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Landmark Judgment in MasterCard Class Action Marks Beginning of UK’s Collective Proceeding Standards

Last month, the UK’s Competition Appeal Tribunal (“CAT”) announced its long-awaited class certification judgment in Merricks v. MasterCard – the largest damages claim in UK history and the second case brought under the new collective proceedings system. Under the UK Consumer Rights Act 2015, private plaintiffs may bring collective proceedings similar to class actions available in the U.S., Canada and other countries. The CAT’s analysis and observations may deter some actions and encourage others as a major step in developing case law to guide courts and litigants in the future.

Procedural Background

The Merricks case arose from an EU Commission action against MasterCard, which determined that MasterCard had imposed supra-competitive multilateral interchange fees on retailers for cross-border transactions. A number of private damages lawsuits brought by retailers followed, and MasterCard has paid these retailers hundreds of millions of dollars in damages and settlements. (For example, the decision in Sainsbury’s Supermarkets Ltd. v. MasterCard, Inc. [2016] CAT 11, which awarded Sainsbury £68.6 million, plus interest.)

In this case, Walter Merricks filed a collective proceeding order (CPO) application as the proposed class representative. The CPO application sought damages of £14 billion on behalf of all UK residents who used a MasterCard credit or debit care between May 22, 1992 and June 21, 2008—a class composed of 46.2 million people.

Mr. Merricks proposed to quantify damages by calculating the volume of commerce affected, the overcharge percentage imposed by MasterCard, and the rate at which merchants passed through the overcharge to consumers. At the CPO application hearing, the CAT expressed concerns with the proposed methodology, particularly the extent to which the pass-through rate would vary across different sectors of the economy and different class members. Determining pass-through rates is a difficult problem in U.S. indirect purchaser antitrust class actions and an issue that did not impede Sainsbury’s and other merchants from recovering damages from MasterCard. (See The American Invasion – Class Actions Are Coming To the UK)

The CAT’s Decision

In a July 21, 2017 opinion, the CAT denied Mr. Merrick’s CPO application. The CAT enumerated the three requirements for a CPO: (1) whether claims are brought on behalf of an identifiable class; (2) whether the claims raise common issues; and (3) whether the claims are suitable to be brought as a collective proceeding. The opinion focused heavily on the second requirement, which bears some similarity to the commonality requirement for U.S. class actions.

In addressing the “common issues” requirement, the CAT focused on the expert methodology that Mr. Merricks proposed be used to determine the damages. Ninety-five percent of the damages alleged in Merricks concerned transactions that occurred wholly within the UK. The intra-UK interchange fee was not directly at issue in the EC proceedings against MasterCard, but the plaintiffs alleged that the cross-border interchange fees had a significant influence on intra-UK interchange fees. (This allegation was necessary for the case to proceed as a follow-on action, but cases based on conduct post-dating the Act’s effective date will not be constrained by this requirement.) The CAT expressed some concerns with the availability of data needed to determine the amount of commerce at issue, but suggested that adjustments could be made to determine the volume of intra-UK and cross-border purchases and that the overcharge could be calculated separately for both intra-UK and cross-border interchange fees. [2017] CAT 16, at 29-30, 34-48.

Mr. Merricks’ claim broke down at the third step of the analysis, the calculation of pass-through rate. The CAT recognized that “pass-through cannot be described as a common issue in any meaningful sense.” Id. at 66. However, the CAT noted that, unlike U.S. class action practice, there is no requirement that common issues predominate over individual issues. Id. at 66.

Furthermore, the CAT acknowledged that, in some cases, it may be appropriate to determine an average pass-through rate for the entire class and calculate aggregate damages, even though the average pass-through rate for individual class members would vary considerably. Id. at 67. However, such an approach would require the Applicant to show a sustainable methodology to calculate aggregate damages and distribute damages to individual class members with reasonable accuracy. Id. The CAT concluded that there was neither sufficient data to accurately calculate the average overcharge, nor was there a method to distribute an award to individual class members to reflect the damages they actually incurred. Id. at 78, 84, 87-88.

Implications for the Future

The proposed class in Merricks was massive, as the Applicant attempted to thread multiple needles to overcome significant hurdles that may not vex future plaintiffs. The Consumer Rights Act treats claims based on conduct arising before the Act’s effective date (like Merricks) differently than claims arising later. For conduct pre-dating the effective date, plaintiffs may only seek a CPO order for claims that follow a finding of a competition violation by the EC or UK authorities. This rule prompted Mr. Merricks to allege that the cross-border interchange rate affected the intra-UK rate, adding a layer of complexity to the case that many future plaintiffs will not face.

Additionally, the size of the class and significant differences in purchasing habits among class members made it extremely difficult to determine a viable way to distribute damages to class members, a problem magnified by the variation in pass-through rates. The CAT emphasized the importance of compensating individuals for harm actually suffered, rather than deterring competition law violations. By considering these problems of distribution at the CPO application stage, the CAT articulated a framework that will make some types of claims difficult to bring as a collective proceeding, especially indirect purchaser claims. By contrast, for consumers of homogenous products and products where data about purchases are easier to obtain, the standards suggested by the CAT will be more workable for plaintiffs. Claims will also be easier for consumers, if they can bring suit as direct purchasers.

Moreover, the Merricks decision is the first such class action judgment in the UK. The CAT’s approach was rigorous, careful and focused on allowing restitution for overcharged consumers, but allows collective proceedings only if the proposed methodology is adequate. This opinion marks the beginning of the UK’s development of collective proceeding standards. The availability of such procedures may expand to other types of claims, particularly if the CAT succeeds in developing a workable framework where plaintiffs can efficiently bring claims, but where the incentive structure does not prompt the filing of unmeritorious claims. 

About the Authors

Matthew Siembieda is a Pittsburgh-based attorney at Reed Smith with more than 30 years of experience handling complex commercial litigation matters, including class actions, as well as advising global companies on international compliance issues.

Ed Duffy is a Houston-based attorney in Reed Smith’s Global Regulatory Enforcement Group, who focuses on antitrust counseling and litigation and a wide range of complex commercial disputes.

Contributing Author

Matthew J. Siembieda and Edward D. Duffy, Reed Smith LLP

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