One of the areas of litigation that I keep an eye on is, competition law. With the continued contraction of personal injury litigation, new and interesting areas of work continue to emerge which are not necessarily the exclusive preserve of large litigation firms in London. One such area is claims for collective redress. Other such areas might include data protection and privacy claims. As these types of case are relatively new, they often involve new legal principles being developed, instead of a simple application or extension of the familiar principles of tort law deployed in personal injury claims.
In the last month, the Court of Appeal has handed down its decision in the appeal in Merricks v Mastercard  EWCA Civ 674. I have dealt with aspects of the decision at first instance here: http://costsbarrister.co.uk/uncategorized/your-flexible-friend/. It can be viewed that the approach taken by the CAT at first instance in the case, to the making of a CPO, permitting a “class action” to proceed, severely circumscribed the likelihood that a CPO would be made, and thus seemed to render the collective proceedings regime, potentially nugatory. In the event the defeated applicant, did not take the decision lying down, and has now pursued a successful appeal to the Court of Appeal.
The Court of Appeal noted that there were two principal reasons why a CPO had been refused by the CAT:
30. On the first issue of eligibility under Rule 79, it accepted that there were either common issues between individual claimants (or at least it was common ground) as to the impact of the EEA MIFs set by Mastercard on UK MIFs for both credit and debit cards; as to the amount by which those MIFs were higher than a counterfactual, non-infringing MIF; and as to the level of pass-on of the MIF overcharges to merchants in the form of the MSC. But the degree to which the overcharges were passed to consumers in the form of price increases and the amount which each individual claimant spent at those merchants were not in the view of the CAT common issues in the sense of being the same, similar or related issues of fact common to all individual claims in the collective proceedings as required by s.47B(6).
31. The experts had accepted that there would have been variations in the level of pass-on not only as between different classes of goods and services but also as between different retailers. But the CAT rejected the claimant’s submission based on the defences in the Sainsbury’s litigation that there had been an almost complete pass-on of the MSC by way of increased prices. The Sainsbury’s action covered a different period (2006-2015) and in its judgment in that case the CAT held that Mastercard had failed to establish what level of pass-on had occurred in the form of higher prices and how otherwise the MIF costs had been absorbed by the retailer. Other current litigation by other supermarket chains was also regarded as at too preliminary a stage to be of any real assistance in analysing the prospect of the proposed representative establishing pass-on in the present case. Disclosure from third parties was considered as a possible source of information about the rate of pass-on but the CAT observed that it would be a very burdensome and highly expensive exercise.
33. On distribution the CAT indicated that in its view it was only permissible to proceed to an assessment of loss on a top-down, class-wide basis if it was then possible to formulate a method of distribution which did involve a calculation of loss on an individual basis:
“79. If the total loss could be calculated in the aggregate manner discussed above, it is nonetheless necessary to consider how that would translate into determination of the level of individual loss. That is particularly important since, as we have pointed out, 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.”
34. There is a discussion in the judgment of the obvious difficulties that would be involved in any such calculation (which are, as I have explained, conceded) and of the possibility of adopting some more broad-brush approach to that assessment. But the CAT records that the experts were agreed that the proposed method of per capita distribution bore no relationship to individual loss. They said:
“87. This cannot be dismissed as a “mere” question of distribution, to be addressed only after an aggregate award has been determined. First, it is largely because of the methodology of seeking to calculate the loss on a top-down, aggregate basis, and not on the basis of a common issue concerning loss suffered by each member (or most members) of the class, that the fundamental problem arises. As a result, if, hypothetically, a million people opted out of the proceedings, there would be no proper way of reducing the quantum of damages accordingly (and, conversely, of increasing it if a large number of people now domiciled outside the UK sought to opt in): it would simply lead to everyone in the class getting more (or less) money out of the total pot.
88. Secondly, even if it were possible to determine with some broad degree of accuracy the weighted average for pass-through and thus to estimate the aggregate loss for the class each year, it is the significance of the individual issues remaining which mean that it is impossible in this case to see how the payments to individuals could be determined on any reasonable basis. As we have explained above, there are three sets of issues which are relevant: individuals’ levels of expenditure; the merchants from whom they purchased; and the mix of products which they purchased. There is no attempt to approximate for any of those in the way damages would be paid out. The governing principle of damages for breach of competition law is restoration of the claimants to the position they would have been in but for the breach. The restoration will often be imprecise and may have to be based on broad estimates. But this application for over 46 million claims to be pursued by collective proceedings would not result in damages being paid to those claimants in accordance with that governing principle at all.
89. Accordingly, in our judgment, these claims are not suitable to be brought in collective proceedings as required by sect 47B(6) CA. It follows that the Tribunal cannot make a CPO in this case: sect 47B(5)(b) CA.”
The appeal was made to the Court of Appeal on the following basis:
35. The appellant appeals against the decision of the CAT on three main grounds. He contends that they erred in law and adopted the wrong approach to the assessment of the evidence and the strength of the case on pass-on; that the CAT adopted the wrong test in relation to distribution, in particular in directing themselves 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; and (partly for the same reasons) that the CAT adopted the wrong legal approach to its assessment of the degree to which the individual claims raise common issues. There is also an application by the appellant to adduce fresh evidence for the purposes of this appeal in the form of a supplemental expert report from Dr Veljanovski and Mr Dearman which updates their earlier report about the sources of relevant data and seeks to address the concerns expressed by the CAT in its judgment about there not being sufficient data available to operate the methodology proposed for determining the level of pass-on of the MIFs to consumers. The admission of this evidence is opposed by Mastercard on the basis that it does not satisfy the Ladd v Marshall conditions: in particular because the material could reasonably have been made available at the certification hearing. But it is also conceded by Mastercard that there was further relevant material relating to the availability of data which could have been placed before the CAT.
The Court of Appeal had little doubt that the CAT had erred in law, in taking far too restrictive an approach to what was essentially a threshold test, rather than a determination of the substantive merits of the case:
48. Leaving aside for the moment whether this controversy should be allowed to re-emerge in some form in relation to the issue of distribution, the first ground of appeal therefore really centres on whether the CAT demanded too much of the proposed representative at the certification stage. In our view it did.
49. The CAT refused to certify because it was “unpersuaded on the material before us that there is sufficient data available for this methodology to be applied on a sufficiently sound basis”: see . The experts had concluded that the data was presently incomplete but the material contained in their report (together with their evidence at the hearing) was sufficient to persuade the CAT that the calculation of global loss based on a weighted average pass-on was methodologically sound and not (to use the language of the judgment in Microsoft) purely theoretical or hypothetical.
50. If, as the Supreme Court explained in Microsoft, the function of the Tribunal at the certification stage is to be satisfied that the proposed methodology is capable of or offers a realistic prospect of establishing loss to the class as a whole then that requirement was satisfied. The availability of data sufficient to allow the methodology to be operated on what the CAT described as a sufficiently sound basis ought at the certification stage to be looked at in terms of what information can be made available for use at the trial.
51. The appellant’s experts in their report and in their evidence at the hearing acknowledged that the evidence gathering process was still at an early stage but sought to identify the likely sources of the relevant material. Although the CAT was entitled to satisfy itself that the experts’ proposed methodology was credible, it was not appropriate at the certification stage to require the proposed representative and his experts to specify in detail what data would be available for each of the relevant retail sectors in respect of the infringement period. The experts had identified expected sources of the data and other material such as the pleadings in the Sainsbury’s litigation. The CAT pointed out the limitations on the usefulness and probative value of this material for the purpose of the present proceedings including that in many of the actions by retailers against Mastercard the issue of pass-on will not be explored or at least will not be determined until trial. But the preliminary nature of those proceedings is not a bar to their being relevant as a possible source of evidence in the present action. At the certification stage the question for the CAT was not what they were capable of proving had this been the trial of the action.
52. Although in  the CAT rejected the idea that they should carry out some form of mini trial, that is in our opinion more or less what occurred. They also required the proposed representative to establish more than a reasonably arguable case which would have been the test had Mastercard applied to strike the claim out. What this in practice involved was the appellant’s experts being cross-examined at a pre-disclosure stage in the proceedings about their ability to prove the claim at trial by reference to sources of evidence which they had identified but had not yet been able fully to analyse or assess.
53. The certification hearing therefore exposed the claim to a more vigorous process of examination than would have taken place at a strike-out application and gave minimal weight to the experts’ own (albeit preliminary) assessment that there had been pass-on of the overcharges to consumers as found in the EC Decision itself. The CAT’s self-direction at the end of  to the effect that it was required to scrutinise the application for a CPO with particular care in order to ensure that only appropriate cases go through also ignores the facet of this process highlighted in a number of the Canadian cases which is that certification is a continuing process under which a CPO may be varied or revoked at any time: see s.47B(9). The making of a CPO does not therefore prevent the CAT from terminating the collective proceedings if it subsequently transpires, for example, that the proposed representative is unable to access sufficient data to enable the experts’ method of calculating the rate of pass-on to be performed. But a decision of that kind is much more appropriate to be taken once the pleadings, disclosure and expert evidence are complete and the Court is dealing with reality rather than conjecture.
54. The assessment of these matters is, of course, a question for the CAT to decide using its substantial expertise and on this appeal we can only interfere with the decision to refuse a CPO if there has been a demonstrable error of law. But, in our view, the approach taken to the expert evidence in this case 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. Although, as Mr Hoskins pointed out, Rule 79(2) enables the CAT to take into account a wide variety of matters which may be relevant to whether the included claims are suitable for inclusion in collective proceedings, in this case the CAT was primarily concerned with the issue of availability of data as evidence to support and establish a claim for aggregate damages: see . At the certification stage the proposed representative should not, in our view, be required to demonstrate more than that he has a real prospect of success. This is not the test which the CAT applied.
Turning to consider the question of distribution, in effect the Court of Appeal adopted the approach that the statute meant what it said, when permitting aggregation of damages and a top down distribution, which glossed over questions of individual loss:
56. The argument between the parties on this ground of appeal narrowed considerably during the hearing. It is evident from  of the CAT’s judgment that in relation to the issue of distribution certification was refused because the proposed method of distributing any aggregate award of damages would bear no relation at all to the loss suffered by individual members of the presented class. Some would receive considerably more than they had lost during the infringement period: others (who were high spenders) considerably less. The proposed representative does not pretend otherwise. But Mr Hoskins now accepts that there is nothing in s.47B of the CA or in the Rules which requires aggregate damages to be distributed on a compensatory basis of the kind envisaged by the CAT and that there was an error of law if the proper reading of - of the judgment is that the CAT considered that distribution must in all cases be carried out on some kind of compensatory basis however approximate.
57. The distribution of an aggregate award is included in Rules 92 and 93. As Mr Hoskins accepted, they do not require that the award should be distributed according to what each individual claimant has lost although, where that is readily calculable, it will probably be the most obvious and suitable method of distribution. But we reject the suggestion that a loss-based method of distribution is mandated by the statutory provisions or therefore that the proposed method makes it unsuitable for a CPO to be made under Rule 79. As Mr Harris submitted, the power to make an aggregate award under s.47C(2) with reference to individual loss would be largely negated in large-scale opt-out proceedings of this kind if a calculation of individual loss was a pre-requisite for any authorised method of distribution and therefore for certification.
58. In our view the CAT clearly did consider that the aggregate award had to be distributed in a way which paid sufficient respect to the basic principle that damages should aim to restore the proposed representative to the position he would have occupied but for the breach and, on this basis, the respondents concede that there was a misdirection. But I wish to add a few comments as to why we consider the approach taken by the CAT was too narrow.
59. The result of the refusal to grant the CPO in this case is that no follow-on proceedings for infringement based on the EC Decision are likely to be taken by consumers against Mastercard. The likely scale of loss caused to any individual consumer, coupled with the costs of the proceedings, makes litigation by way of individual claims a practical impossibility. This was recognised by the CAT in  of their judgment where they say that this is effectively the position in most cases of widespread consumer loss resulting from competition law infringements.
60. Be that as it may, the power to bring collective proceedings introduced into the CA by the Consumer Rights Act 2015 was obviously intended 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 then it would have said so. As it is the provisions for distribution of an aggregate award are open-ended. The CAT is expressly required under Rule 79(2) to take into account whether the claims are suitable for an aggregate award of damages when considering whether to make a CPO but not whether such an award can be distributed in any particular manner. The making of an aggregate award does not, as already mentioned, require the Court to calculate individual loss or importantly to assess the damages included in that award on an individual basis. Why, then, should they be distributed in that way?
61. The CAT adopted Mastercard’s position which essentially is that damages must be awarded (and therefore it is said) distributed on a compensatory basis as a matter of established principle and that neither the CA nor the Rules mandated a different approach. But that is difficult to reconcile in our view with either s.47C(2) or the purpose of enabling individual claims to be brought in the form of collective proceedings. Once it is accepted that aggregate damages can be awarded and therefore assessed by reference to the loss suffered by the represented class as a whole, it becomes difficult to justify a reversion to an individual calculation of loss for the purposes of distribution. Claimants in this class will know that they stand to be compensated (if at all) on a per capita basis and can choose (if they wish) not to be included in the action. But once the assessment of the aggregate award is complete then, on one view, Mastercard has no locus to be heard on the question of distribution and no right to object if the class members who have suffered loss by the then proven infringement stand to be compensated in a way which does not exactly or perhaps even approximately replicate the individual losses which have been suffered. The vindication of the rights of individual claimants is achieved by the aggregate award itself.
62. More importantly, for present purposes, the CAT is not required under Rule 79(2)(f) for certification purposes to consider more than whether the claims are suitable for an aggregate award of damages which, by definition, does not include the assessment of individual loss. Distribution is a matter for the trial judge to consider following the making of an aggregate award: see Rules 92 and 93. We therefore consider that it was both premature and wrong for the CAT to have refused certification by reference to the proposed method of distribution: an error compounded by their view that distribution must be capable of being carried out by some means which corresponds to individual loss.
Intriguingly, rather than taking the decision itself, the Court of Appeal has remitted the case to the CAT, because of issues of “funding” that will have to be ventilated again. It remains to be seen what issues and arguments will now arise on any renewed hearing before the CAT, although the CAT did hear some interesting arguments on the last occasion as noted in my earlier post.
Perhaps most significantly, however, on the two big issues, which represented roadblocks to collective redress proceedings, the Court of Appeal has effectively cleared the path to more collective redress claims coming forward, assuming of course, that they can be properly formulated, effectively presented, and also appropriately funded.