A very important case which has run and run, and will continue to run (the next hearing is in March 2021) is that of Mastercard Incorporated and others v Walter Hugh Merricks CBE  UKSC 51 which has recently been to the Supreme Court. For the time poor, a summary of the judgment can be read here: Mastercard Incorporated and others (Appellants) v Walter Hugh Merricks CBE (Respondent) Press Summary.
I have already considered this case elsewhere on this blog and my earlier views can be read here: https://costsbarrister.co.uk/uncategorized/for-everything-else-there-is-mastercard/
The case deals with novel points concerning when or how collective proceedings in competition law can be properly constituted. The case is thus essential reading for anyone contemplating launching collective proceedings in the future, and heralds the key considerations that lawyers must address, when putting such litigation together.
It is also important to note that the decision is a 3:2 majority decision of the Supreme Court, and thus although it settles the law, the dissenting judgment will doubtless be scrutinised as well, particularly by those looking to prevent such proceedings in the future.
The issue the case was concerned with was put in these terms by Lord Briggs:
1. This appeal concerns the procedure for collective proceedings introduced by amendment to the Competition Act 1998 (“the Act”) for the purpose of enabling small businesses and consumers more easily to bring claims for what may loosely be described as anti-competitive conduct in breach of the provisions of the Act. Where the harmful impact of such conduct affects consumers, it may typically cause damage to very large classes of claimants. Proof of breach, causation and loss is likely to involve very difficult and expensive forensic work, both in terms of the assembly of evidence and the analysis of its economic effect. Viewed from the perspective of an individual consumer, the likely disparity between the cost and effort involved in bringing such a claim and the monetary amount of the consumer’s individual loss, coupled with the much greater litigation resources likely to be available to the alleged wrongdoer, means that it will rarely, if ever, be a wise or proportionate use of limited resources for the consumer to litigate alone.
As Richard Posner has pithily noted, whilst collective proceedings for redress for small sums owed to millions of people, makes sense, only a fool or a lunatic would litigate their individual claim for $30.
What are collective proceedings? Lord Briggs explained:
2. The procedure for collective proceedings introduced by the Act applies to claims by two or more persons for damages, money or an injunction in respect of a breach of specified provisions of statutory competition law: see sections 47A(2) and 47B(1) of the Act. It enables whole classes of consumers to vindicate their rights to compensation and the large cost of the necessary litigation to be funded, before an expert tribunal, the Competition Appeal Tribunal (CAT), which is given exclusive jurisdiction over collective proceedings. The prospect that the rights of consumers can be vindicated in that way also serves to act as a disincentive to unlawful anticompetitive behaviour of a type likely to harm consumers generally. But collective proceedings may not proceed beyond the issue and service of a claim form without the permission of the CAT in the form of certification by a Collective Proceedings Order (“CPO”) under section 47B of the Act. At issue in the appeal are the legal requirements for certification.
Collective proceedings can only loosely be described as group litigation: no group litigation order is made and the proceedings are closer in nature to representative proceedings:
3. There are (at least for present purposes) three key features of collective proceedings. The first is that claims by any number of claimants may be pursued on their behalf by a single representative who may, but need not, be a member of the class. The claims need not be identical, and they need not all be against all the defendants, but they must all raise the same, similar or related issues of fact or law. Secondly, the remedy sought may, but need not always, be the award of what are called aggregate damages. This type of damages provides just compensation for the loss suffered by the claimant class as a whole, but the amount need not be computed by reference to an assessment of the amount of damages recoverable by each member of the class individually. Thirdly, the CAT has a discretion as to how aggregate damages (if recovered) are to be distributed among members of the class. Any unclaimed residue of an aggregate award is to be given to a charity specified by the Lord Chancellor, or used to meet the litigation costs and expenses of the representative.
The role of the CAT is to facilitate collective proceedings, but also to regulate them: the potential for abuse, through speculative or ill founded claims being initiated to terrorise a defendant into submission was recognised when the statute was enacted:
4. The CAT is given an important screening or gatekeeping role over the pursuit of collective proceedings. First, collective proceedings may not be pursued beyond the issue and service of a claim form without the CAT’s permission, in the form of a CPO, for which the representative must apply. The obtaining of a CPO is called certification. Secondly, collective proceedings may be terminated by the CAT at any stage by the revocation of that CPO. Thirdly, the CAT may accede to an application by one or more defendants to strike out collective proceedings if they disclose no reasonable cause of action (or are otherwise abusive) or to an application for defendants’ summary judgment, just as in any ordinary civil proceedings.
The process of certification, enabling proceedings to be made is itself prescriptive:
5. The process of certification requires the CAT to be satisfied as to two main criteria, in relation to any particular collective proceedings. First, it must be just and reasonable for the person seeking to act as representative to be authorised to do so. Secondly, the claims must be eligible for inclusion in collective proceedings. This means that they must all raise the same, similar or related issues of fact or law and be suitable to be brought in collective proceedings. In the present case the CAT decided that the claims were not suitable to be brought in collective proceedings and therefore refused a CPO. The representative, Mr Walter Merricks, appealed successfully to the Court of Appeal. The defendants, companies in the Mastercard group, appeal to this court, seeking to reinstate the decision of the CAT. This is the first collective proceedings case of this kind to reach this court, or the Court of Appeal, and it raises important questions about the legal framework within which the CAT should exercise its undoubted expertise in granting or refusing certification.
The actual nature of the claim against Mastercard was considered and the fact that the claim was defended not only on procedural grounds, but also on its merits:
13. This is a “follow-on” claim which is sought to be brought on an opt-out basis. A follow-on claim is one which is based upon an existing decision establishing breach, here the EC Decision, which is binding on the domestic tribunal: see section 58A of the Act. Section 47B of the Act makes provision for collective proceedings to be brought on an opt-in or opt-out basis. Leaving aside non-domiciled claimants, an opt-out basis means that the proceedings are brought on behalf of every person within the class definition who does not opt-out from membership of the class: see section 47B(11). Mr Merricks seeks an award of aggregate damages under section 47C of the Act and proposes that the proceeds of any award should be distributed broadly equally among members of the class on a per capita basis for each separate year of the Infringement Period. He justifies this on the ground that any attempt to differentiate between members on the basis of individual loss would be disproportionate having regard to the modest amounts at stake for each individual, and the forensic difficulties in any reliable basis for discrimination, after the passage of time, within such a huge class.
14. Save that Mastercard admits, as it must, the breach of statutory duty identified by the EC Decision in relation to the Intra-EEA MIF and accepts that the whole of any relevant MIF was passed on in full by acquirers to merchants, Mastercard challenges every aspect of the claim. It denies that its excessive Intra-EEA MIF caused any unlawful increase in domestic UK MIFs (which dominated the relevant transactions during the Infringement Period), or that IFs would have been any lower than in fact they were, but for the infringement. Thus it denies unlawful overcharge: (“the overcharge issue”)
There is a very interesting passage in the judgment about the duty of the court to paint a picture of loss, with sometimes very broad strokes which I suspect will be utilised in unrelated cases, as a modern exposition of how far a court can go, to stick its finger in the air, and award damages where a claimant has suffered a loss, but the evidence is imprecise as to what that loss may be:
47. Where in ordinary civil proceedings a claimant establishes an entitlement to trial in that sense, the court does not then deprive the claimant of a trial merely because of forensic difficulties in quantifying damages, once there is a sufficient basis to demonstrate a triable issue whether some more than nominal loss has been suffered. Once that hurdle is passed, the claimant is entitled to have the court quantify their loss, almost ex debito justitiae. There are cases where the court has to do the best it can upon the basis of exiguous evidence. There are cases, such as general damages for pain and suffering in personal injury claims, where quantification defies scientific analysis, where the court has to apply general tariffs developed over many years by the common law, and now enshrined in the Judicial College Guidelines for the Assessment of General Damages in Personal Injury. In many cases the court unashamedly resorts to an element of guesswork: see generally McGregor on Damages, 20th ed (2017), paras 10-001 to 10-007.
50. This unavoidable requirement for quantification in order to do justice is not limited to damages. There are occasions where the court has to quantify or value some right or species of property and does not allow itself to be put off by forensic difficulties, however severe. For example a rateable value may have to be assessed in relation to property, such as a stately home, where there are no real comparables at all, and it has never been let. Or a market rent may have to be assessed as at a date when there are no remotely contemporaneous comparables. Assisted by experts, the court makes use of the best evidence available, often by making quite broad assumptions about market movements over a long period of time. See generally Dennard v PricewaterhouseCoopers  EWHC 812 (Ch), para 182 per Vos J and Capita Alternative Fund Services (Guernsey) Ltd v Drivers Jonas (A Firm)  EWCA Civ 1417, para 43 per Gross LJ. Sometimes the court has to determine the beneficial shares of cohabitees in co-owned residential property, where there is no reliable evidence of the parties’ intentions. In such cases the court now broadly applies the maxim that equality is equity: see Stack v Dowden  UKHL 17;  2 AC 432. In none of these cases does the court throw up its hands and bring the proceedings to an end before trial because the necessary evidence is exiguous, difficult to interpret or of questionable reliability.
51. In relation to damages, this fundamental requirement of justice that the court must do its best on the evidence available is often labelled the “broad axe” or “broad brush” principle: see Watson Laidlaw & Co Ltd v Pott Cassels & Williamson (A Firm) 1914 SC (HL) 18, 29-30 per Lord Shaw. It is fully applicable in competition cases. ASDA Stores Ltd v Mastercard Inc  EWHC 93 (Comm) was a claim by an individual merchant arising out of (inter alia) the same breach as in these proceedings. After citing the Watson Laidlaw case Popplewell J said, at para 306:
“The ‘broad axe’ metaphor appears to originate in Scotland in the 19th century. The more creative painting metaphor of a ‘broad brush’ is sometimes used. In either event the sense is clear. The court will not allow an unreasonable insistence on precision to defeat the justice of compensating a claimant for infringement of his rights.”
Lord Briggs was in no doubt that the principle applied to assessment of compensation in collective proceedings:
54. There is nothing in the statutory scheme for collective proceedings which suggests, expressly or by implication, that this principle of justice, that claimants who have suffered more than nominal loss by reason of the defendants’ breach should have their damages quantified by the court doing the best it can on the available evidence, is in any way watered down in collective proceedings. Nor that the gatekeeping function of the CAT at the certification stage should be an occasion when a case which has not failed the strike out or summary judgment tests should nonetheless not go to trial because of difficulties in the quantification of damages. On the contrary, as the Court of Appeal observed at para 59, a refusal of certification of a case like the present is likely to make it certain that the rights of consumers arising out of a proven infringement will never be vindicated, because individual claims are likely to be a practical impossibility. The evident purpose of the statutory scheme was to facilitate rather than to impede the vindication of those rights.
He went on to find:
64. In my judgment the CAT’s decision was vitiated by error of law. My reasons largely but not entirely concur with those of the Court of Appeal, but it is appropriate that I set out my own reasoning in full. I will do so mainly by separate treatment of the CAT’s two reasons for refusing certification (aggregate damages and distribution method), but I regard the question of certification as involving a single, albeit multi-factorial, balancing exercise in which too much compartmentalisation may obscure the true task. In summary:
a. The CAT got the common issue question wrong in relation to the merchant pass-on issue, and therefore inevitably failed to include, as an important plus factor in the balance, the fact that this issue, and indeed both the main issues in the case, were common issues. That was an issue of law.
b. The CAT treated the suitability of the claims for aggregate damages as if it were a hurdle rather than merely a factor to be weighed in the balance. That was wrong in law, because it misconstrued rule 79(2).
c. In any event the CAT failed to construe suitability (in both of the respects in which it played a part in the process) in the relative sense, and thereby failed to take into account the need to consider whether individual proceedings were a relevant alternative, which they plainly were not, and whether the same difficulties as affected quantification in a collective claim would in any event afflict an individual claimant.
d. The CAT did not take into account the general principle that the court must do what it can with the evidence available when quantifying damages, and therefore allowed undoubted forensic difficulties and shortcomings in the likely availability of data to lead it to a conclusion that claimants with a real prospect of (some) success should be denied a trial by the only procedure available to them in practice.
e. The CAT was wrong in law to regard respect for the compensatory principle as an essential element in the distribution of aggregate damages.
f. By contrast I would not criticise the CAT, as did the Court of Appeal,
for having conducted a trial within a trial at the certification stage.
g. Nor do I regard it as inevitably premature for the CAT to have regard
to a proposed distribution method at the certification stage.
A footnote, reflected the sad passing of Lord Kerr:
82. Lord Kerr presided at the hearing of this appeal, participated fully in the
deliberations which followed the hearing and oversaw the preparation and
discussion of the judgments. He agreed that the appeal should be dismissed for the reasons set out in this judgment prior to his retirement on 30 September 2020. There was a delay between the completion of the judgments and their being handed down to allow, in accordance with the Court’s practice, the law reporters and counsel an opportunity to check the judgments for typographical errors and minor inaccuracies, and to enable a press summary of the judgments to be prepared. The judgments were accordingly circulated in draft to the parties’ legal advisers, with Lord Kerr and Lord Thomas recorded as agreeing with this judgment, and a consequent majority of three to two in favour of dismissing the appeal. After those administrative steps had been completed, and three days before judgment was due to be handed down, Lord Kerr sadly died. Following his death Lord Reed as President of the Supreme Court directed under section 43(4) of the Constitutional Reform Act 2005 that the panel for this appeal be re-constituted as consisting of myself, Lord Sales, Lord Leggatt and Lord Thomas. Lord Sales and Lord Leggatt explain in their joint judgment why they agree that, in these circumstances, this appeal should be dismissed, notwithstanding their disagreement with the reasoning in this judgment.
There are a number of practice points which flow from this decision, and consideration of this type of litigation more generally.
Competition law is a specialist area of practice, and collective proceedings are a specialist sub-area of practice within that specialism. A lawyer contemplating large scale collective proceedings, cannot dabble in this area, or be unaware of the Dunning-Kruger effect when assessing her own competencies to litigate these claims. Instead a team with specialist abilities must be assembled, as the first part of project management.
Secondly, such a claim cannot sensibly proceed without litigation funding. This case is a multi-billion claim. The cost spend is proportionately heavy. As well as the usual costs, expert evidence will inevitably be required, which will be lengthy and usually very expensive to acquire. The disbursement spend will be significant, and there are few firms, with a sufficient war chest to carry the sort of fees that experts in these cases will charge or the part payment of fees, that counsel with expertise in this area can command. In addition, due to the heavy potential exposure to adverse costs, ATE insurance is likely to prove essential, or some other means of capital to provide comfort, should the case fail.
Finally, it remains the case that careful consideration must be given to whom the the representative should be, as they must be approved by the CAT: they will not approve any Tom, Dick or Harry. As the CAT noted in its decision when considering whether Mr Merricks could bring the proceedings:
93. Mastercard submitted as a separate and independent ground of objection that the Applicant should not be authorised as a class representative. The Applicant, Mr Walter Merricks CBE, is a qualified solicitor who has had a long and distinguished career in fields concerned with consumer protection. From 1996-1999, he was the Insurance Ombudsman, and between 1999 and 2009 he was the chief ombudsman of the Financial Ombudsman Service, which operates under the statutory framework of the Financial Services and Markets Act 2000. The Applicant has served on a number of public inquiries examining issues related to legal procedure and he is currently a commissioner on the Gambling Commission and a trustee and non-executive director of the legal charity, JUSTICE.
For the curious, wanting to know more about competition law, potential claims and the sort of cases that attract the attention of the regulator, and in turn which may involve proceedings by the aggrieved, there is no better place to start than here: https://www.gov.uk/cma-cases.