Introduction

Merricks v. Mastercard Incorporated & Ors ([2017] CAT 16) is a pivotal case adjudicated by the United Kingdom Competition Appeals Tribunal on July 21, 2017. The case centered around an application for a Collective Proceedings Order (CPO) under Section 47B of the Competition Act 1998 (as amended), aiming to facilitate collective legal action on an opt-out basis. The plaintiffs sought damages for breaches of Article 101 of the Treaty on the Functioning of the European Union (TFEU), alleging anti-competitive practices by Mastercard related to the setting of multilateral interchange fees (MIF).

The proposed class encompassed approximately 46.2 million UK residents who had engaged in transactions with businesses accepting Mastercard between May 22, 1992, and June 21, 2008. The core issue revolved around whether the claims shared sufficient commonality and suitability for collective proceedings, particularly concerning the estimation and distribution of aggregate damages.

Summary of the Judgment

The Tribunal meticulously examined the application for a CPO, evaluating both the certification of claims and the authorization of the class representative. The primary contention against certification was the lack of a sustainable methodology to accurately estimate and distribute aggregate damages due to significant variations in pass-through rates and individual consumer expenditures.

The court acknowledged the theoretical plausibility of aggregating damages but underscored the impracticality of applying such methodologies across a vast and diverse class without reliable data. Additionally, concerns were raised regarding the Funding Agreement between the applicant and a third-party funder, particularly the potential for conflicts of interest and inadequate coverage of liabilities.

Ultimately, the Tribunal dismissed the application for a CPO, concluding that the claims were not suitable for collective proceedings under Section 47B(6) of the Competition Act 1998.

Analysis

Precedents Cited

The judgment referenced several key precedents, notably:

• Sainsbury's Supermarkets Ltd v MasterCard Inc [2016] CAT 11: Addressed issues regarding pass-through of interchange fees to consumers.
• ASDA Stores Ltd and others v MasterCard Inc [2017] EWHC 93 (Comm): Focused on competition law breaches related to MIF.
• Pro-Sys Consultants Ltd v Microsoft Corp. [2013] SCC 57 ("Microsoft"): Provided the Supreme Court of Canada’s test for commonality in class actions, emphasizing credible and fact-grounded methodologies.
• Gibson v Pride Mobility Products Ltd [2017] CAT 9: Further elucidated on certification requirements in collective proceedings.

These cases collectively influenced the Tribunal’s approach to evaluating the commonality of issues and the practicality of damage distribution mechanisms in large-scale collective actions.

Legal Reasoning

The Tribunal’s legal reasoning was anchored in the statutory requirements of Section 47B(6) of the Competition Act, which mandates that claims included in collective proceedings must raise the same, similar, or related issues of fact or law and be suitable for such proceedings.

Key elements of the reasoning included:

• Common Issues: Only the determination that the EEA MIF affected the UK MIF was deemed a genuine common issue. However, issues like pass-through rates and individual spending varied significantly, undermining the commonality requirement.
• Methodology for Aggregate Damages: While theoretically sound, the proposed weighted average pass-through approach was deemed impractical due to data limitations and the complexity of accurately reflecting individual losses.
• Funding Agreement and Class Representative: Concerns regarding the Funding Agreement’s provisions potentially conflicting with the class's interests led to objections about the applicant's suitability as a representative.
• Distributive Mechanism: The proposed per capita annualized distribution of damages was criticized for lacking a direct relationship to individual losses, contravening the compensatory principle of restoring claimants.

The Tribunal emphasized the necessity for a practicable and fair distribution mechanism, which the applicant failed to establish convincingly.

Impact

This judgment sets a significant precedent in the realm of collective proceedings within competition law:

• Stringent Certification Standards: Reinforces the need for substantial commonality and practical methodologies in collective claims, especially for massive classes.
• Aggregate Damages Limitations: Demonstrates judicial reluctance to approve aggregate damage awards where individual loss calculation remains unattainable.
• Third-Party Funding Scrutiny: Highlights the court’s vigilance regarding potential conflicts of interest arising from funding agreements, ensuring class representatives act in the class's best interests.
• Facilitating Access to Justice: While the decision may limit the feasibility of large-scale collective actions in certain contexts, it upholds the integrity and fairness of the proceedings for all involved parties.

Future applications for CPOs will likely encounter heightened scrutiny regarding the feasibility of damage distribution and the establishment of common issues.

Complex Concepts Simplified

Collective Proceedings Order (CPO)

A CPO allows multiple similar claims to be treated together in a single legal action, streamlining the process and potentially reducing costs. In the context of competition law, it facilitates collective action by consumers who have been affected by anti-competitive practices.

Multilateral Interchange Fee (MIF)

MIF refers to the fee charged between banks for processing card transactions. MasterCard sets default MIF rates, which can influence the merchant service charges (MSC) imposed on businesses. High MIFs can reduce competition by increasing costs for merchants and, ultimately, consumers.

Art 101 TFEU

Article 101 of the Treaty on the Functioning of the European Union prohibits agreements between businesses that restrict competition and affect trade between EU member states. Violations can lead to significant fines and damages claims.

Pass-Through Rate

The pass-through rate is the extent to which increased costs (like higher MIFs) are transferred from businesses (merchants) to consumers in the form of higher prices. Accurate estimation of this rate is crucial for quantifying damages in competition law cases.

Third-Party Funding

This involves an external entity providing financial support for legal actions in exchange for a share of any proceeds from the lawsuit. While it can enhance access to justice for large classes, it raises concerns about conflicts of interest and the equitable distribution of damages.

Conclusion

The Merricks v. Mastercard case underscores the complexities involved in initiating collective proceedings for large-scale competition law infringements. The Tribunal’s decision emphasizes the necessity for concrete and practicable methodologies in aggregating and distributing damages, ensuring that such proceedings adhere to the principles of fairness and compensatory justice.

By denying the CPO, the Tribunal highlighted the challenges in balancing access to justice for vast consumers against the imperative of maintaining procedural integrity. This judgment will serve as a crucial reference for future collective actions, particularly in cases involving significant economic implications and extensive class sizes.

Ultimately, while collective proceedings remain a valuable tool for redressing widespread consumer harm, this case delineates clear boundaries and requirements that must be met to ensure their effectiveness and fairness.