Merricks v Mastercard Incorporated & Ors

Factual and Procedural Background

This opinion concerns an application for a collective proceedings order ("CPO") under section 47B of the Competition Act 1998, as amended, to enable continuation of collective proceedings on an opt-out basis claiming damages for breach of Article 101 of the Treaty on the Functioning of the European Union ("TFEU"). The proceedings are brought on behalf of a class of approximately 46.2 million individuals who purchased goods or services from businesses in the UK accepting Mastercard cards during the claims period between 22 May 1992 and 21 June 2008 (with a slightly shorter alternative period ending 19 December 2007).

The claims are follow-on actions based on the European Commission's decision of 19 December 2007 ("the EC Decision") that Mastercard's setting of the intra-EEA fallback multilateral interchange fee ("EEA MIF") breached Article 101 TFEU. The defendants are the three addressees of the EC Decision, collectively referred to as "Mastercard". The EC Decision was upheld on appeal by the General Court and the Court of Justice of the European Union.

The present case alleges damages largely resulting from Mastercard's setting of the UK multilateral interchange fee ("UK MIF"), which was not directly addressed in the EC Decision but is alleged to have been influenced by the EEA MIF. The claim form estimates aggregate damages around £14 billion, including compound interest, though this figure is likely an overestimate. The application was strongly contested by Mastercard, including objections related to the funding arrangements of the Applicant, who proposes to act as the class representative.

The application was heard over two days with legal representation and expert evidence from economists and accountants. The Tribunal excluded all members and experts from the class to avoid conflicts of interest.

Legal Issues Presented

1. Whether the claims raise common issues and are suitable for certification as collective proceedings under section 47B of the Competition Act 1998.
2. Whether the Applicant is suitable and should be authorised as the class representative under the collective proceedings regime.
3. Whether the funding arrangements, specifically the terms of the Funding Agreement with a third-party funder, affect the Applicant’s authorisation as class representative.

Arguments of the Parties

Applicant's Arguments

• The class is defined to include all individuals aged 16 or over, resident in the UK for at least three months, who purchased goods or services from merchants accepting Mastercard cards, reflecting the pass-through of interchange fees to consumer prices.
• The Applicant relies on expert methodology to calculate aggregate damages based on volume of commerce, overcharge percentages, and estimated pass-through rates of the merchant service charge to consumers.
• The proposed distribution method involves annualised per capita allocation of aggregate damages among class members for each year of the claims period, prioritising simplicity and high participation over precise individual loss calculation.
• The Applicant contends that the Funding Agreement with the third-party funder provides sufficient financial resources to pursue the litigation and cover potential costs liabilities.
• The Applicant offers to amend the Funding Agreement to address the Tribunal’s concerns regarding the funder’s rights and obligations.
• The Applicant emphasises the importance of access to third-party funding for collective proceedings and the ability to recover funding costs from unclaimed damages under the statutory regime.

Mastercard's Arguments

• Aggregate damages are incompatible with the compensatory nature of damages and cannot be assessed reliably on a class-wide basis.
• The proposed distribution method does not reasonably relate individual damages to actual loss, undermining compensation principles.
• The methodology for estimating pass-through rates is insufficiently supported by data, ignoring significant variation across merchants, sectors, regions, and time.
• There is no practicable means to estimate individual losses given the wide disparities in purchasing patterns and pass-through effects.
• The Funding Agreement is flawed because it can be terminated by the funder, limiting the Applicant’s ability to fund the litigation or pay costs if ordered.
• The funding limit for potential liability to Mastercard’s recoverable costs is inadequate relative to the estimated costs of litigation.
• The Funding Agreement creates a conflict of interest by obliging the Applicant to secure payment of a substantial return to the funder from undistributed damages, potentially conflicting with the interests of class members.
• The "Total Investment Return" payable to the funder does not constitute recoverable costs or expenses under the statutory scheme, and the Applicant has no incurred liability enabling the Tribunal to order such payment.

Table of Precedents Cited

Court's Reasoning and Analysis

The Tribunal began by outlining the statutory framework for collective proceedings under the Competition Act 1998 and the Consumer Rights Act 2015, focusing on the requirements for certification of claims and authorisation of the class representative. The claims must raise common issues and be suitable for collective proceedings, and the class representative must be just and reasonable to act for the class.

The Tribunal analysed the nature of the claims, which allege damages caused by Mastercard's setting of the UK MIF influenced by the EEA MIF found unlawful in the EC Decision. The definition of the class was explained, encompassing final consumers resident in the UK over 16 years old during the claims period.

The core challenge identified was the calculation of damages, particularly the pass-through of interchange fees from acquiring banks to merchants and then from merchants to individual consumers. While it was accepted that interchange fees were fully passed on to merchants, the extent to which merchants passed on these costs in retail prices varied widely and was not a common issue. The Tribunal noted the significant variation in pass-through rates across sectors, merchants, regions, and over time.

The Applicant's expert methodology proposed calculating aggregate damages by applying overcharge percentages and a weighted average pass-through rate to the volume of commerce, then distributing damages on an annualised per capita basis. The Tribunal found that this approach was methodologically sound in theory but lacked sufficient credible data to apply in practice. The experts had not demonstrated the availability of data necessary to estimate pass-through rates reliably across the entire UK retail sector over the 16-year period.

The Tribunal further held that the proposed distribution method bore no reasonable relationship to individual losses, conflicting with the compensatory principle underlying damages. The inability to approximate individual losses from aggregate calculations was a fundamental flaw, making the claims unsuitable for collective proceedings.

Regarding the Applicant’s authorisation, the Tribunal considered the Funding Agreement with the third-party funder. Mastercard argued that the Agreement’s termination rights and funding limits undermined the Applicant’s ability to fund the litigation and pay costs, and that the Agreement created a conflict of interest by obliging the Applicant to secure payment of a substantial return to the funder from undistributed damages.

The Tribunal analysed the statutory provisions governing costs and expenses recoverable from unclaimed damages and concluded that payments to a third-party funder under such an agreement could constitute costs or expenses incurred in connection with the proceedings. However, the existing Funding Agreement did not create an incurred liability enabling the Tribunal to order payment to the funder, thus exposing a risk of termination and funding shortfall.

The Applicant offered to amend the Funding Agreement to create a conditional obligation to pay the funder subject to Tribunal approval, which the Tribunal found would overcome this obstacle. The Tribunal rejected Mastercard’s contention that the funding limit was necessarily inadequate, noting the lack of evidence on Mastercard’s own costs and the possibility of varying the order if needed.

The Tribunal also rejected the conflict of interest argument, finding that statutory safeguards and the Applicant’s demonstrated good faith mitigated such concerns. The Tribunal emphasised the Applicant’s independent control of the litigation and the Tribunal’s role in approving settlements and distributions to protect class members’ interests.

Holding and Implications

The application for a collective proceedings order is dismissed.

The Tribunal held that the claims do not meet the statutory requirements for certification as collective proceedings due to the absence of sufficient common issues and the unsuitability of the claims for collective treatment. The proposed methodology for calculating aggregate damages and distributing them to class members was not supported by credible data and failed to align with the compensatory principle of damages.

Although the Applicant was found suitable to act as class representative subject to amendment of the Funding Agreement, this was moot given the dismissal of the claims certification. No new precedent was established beyond applying existing principles to the complex factual and evidential context of this large-scale collective claim.