Summary: The Competition Appeal Tribunal (“CAT”) has struck out a £14bn collective claim brought against MasterCard, following on from the European Commission decision finding MasterCard’s interchange fee arrangements to be anti-competitive. In this post we explain how the judgment reflects difficulties with the claim itself rather than the UK’s collective action regime, in respect of which welcome clarity has been provided.

Background

The collective action was pursued on a follow on basis, relying on the European Commission’s decision of 19 December 2007 in COMP/34.579 MasterCard in which it found that multilateral interchange fees set by MasterCard resulted in higher fees being charged between acquiring banks. Had those fees been lower, merchants and subsequent purchasers would ultimately have benefitted. MasterCard unsuccessfully appealed the decision to the General Court and to the Court of Justice.

A number of other claims have been pursued against MasterCard in relation to this infringement of competition law, including: a claim brought by Sainsbury’s in which the supermarket was awarded circa £69 million in damages (Sainsbury’s Supermarkets Ltd. V MasterCard Inc. & Others [2016] CAT 11); an unsuccessful claim brought by a group of retailers including ASDA and Arcadia Group in which the court held that MasterCard’s interchange fees were not unlawful (ASDA Stores Limited & Others v MasterCard Inc. & Others [2017] EWHC 93 (Comm)); a claim brought by Tesco which was reportedly settled in 2015; and a number of other claims that are at an earlier stage of litigation.

Each of those other claims have been brought by retailers (i.e. a different level of the supply chain). Walter Merrick’s case is the first action to be brought on behalf of end consumers, and the first collective proceedings to be brought in relation to this infringement.

The Collective Proceedings

Walter Merricks sought the CAT’s approval to act as class representative on behalf of all individuals who purchased goods or services, from any business selling in the U.K. that accepted MasterCard cards, between 22 May 1992 and 21 June 2008, provided those individuals had been resident in the U.K. for at least three months and were aged 16 or over.

There was no requirement for any of the class members to have actually used MasterCard as a payment method, as merchants typically (though not always) charge the same price for goods or services regardless of the method used for payment. Therefore, the argument was that any anti-competitive overcharge included in the interchange fee would be passed on to both those paying by MasterCard, and those paying by other means such as cash or cheque.

MasterCard defended the CPO application on the basis of deficiencies in the damages model proffered by the applicant and issues related to the agreement between Walter Merricks and the claim’s third party funder.

Damages Analysis

The CAT focused almost exclusively on the expert economic evidence in making its decision, rejecting the claim principally on the basis that: the damages model adopted by the applicant did not meet the requirement that damages must be compensatory in nature, even when taking a broad brush approach to assessing damages; and the applicant’s proposed distribution of any damages award would bear no relation to the actual losses sustained by any individual member of the class.

The damages model advanced by the applicant relied on taking averages of 255 different interchange fees that were levied by MasterCard during the relevant period, and overcharges passed on by retailers in various industry sectors, across a significant time period.

Whilst the CAT accepted that an aggregated damages approach may be permissible in theory, the CAT was not satisfied that this particular claim was suited to an aggregate award of damages, given the lack of data available to run a sufficiently robust analysis.

Further, the distribution of those damages was to be based on an average per-head basis (i.e. every class member would receive the same damages for every year that they were part of the class, regardless of how much actual spending they did) which could have led to significant over or under compensation for the vast majority of the claimant class.

The CAT held that an acceptable distribution methodology would need to take into account individuals’ levels of expenditure, the merchants from whom they purchased and the mix of products which they purchased, which this methodology did not.

The CAT followed its own decision in the case of Gibson v Pride Mobility Products Limited [2017] CAT 9 (the only other CPO application to be heard by the CAT) in endorsing the following passage from the Canadian case In Pro-Sys Consultants Ltd v Microsoft Corp. [2013] SCC 57 as being the applicable test in U.K. collective actions for determining the sufficiency of an applicant’s proposed damages methodology:

…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 in question. There must be some evidence of the availability of the data to which the methodology is to be applied.

Funding

Having rejected Walter Merricks’s application on the basis that the claims were not suitable to be brought as collective proceedings owing to deficiencies in the damages and distribution model, the CAT proceeded to address the funding agreement between Walter Merricks and the claim’s third party funder. Although these findings may technically constitute obiter dicta, given that detailed analysis has been provided by CAT President Mr Justice Roth they can safely be considered at least a strong steer as to how the CAT will view similar funding arrangements in future cases.

The CAT held that, subject to some amendments to the wording in the funding agreement in the present case, commercial returns for a funder can be recovered from residual funds left unclaimed from the damages pot awarded by the CAT. The CAT further held that such funding returns were recoverable even in circumstances where the applicant’s obligation to pay the funding costs is contingent upon the success of the action, provided the obligation was a direct liability on the applicant. The CAT also confirmed that other costs such as legal success fees and ATE insurance premiums were similarly recoverable.

Conclusion

This is only the second CPO application to be heard by the CAT. It is also the second application to fall at this initial hurdle. Some commentators have interpreted the CAT’s rejection of this application as evidence of a restrictive approach being taken by the CAT in assessing CPO applications. However, this judgment is perhaps better understood as a statement of the importance in ensuring that CPO applications are made only in the most suitable of cases.

The key difficulties in quantifying damages and distributing any aggregate award of damages are, by the very nature of the class seeking certification in this case, inherently challenging. The class was estimated to have some 46 million members, each with their own individual spending habits, purchasing from thousands of retailers that each had varying abilities to pass on overcharges to their own customers depending on the competitive dynamics in their respective markets, over a 16 year period. It is therefore little wonder that damages and distribution analysis proved so problematic. Although not quantified in the CAT’s judgment, one can imagine the overall volume of commerce in this case and the associated difficulties in supporting even a small percentage of that commerce with evidentiary documentation.

All eyes in the collective actions space will now turn to the proposed opt-in collective action in respect of the Trucks cartel. With an opt-in class purchasing relatively small numbers of highly priced goods, often directly from the cartelist manufacturers, similar difficulties can perhaps not be expected to arise. That said, every early case under the new collective actions regime will face its own challenges.