In its judgment of 16 April 2019 the Court of Appeal overturned the Competition Appeal Tribunal's (CAT) decision refusing certification in the MasterCard collective action claim and remitted the case back to the CAT for a re-hearing. The CAT's refusal to certify the claim and grant a Collective Proceedings Order (CPO) had been based on two principal reasons: the lack of availability of the sort of data that would be necessary for the applicant to prove that any overcharge had been passed on to consumers and the level of this, and the fact that the CAT did not see a plausible way of calculating the loss each individual claimant suffered at the distribution stage.
On the issue of overcharge, the Court of Appeal held that the CAT's approach to the expert evidence was based on a misdirection. The appropriate test should have been whether the CAT was satisfied that the proposed methodology is capable of or offers a realistic prospect of establishing loss to the class. At certification stage it was not necessary for the proposed representative to be able to produce all the evidence and data available to operate that methodology or to enter into a detailed debate about its probative value. Certification is a continuing process and a CPO may be varied or revoked at any time, so the CAT could always terminate a CPO if it subsequently transpired that the claim lacks sufficient data to calculate the rate of pass-on.
On distribution of damages the Court of Appeal held that the CAT had been wrong to consider that the aggregate award had to be distributed according to what each individual claimant had lost. It found that there is nothing in the legislation or the CAT Rules which requires aggregate damages to be distributed on a compensatory basis, and distribution is in any case a matter for the trial judge to consider following the making of an aggregate award, not for the CAT at certification stage. The Court of Appeal also referred to the rationale behind the legislation that introduced the collective actions regime, which was "to facilitate a means of redress which could attract and be facilitated by litigation funding, and had Parliament considered it necessary to limit this new type of procedure by what would be required for the assessment of damages in an individual claim, it would have said so".
- The UK class action regime has been in force since October 2015 and there have so far been only two decisions from the CAT on certification. The Court of Appeal has now overturned one of these and as MasterCard has indicated that it will seek leave to appeal to the Supreme Court, uncertainty on a range of key issues may continue for some time.
- An interesting point coming out of the Court of Appeal's decision is the emphasis placed on Canadian jurisprudence in order to inform the correct approach to a range of certification issues, in light of the similarities between the Canadian and UK regimes.
- It is also worth noting the Court of Appeal's statement that certification is an ongoing process and that the CAT can modify or terminate a CPO at later stage if, for example, it subsequently transpires that sufficient data to enable the calculation of the rate of pass-on are not available.
Background to the case
Under the UK's collective redress regime for competition law claims, a representative 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 the suitability of awarding damages on an aggregate basis. In September 2016 Walter Hugh Merricks CBE applied to the CAT for a CPO to bring a follow-on damages claim based on the EU Commission's decision in the MasterCard case, in which it held that the setting by MasterCard of multilateral interchange fees (MIFs) for cross-border transactions was in breach of the Article 101 TFEU prohibition on anti-competitive agreements. The proposed class for which certification was sought was ambitious and was defined as "all individuals 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 resident in the UK for a continuous period of at least three months and aged 16 years and over" (estimated as some 42.6 million people), seeking a claim for around £14 billion in damages.
In July 2017 the Competition Appeal Tribunal (CAT) handed down its judgment on the certification in which it refused to grant the CPO as it concluded that the claim was not suitable to be brought as a collective action (see here for our briefing on the CAT's ruling).
The CAT rejected the assertion by Mr Merricks that the individual claims were largely identical, but also made it clear that this in itself did not mean that the case was unsuitable for a CPO, as there is 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.
The CAT found in particular that the issue of pass-through of any overcharge by retailers and the percentage impact on their prices, as well as the individual amounts spent by class members at each of those merchants would not be common issues between the claimants due to the significant variation between any potential overcharge and individual consumer spend. Merricks argued that the CAT could arrive at an aggregate award of damages which could be distributed to class members, and 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. The CAT was however not persuaded that there was sufficient data available in this case for the applicant's proposed methodology in relation to merchant pass-through to be applied on a sufficiently sound basis. It 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, in accordance with the governing principle that damages for breach of competition law must be compensatory in nature. On this basis, the CAT found that the claims were not suitable to be brought as a collective action.
Merricks sought permission to appeal the CAT's ruling but it was unclear as to whether there was a right to appeal against a CPO ruling or whether judicial review is the only option of challenging a CAT CPO ruling.
In its judgment of 13 November 2018 the Court of Appeal ruled that it did have jurisdiction to hear a substantive appeal, as the CAT's decision not to grant a CPO is not merely procedural in character but raises a point of law. Section 49(1A)(a) of the Competition Act 1998 allows for appeals from a decision of the CAT as to the award of damages or other sum (other than a decision on costs or expenses). The refusal to grant a CPO was equivalent to a decision on the award of damages as it is likely to prevent the members of the class who have suffered a loss from obtaining any compensation.
Merricks challenged the refusal by the CAT to grant a CPO on three main grounds:
- The CAT erred in law and adopted the wrong approach to the assessment of the evidence and the strength of the case on pass-on
- The CAT adopted the wrong test in relation to the distribution of damages, in holding that a method of distribution which did not in some way seek to link the distribution of an aggregate award of damages to individual loss was impermissible
- The CAT adopted the wrong approach to its assessment of the degree to which the individual claims raise common issues
The Court of Appeal ruling
On the issues relating to pass-on
Under its first ground of appeal Merricks challenged the CAT's treatment of its claim for an aggregate award of damages and the proposed method for calculating it, arguing that the CAT had imposed too high a threshold at certification stage.
In order to address the issue of pass-on, where there would have been significant variations between different kinds of goods and services and between different kinds of retail outlets, Merricks had submitted that the CAT could arrive at an aggregate award of damages which could be distributed to the class members. The CAT had noted that this suggested approach to aggregating damages was, at least in principle, methodologically sound. The CAT was clear that an applicant would not have to carry out a full analysis for the purpose of the CPO application, but that a proper effort would have to be made to determine whether it was practicable by ascertaining 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 to be applied on a sufficiently sound basis.
Merricks argued that the CAT's approach to the evidence was too stringent and was inconsistent with the test in the Canadian Supreme Court's decision in Pro-Sys Consultants Ltd v Microsoft Corp (Microsoft) in respect of which the CAT had cited an expression of the relevant test as follows:
"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."
The CAT had held that the proposed representative "had to do more than simply show that he has an arguable case on the pleadings, as if, for example, he was facing an application to strike out". It noted that collective proceedings on an opt-out basis can be very burdensome and expensive for the defendants and the CAT rules therefore require the Tribunal to scrutinise an application for a CPO with particular care, to ensure that only appropriate cases go forward.
However, the Court of Appeal found that the CAT had not applied that test correctly and had demanded too much of the proposed representative at certification stage.
The Court of Appeal summarised the test set out in the relevant Canadian case law as follows (para 44 of the judgment:
- At certification stage the proposed representative must be able to demonstrate that the claim has a real prospect of success. To do so in this case he had to satisfy the CAT that the expert methodology was capable of assessing the level of pass-on to the representative class and that there was, or was likely to be, data available to operate that methodology;
- It was not necessary at that stage for the proposed representative to produce all of that evidence. To that extent a certification hearing is no different from any other interlocutory assessment of the prospects of success in litigation made before the completion of disclosure and the filing of evidence. Its purpose is to enable the CAT to be satisfied that (with the necessary evidence) the claims are suitable to proceed on a collective basis and that they raise the same or similar or related issues of fact or law: not that the claims are certain to succeed;
- The specific considerations relevant to suitability which are set out in Rule 79(2) (CAT rules 2015) do not call for a different approach. None of these require the CAT to be satisfied that the collective claim has more than a real prospect of success.
Although the CAT expressly rejected the idea that it should carry out some form of mini trial, the Court of Appeal concluded this is exactly what the CAT ended up doing. It was not appropriate for the CAT at certification stage to require the proposed representative and their experts "to specify in detail what data would be available for each of the relevant retail sectors" for the infringement period. The certification hearing undertook a more vigorous process of examination than would have occurred under a strike out application, and minimal weight was given to the experts' own (preliminary) assessment that there had been pass-on of the overcharges to consumers as referred to in the Commission decision.
The Court of Appeal was also critical of the CAT's self-direction that it needed to scrutinise the application with particular care in order to ensure that only appropriate cases go through certification. It noted that certification is a continuing process and a CPO may be varied or revoked at any time. The CAT could terminate a CPO if it subsequently transpired that the claim lacks sufficient data to calculate the rate of pass-on, but it is more appropriate to take this kind of decision once the pleadings, disclosure and expert evidence are complete.
The Court of Appeal concluded that the approach taken to the expert evidence was based on a "misdirection as to the correct test to be applied in relation to whether the proposed representative had demonstrated that the claims were suitable for inclusion in collective proceedings (and in particular for an aggregate award of damages) so far as they were based on an allegation of pass-on of the MIFs to consumers".
On the distribution of the aggregated damages
Under its second ground of appeal Merricks challenged the test adopted by the CAT in relation to the distribution of aggregate damages. Merricks had proposed that damages would be distributed on a per capita basis for each separate year. The CAT refused certification because this proposed method of distributing any aggregate award of damages would bear no relation at all to the loss suffered by individual members of the proposed class.
The Court of Appeal held that the CAT had been wrong to consider that the aggregate award had to be distributed according to what each individual claimant had lost. It found that there is nothing in the legislation or in the CAT Rules which requires aggregate damages to be distributed on a compensatory basis. The power to make an aggregate award for damages with reference to individual loss would be largely negated in large-scale opt-out proceedings if a calculation of individual loss was a pre-requisite for any authorised method of distribution and before certification.
The Court of Appeal held that, under the CAT Rules on certification, the CAT is not required to consider more than whether the claims are suitable for an aggregate award of damages, which does not include the assessment of individual loss. It noted that distribution is in any case a matter for the trial judge to consider following the making of an aggregate award. The Court of Appeal therefore concluded that it was premature and wrong for the CAT to refuse certification by reference to the proposed method of distribution, an error compounded by its view that distribution must be capable of being carried out by some means which corresponds to individual loss.
The Court of Appeal also referred to the rationale behind the legislation that introduced the collective actions regime, which was "to facilitate a means of redress which could attract and be facilitated by litigation funding, and had Parliament considered it necessary to limit this new type of procedure by what would be required for the assessment of damages in an individual claim, it would have said so".