The parameters of the UK’s new collective actions regime continue to take shape with the dismissal of the proposed collective action brought by Walter Merricks CBE against Mastercard. The judgment of the UK’s specialist Competition Appeal Tribunal (the CAT) is an important development for the UK’s collective actions regime. It clarifies the criteria that have to be satisfied for a collective action to be certified, explains some of the evidential requirements, and gives guidance on the terms of funding arrangements used to support such actions.
This judgment is likely to be of particular interest to those who have a potential exposure to claims arising from competition law infringements, including companies that have already been found to have infringed either EU or national competition laws; as well as those who represent, or are among, the victims of antitrust infringements.
The UK collective actions regime is limited to claims based on competition law infringements. It is thought, however, that the model may be adopted in due course in other areas where mass tort liability might arise, such as product and environmental liability and mis-selling of financial services products.
To date, two collective action proceedings have been brought under the UK collective actions regime, which was introduced in October 2015 by the Consumer Rights Act. Both claims were brought on a so-called “opt-out” basis, meaning that the claims were brought on behalf of all UK individuals falling within the defined class of claimants, save insofar as such individuals took positive steps to opt out of the proceedings.
The first application was brought on behalf of a putative class of around 27,000 – 32,000 end customers who bought mobility scooters at allegedly higher prices as a result of Pride Mobility’s policy restricting online discounting. The claim for aggregate damages was of a relatively modest scale – between £2.7 million and £3.2 million plus interest.
The second application, in Merricks, was at the opposite end of the scale. The proposed class representative, Walter Merricks CBE, brought proceedings on behalf of 46.2 million consumers for losses alleged to have arisen in relation to Mastercard’s setting of multilateral interchange fees (MIFs). The period of the claim was over 16 years from 22 May 1992 to 21 June 2008. The damages sought were in excess of £14 billion - reported to be the largest damages claim of any sort ever brought in the UK. The proposed action was brought on behalf of individuals who, within the claim period, purchased goods or services from businesses selling in the UK that accepted Mastercard, even if the card was not used in the purchase. The proposed class covered those who bought from these businesses either through a physical presence in the UK, or via other sales channels delivering goods or services into the UK during the claim period. To fall within the class, at the time of the purchase, individuals had to be: (i) resident in the UK for a continuous period of at least three months; and (ii) aged 16 years or over.
The CAT acts as a gatekeeper of the collective actions regime. It has to certify a claim as eligible before it can proceed, following an application by the proposed class representative for a Collective Proceedings Order (CPO). The certification process is intended to enable the CAT to weed out, at an early stage, those claims not suitable to be brought as collective actions. Similar class certification mechanisms exist in class action regimes in some other jurisdictions, such as those in the United States and Canada. In Mobility Scooters, the CPO application was adjourned by the CAT following the CPO certification hearing, as the claims in that case would have failed certification unless they were reframed, and the proceedings were subsequently withdrawn.
THE JUDGMENT IN MERRICKS v MASTERCARD
In its judgment of 21 July 2017, the CAT dismissed Mr Merricks’ CPO application. The CAT ruled that:
a. the proposed claims were not eligible to proceed on a collective basis; and
b. while it was not necessary to determine this point, Mr Merricks would have been authorised to act as the class representative had the claims been eligible, provided that amendments were made to the funding agreement between Mr Merricks and a third party funder which was funding the claim and providing adverse costs protection.
KEY POINTS ARISING FROM THE JUDGMENT
A. The CAT has clarified the criteria to certify a collective action
(i) Satisfying the statutory test
In order for a CPO application to be granted, both limbs of the statutory certification test must be met: a. the proposed class representative has to be suitable; and b. the proposed claims have to be eligible for inclusion in collective proceedings.
In turn, the eligibility criterion  depends on whether the proposed claims: a. raise common issues; and b. are suitable to be brought in collective proceedings, which requires taking into account all relevant matters including, in particular, whether the claims are suitable for an award of aggregate damages.
The judgment in Merricks confirms and explains the test for permitting a CPO application. The key points to note are:
1. Certification is not a mini-trial. The certification hearing is not meant to be a mini-trial, but it must be shown that there is “more than an arguable case on the pleadings”.  More is required than simply surviving a strike out application. The CAT confirmed, in particular, that it will “scrutinise an application for a CPO with particular care, to ensure that only appropriate cases go forward”.
2. Credible expert evidence is required to support a CPO application. The CAT repeated what it had already said in the Mobility Scooters case, namely that the Canadian approach to the standard of expert evidence required to support a CPO application, as set out in the Pro-Sys Consultants Ltd v Microsoft Corp. judgment of the Canadian Supreme Court, must be followed. In Microsoft it was held that “the expert methodology must be sufficiently credible or plausible to establish some basis in fact for the commonality requirement. […] [It] 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.” The CAT endorsed this statement as also reflecting the approach to be adopted in the UK, commenting that the Canadian approach to class certification is closer to the new UK regime than the approach in the United States.
3. Every case has to be considered on its own terms by reference to the certification requirements. The CAT explained that it is not sufficient for a CPO applicant to argue that it may not be practicable, for a range of reasons, for claimants to bring individual claims, so that if a CPO is not certified, a large number of individuals who suffered loss would receive no compensation. Every case has to be considered on its own terms by reference to the certification requirements.
The CPO application in Merricks was dismissed because the CAT concluded that the underlying claims were not eligible for inclusion in collective proceedings.
On the question of whether there were common issues to be determined, the CAT found that there were two issues that were not common, but that this was not in itself a reason for the CPO application to fail.
The CAT went on, however, to reaffirm the governing principle that damages must be compensatory, so that damages restore claimants to the position they would have been in had there been no breach of competition law. Therefore, any damages awarded must be estimated and distributed by reference to the actual individual loss suffered (if any) by each claimant.
The CAT found that Mr Merricks would not have been able to estimate and distribute the award of aggregate damages in a way that would have provided compensation to each of the 46 million or so individual claimants for any loss actually suffered. This is because the spending profile of each of the 46.2 million class members over the 16-year period would be unique, with an almost infinitely variable range of purchases of different products and services having been bought from hundreds of thousands of different retailers and service providers, which may each have passed on to their customers, or absorbed, any inflated MIF costs to a different extent. Given the impossibility of accounting properly for these fundamental differences in each individual’s claim, the CAT held that there was “no plausible way of reaching even a rough-and-ready approximation of the loss suffered by each individual claimant from the aggregate loss calculated according to the Applicant’s proposed method”. Therefore, even if sufficient data were available to enable the class representative to calculate an amount of aggregate damages (i.e. the total amount of loss of all members of the class), which the CAT very much doubted, it would still not be possible to distribute those damages at the individual level in a way that would accord with the principle of compensatory damages. The defects in the proposed distribution mechanism meant that claims were not suitable for collective proceedings.
B. Clarification of the evidential requirements
As regards the evidence required to support a CPO application, the following additional points emerge from the judgment:
1. Sufficient data required. As noted above, the CAT has ruled that there must be some evidence of the availability of the data to which the damages calculation methodology is to be applied. Issues around what data is available to substantiate the CPO application are likely to be fact specific. It is important to note, however, that the level of data required to apply the methodology proposed for estimation of any loss may be quite substantial. This could have a significant impact on the costs of the proposed proceedings and may be prohibitive in some cases, depending upon the terms of any funding arrangements and the amount of ‘up-front’ investment being made in preparing the claim.
2. Distribution mechanisms will be scrutinised carefully. The CAT is likely to scrutinise the proposed distribution mechanism at the CPO stage. As noted above, it may be possible to justify an aggregate award of damages for distribution in appropriate cases. However, the CAT noted that even if the total loss could be calculated on an aggregate basis, it was “necessary to consider how that would translate into determination of the level of individual loss.” In Merricks, that was “particularly important since […] the proposed methodology does not really go to determination of a common issue to the individual claims, but in a sense circumvents the problem of an issue which is not common by seeking to go directly to determination of a total sum for all claims. Such an approach can only be permissible, in our view, if there is then a reasonable and practicable means of getting back to the calculation of individual compensation”.  Accordingly, future applications will have to show that there is sufficient data available both to allow an aggregate assessment of damages, as well as to permit compensatory awards to be distributed at the individual level.
C. Funding arrangements
Merricks raised interesting questions as to the terms of funding arrangements that can be used to support collective proceedings. If the terms are unsatisfactory, this may be a basis for refusing to authorise the proposed representative.
First, an important issue arose in relation to the investment return that was sought by the funder in this case. This was to be paid to the funder from any undistributed damages, assuming the action was successful. Experience of class action systems in other jurisdictions suggests that a high proportion of aggregate damages awarded in “opt-out” class actions remains unclaimed - so the amount of money potentially available to a funder under such a provision could be very substantial. In this case, the funder sought a return of the greater of: (i) £135,000,000; or (ii) 30% of the undistributed proceeds up to £1 billion, plus 20% of the undistributed proceeds in excess of £1 billion.
The CAT held that this return was a “cost or expense” of the litigation for the purposes of the costs rules on collective proceedings. The CAT therefore accepted that funding costs can, in principle, be paid out of undistributed profits. However, it could not be said, as was required, that Mr Merricks was himself to incur those costs or expenses under the terms of the funding agreement as it had been drafted. So, although Mr Merricks would have been authorised to act as the class representative, the funding agreement would have needed to be amended. Mr Merricks had agreed to do this in the course of the CPO hearing, and the CAT held that these changes would have brought the agreement within the statutory requirements.
Second, Mastercard suggested that Mr Merricks had insufficient adverse costs cover under the funding agreement to satisfy Mastercard’s potential recoverable costs. The CAT rejected this argument, considering £10 million to be sufficient in the context of the CPO hearing in this case. Had the CAT granted a CPO and Mastercard later considered that £10 million was likely to be insufficient, it could apply at that time for the CPO to be varied, revoked or stayed.
Finally, the CAT rejected concerns that there was a potential conflict of interest between Mr Merricks’ obligations to the funder to ensure the payment of its investment return, and his duties to the proposed class to maximise the amount of distributed damages (since higher levels of distribution would reduce the amount of unallocated damages from which the funder would take its investment return). The funding agreement provided that Mr Merricks was to act independently and have sole control of the litigation in the best interests of the class. Moreover, the CAT would approve the manner of distributing damages in the event that they were awarded, and would also be required to approve the terms of any settlement. This headed off any concerns about a conflict between the class representative’s duties to the funder and to the represented claimants.
The CAT’s judgment in Merricks provides important clarification of the legal principles to be applied on certification applications under the UK collective actions regime. It provides guidance on the level of evidence that will be required for claims to be certified. It also clarifies the terms of funding agreements that can be used to support collective proceedings, including approving the principle that funders may seek returns from undistributed aggregated damages.
Further collective actions are expected in the near future.