On 21 July 2017 the Competition Appeal Tribunal (CAT) handed down its long-awaited judgment on the application to bring an opt-out collective action against MasterCard. The CAT refused to grant a Collective Proceedings Order (CPO) which would have allowed proposed class representative Walter Merricks CBE to pursue a competition claim on behalf of some 46.2 million UK consumers seeking around £14 billion in damages, concluding that the claim was not suitable to be brought as a collective action. The judgment also provides important clarifications as to the use of third party litigation funding in such actions and how funding agreements can be drafted in a manner compatible with the relevant statutory provisions.

The MasterCard judgment is the second certification decision relating to the nascent UK competition law class action regime, following the ruling in the Mobility Scooters case earlier this year (see our ebulletin here). Although in that case the CAT did not dismiss the application, instead allowing the class representative to reformulate her case on a narrower basis, the claim was ultimately abandoned in light of concerns that the costs of pursuing it would outweigh any damages.

The two cases highlight the rigour with which the CAT will review CPO applications and the practical difficulties which applicants will face when seeking to bring competition damages actions on an opt-out class basis (at least where the facts are as complex as those in MasterCard). The appetite of potential applicants (and of claimant lawyers and third party funders) to do so - and therefore the likelihood of the regime succeeding in its aims to enable consumers and small businesses to secure redress for competition law breaches - remains to be seen.

1. Background

Under the UK's collective redress regime for competition law claims, representatives seeking to bring a class action on behalf of consumers and/or businesses must apply to the CAT for a CPO certifying the claim before it can proceed. The CAT must consider (among other things) whether:

  • The claims raise the "same, similar or related" issues of fact or law (common issues), and are "suitable" to be brought in collective proceedings (including in light of the costs and the benefits of doing so, and the suitability of awarding damages on an aggregate basis).
  • It is "just and reasonable" for the putative representative to act on behalf of the class (including whether he/she can fairly and adequately act in the interests of the class members, has any conflict of interest with the class members, and can pay the defendant's costs if ordered to do so).
  • The action should be brought on an opt-in or an opt-out basis (including taking account of the strength of the claims and whether it is practicable for the proceedings to be brought on an opt-in basis).

Despite the intense interest in the new procedural mechanism (and fears about a flood of opt-out claims, in particular in cartel cases), only two CPO applications have been made since its 2015 introduction – those in Mobility Scooters and in MasterCard.

2. The Merricks v MasterCard proceedings

The CPO application was made in September 2016 by Walter Hugh Merricks CBE. In its judgment, the CAT noted that Mr Merricks, a qualified solicitor, had a long and distinguished career in fields concerned with consumer protection. In light of his background, expertise and qualifications, the CAT considered he was "eminently suited" to act as the class representative in the collective proceedings (subject to determination of a number of challenges made by MasterCard to the terms of the funding arrangements he had entered into, discussed below).

Mr Merricks' claim was framed as a follow-on damages claim arising out of the decision of the European Commission in MasterCard of 19 December 2007. In that decision, the Commission found that the setting by MasterCard of multilateral interchange fees for cross-border transactions in the EEA (EEA MIFs) for MasterCard's credit and debit cards (the fee charged by the bank which issued the card to the consumer (the issuing bank), and paid by the merchant's bank (the acquiring bank) for processing a payment card transaction) infringed the Article 101 TFEU prohibition on anti-competitive agreements. Mr Merricks contended that the level of MasterCard's MIFs for domestic transactions (UK MIFs) were influenced by the EEA MIFs, and that therefore loss was caused by the infringement established in the Commission's decision. It is noteworthy that, in addition to the purported consumer class action, multiple individual claims have been brought by businesses against MasterCard in relation to UK MIFs, one of which has been successful (see our ebulletin here), one of which has failed, and the remainder of which are still on-going (pending resolution of the appeals in the two decided cases).

Mr Merricks' claim was funded through a third party funding agreement (Funding Agreement) entered into with a company owned by Gerchen Keller Capital LLC (now owned by Burford Capital), a litigation funder.

The proposed class for which certification was sought was ambitious and was defined as all "[i]ndividuals who between 22 May 1992 and 21 June 2008 purchased goods and/or services from businesses selling in the UK that accepted MasterCard cards, at a time at which those individuals were both (1) resident in the UK for a continuous period of at least three months, and (2) aged 16 years or over", estimated as some 46.2 million people.

MasterCard contended that the claims were not suitable to be brought as collective proceedings because:

  • An award of aggregate damages in this case would be "inimical to the compensatory nature of damages and impossible to assess on any reliable basis"; and
  • The proposed distribution mechanism to individual class members would also be inimical to the compensatory nature of damages because the amounts received by individuals would bear no reasonable relationship to their actual loss.

The CPO hearing took place over three days in January 2017, and included the examination of Mr Merricks' economic experts by the CAT and on behalf of MasterCard.

3. The CAT's judgment

The CAT first reiterated its position as set out in Mobility Scooters that the CPO hearing and decision was not a "mini-trial". It made clear, however, that the applicant has to do more than simply show that he has an arguable case. The CAT noted that opt-out collective proceedings can be very burdensome and expensive for defendants, and that the eligibility conditions require it to scrutinise a CPO application with care, to ensure that only appropriate cases go forward.

The CAT again drew assistance from the position in Canada (rather than the US), and in relation to common issues, quantification, and expert evidence cited the Canadian position that "…the expert methodology must be sufficiently credible or plausible to establish some basis in fact for the commonality requirement [and] offer a realistic prospect of establishing loss on a class-wide basis". It went on to assess this on the facts.

1. Quantification of damages

The CAT analysed the applicant's proposed approach to determining the loss suffered by the identified class. In simplified terms, this loss was alleged to have arisen due to MasterCard having overcharged acquiring banks, and thus merchants, by setting UK MIFs higher than those which would have been charged absent the infringement, and merchants having passed on this overcharge to customers (whether paying by card or cash) in the form of higher prices for goods and services across the board.

The proposed quantification of these damages by Mr Merricks' economic experts was very complex and involved many variables.

One of the most contentious elements of the proposed damages calculation was the extent to which, if at all, merchants passed through increases in interchange fees in the form of higher prices for goods or services, and how this could sensibly be estimated given the sheer number of different merchants accepting MasterCard cards across different sectors of the UK economy.

Another vexed question was, assuming any aggregate loss could be quantified, how that loss could be allocated between class members (who would all have a different purchasing profile, which would also vary throughout the duration of the infringement, and some of whom would have received benefits as a result of the MIFs – e.g. MasterCard credit card users receiving interest rate benefits, cashback payments and other perks).

2. Common issues

To determine whether the proposed claim raised "common issues", the CAT considered what a class member would have to establish if bringing an individual claim, namely:

(1) That the EEA MIF had an effect on the level of the UK MIF;

(2) The amount by which the UK MIF was higher than absent the infringement (i.e. the overcharge);

(3) The level of pass-through of any overcharge by acquiring banks to merchants;

(4) For each merchant from which the claimant purchased goods and services, the degree to which that merchant passed through those overcharges and the percentage impact on its prices;

(5) The amount the claimant spent at each of those merchants; and

(6) If the claimant held a MasterCard credit card, what if any interest payments were made and what if any benefits were received under that particular card.

Issue (1) was considered by the CAT to be the only issue truly common to all the class members. Issue (2) could be broadly estimated and issue (3) was assumed by the parties to be likely 100%

However, issue (4) (pass-through) and (5) (amount spent) were according to the CAT clearly very different across the proposed class. With regard to issue (4) pass-through, the CAT noted that there would be significant variations not only as between different kinds of goods and services but also between different kinds of retail outlets. On issue (5), the individual amounts spent by class members were "manifestly not a common issue". Therefore, the CAT rejected the assertion by Mr Merricks that the individual claims were largely identical (and as a result the CAT found it unnecessary to address issue (6)). The CAT made it clear that this in itself did not mean that this case is unsuitable for a CPO, there being no requirement that all the significant issues in the claims should be common issues (or that these predominate); the key question was whether in this context the claims were nonetheless suitable to be brought in collective proceedings.

3. Suitability for collective proceedings

The CAT noted that Mr Merricks sought to address the problem of pass-through by submitting that the CAT could arrive at an aggregate award of damages which could be distributed to class members. Mr Merricks contended that it was not necessary for the purposes of the CPO application for the CAT to engage in detailed scrutiny of the distribution of damages, which could be undertaken following the aggregate award of damages.

The CAT noted that the suggested approach to aggregating damages was (at least in principle) methodologically sound. The CAT was also clear that an applicant would not have to carry out such an analysis in full for the purposes of the CPO application, but that a proper effort would involve determining what data was reasonably available. In this regard, the CAT was not persuaded that there was sufficient data available in this case for the applicant's proposed methodology in relation to merchant pass-through (a very complex exercise) to be applied on a sufficiently sound basis.

The CAT was also sceptical that, even if aggregate loss could be adequately calculated, there would be a reasonable and practicable means of estimating individual loss to be used as the basis for distribution (necessary given the top-down approach to damages calculation). It concluded that what was proposed (annual per capita division) did not allow for the calculation of compensatory damages. For example, even if numerous class members sought to opt-out there would be no change to the applicant's overall calculation of damages (class members would simply receive more or less as the case may be). The CAT considered that it would be impossible to see how payments to individuals could be determined on any reasonable basis, taking account of differences in their levels of expenditure, the merchants they purchased from, and the mix of products which they purchased.

On this basis, the CAT found that the claims were not suitable to be brought in collective proceedings and rejected the application.

Finally, the CAT did not accept that, simply because it would be impractical for claimants to seek redress individually, an application to bring collective proceedings must be granted. The CAT considered that such impracticality was effectively the case in most cases of widespread consumer loss resulting from competition law infringements. The CAT stated that each application has to be considered on its own terms, having regard to the statutory requirements.

4. The Funding Agreement

Despite this finding the CAT nevertheless also dealt with the parties' submissions on whether Mr Merricks was a suitable class representative as this had been fully argued. Given Mr Merricks' experience and skills, MasterCard's objections in this respect centred on the Funding Agreement and were as follows:

  • The Funding Agreement would not definitely enable Mr Merricks to fund the litigation or pay MasterCard's recoverable costs (if so ordered), since it could be terminated by the funder.
  • Even if it could not be terminated, the limit on funding liability for MasterCard's costs (£10 million) was inadequate (and therefore Mr Merricks did not meet the statutory requirement that he "will be able to pay the defendant's recoverable costs if ordered to do so").
  • The terms of the Funding Agreement gave rise to a conflict of interest on the part of Mr Merricks.


On the termination issue, the challenge centred on the statutory provisions of the regime which deal with unclaimed damages in the opt-out 'pot'. The default position is that these are paid to a specified charity (except on settlement), but the legislation provides that the CAT may order that all or any part of this amount is instead paid to the representative in respect of all or part of the "costs or expenses" it incurred in connection with the proceedings. The Funding Agreement essentially calculated the funder's return by reference to such an amount and obliged the applicant to seek such an order (which is the only method by which a funder could realistically recover a return in an opt-out case). MasterCard argued that such a payment did not fall within the relevant statutory provision for various reasons, and therefore that the funder would inevitably terminate the agreement.

The CAT rejected these arguments, finding that a funder's fee would amount to a recoverable cost or expense for the purpose of the legislation, and that, provided the drafting of the Funding Agreement (which was criticised by the CAT) was amended in the manner proposed by Mr Merricks following the hearing, could be said to have been incurred by him in connection with the proceedings. Following this the Funding Agreement would not be rendered ineffective and the termination risk did not arise.

Adverse costs provision

As to the alleged inadequacy of the £10 million set aside for an adverse cost order on the applicant, the CAT noted that MasterCard had not put forward any estimate for its own costs or even a cost budget (and that although the applicant's cost budget at over £19.5m far exceeded this amount, MasterCard was in a different position given the work it had already carried out for the separate individual cases). As a result, there was no basis on which the CAT could find that £10 million would be inadequate. In addition, the CAT stated that it would be open to MasterCard to apply to have the CPO varied or revoked at a later stage if it could demonstrate that the £10 million was inadequate.


Finally, the CAT did not agree with MasterCard's assertion that the Funding Agreement gave rise to a conflict of interest (which related to the payment of the funder's fee out of unclaimed damages, which arguably could conflict with the best interests of the class in relation to claiming funds, and cause complexities on settlement). The CAT noted that the Funding Agreement contained a clear acknowledgment that Mr Merricks had to act independently and in the best interest of the class (although this could have gone further), and highlighted Mr Merricks evidence in this regard, as well as the CAT's own powers to control damages awards and settlement.

The CAT therefore would have authorised Mr Merricks to be a suitable representative, had it certified the claims (on condition that the Funding Agreement was amended as discussed above).

4. Consequences for the collective redress regime

Although the CPO was ultimately not granted by the CAT, there are a number of important clarifications and guidance in the CAT's judgment, which may assist future applicants with properly framing their case in a way which is acceptable to the CAT.

The CAT continues to be vigorous in its interrogation of class actions. It is clear that the CAT expects applicants to have properly thought through the likely issues for calculating and distributing damages, and come to the court with a reasonable proposal to address those issues (even if a full resolution is not required at the certification stage). In addition, even where aggregate damages are to be awarded and distributed on an approximate basis, the CAT still expects an applicant's methodology to estimate actual compensation for loss suffered (including valuing any opt-out claims). These challenges may be easier in claims less ambitious than that against MasterCard, which was notable in its breadth, size and complexity.

The judgment also highlights the huge burden and costs required to bring and defend competition class action proceedings. Indeed, the applicants' costs budget for this case was stated to be over £19.5 million. It remains to be seen whether the parties will reach agreement on costs to certification, and therefore whether any information as to the costs incurred by the defendant to that stage will become public (in Mobility Scooters the applicant paid the defendant costs of just over £300,000, but this was a very much smaller claim). In any event, in light of the likely costs involved third party funders' appetite for financing such claims will be crucial. The appetite of funders for competition claims generally seems to show no signs of abating (at least in the short-term).

It is worth noting that certification decisions are not appealable, and any challenge by Mr Merricks to the CAT's judgment would have to be made by way of judicial review. In practice, a successful challenge could be difficult due to the usual high threshold which applies in such cases.

If and when further CPO applications are made to the CAT these will be watched very carefully, as their resolution is likely to be crucial to the success (or otherwise) of the regime.