the underlying infringement pre-dated the introduction of the collective proceedings regime. On that basis, it fired a salvo of arguments based on Article 1 Protocol 1 of the ECHR, the EU Charter, and EU principles of legal certainty/legitimate expectations, the thrust of which was that the CAT should interpret the regime so as to disallow its “retrospective” application. The CAT shot down all these arguments in a comprehensive discussion that should see the end of any similar threshold points about collective proceedings applications.

The CAT also had little difficulty in authorising Ms Gibson as the class representative. Although not a mobility scooter consumer, her status as an advocate of pensioners’ rights (she is the chair of a representative body, the National Pensioner Convention), who had experienced lawyers, satisfied the CAT that she would act fairly and adequately in the interests of the class (§139; see CAT Rule 78(2)(a)). Moreover, the CAT was not concerned about her ability to pay Pride’s costs (see CAT Rule 78(2)(d)). Even though Ms Gibson’s ATE insurance cover level was less than Pride’s anticipated costs, the CAT stated shortly that those costs might not be reasonable or proportionate, so it would not be appropriate to disallow collective proceedings at that stage (§145).

The CAT’s approach to certification and commonality was also – in principle – liberal. Although it said that it could not “simply take at face value” (§102) the applicant’s expert evidence, it nonetheless rejected Pride’s submission that it should take a hyper-rigorous US-style attitude. Rather, the CAT endorsed the Canadian approach, approving at §105 the following comment of Rothstein J in Pro-Sys Consultants Ltd v Microsoft Corp [2013] SCC 57:

“In my view, 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 (i.e. that passing on has occurred). The methodology cannot be purely theoretical or hypothetical, but must be grounded in the facts of the particular case is question.”

The stumbling block for the claimants, however, was the CAT’s reasoning on the proper counterfactual. The claimants posited a world in which not only the 8 infringing vertical agreements were absent but also where Pride had operated no policy of prohibiting below-RRP advertising at all. The CAT, however, endorsed a narrower counterfactual from which only the specifically unlawful agreements (i.e. the 8 vertical agreements about which the OFT had made findings) were assumed to be absent (§112). With this narrower counterfactual, the CAT held that it was not clear whether there was sufficient commonality in the issues of loss, or whether the likely damages would justify the costs of collective proceedings. However, the CAT (again perhaps generously) did not dismiss the application altogether but rather adjourned it to enable the claimants’ expert to formulate a case on common loss on the basis of the revised counterfactual.

Notwithstanding the generally claimant-friendly approach, the CAT’s reasoning on the counterfactual could render other collective cases premised on vertical restraints very difficult in practice. In a large number of vertical restraint decisions, the infringer has adopted a market-wide policy but the regulator focuses, for practical reasons, on a small number of ‘implementations’ of the policy as the basis for its infringement findings. If one only excludes from the counterfactual the particular instances of unlawful implementation, rather than the more general policy which underlay them, the issues between class members may diverge: some will have been direct victims of the anti-competitive agreements, while others will have suffered only from what would have to be characterised as an “umbrella effect”. In addition, if claimants cannot proceed on the basis that the entire policy should be excluded from the counterfactual, the likely quantum may fall to a level where collective proceedings are not worth the candle. It remains to be seen whether the mobility scooter claimants will overcome these difficulties.

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