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Article: April 2019: Class Actions in the UK: Groundbreaking $18 Billion Court of Appeal Decision Opens

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Class Actions in the UK: Groundbreaking $18 Billion Court of Appeal Decision Opens the Door and Signals Encouragement for Claimants

On 16 April 2018, Quinn Emanuel secured a significant victory when the English Court of Appeal delivered a landmark judgment in the case of Walter Hugh Merricks v. MasterCard Inc & Ors, in which Quinn Emanuel acts for Mr Merricks (the UK’s former Chief Financial Ombudsman). The case, the largest claim ever brought in England, is also the first mass consumer class action brought before the English Courts. The Court of Appeal overturned the decision of the first instance court, the Competition Appeal Tribunal (CAT), refusing certification, thereby paving the way for the action to proceed. In doing so, it sent a clear message that going forward the interpretation and application of the class action rules should be informed by the clear legislative intention that class actions should facilitate the bringing of claims that could not otherwise be brought on an individual basis. The Court of Appeal thereby resuscitated the UK’s class actions regime, which the CAT’s original certification ruling had appeared to suffocate.

Background

Opt-out class actions were introduced into England late in 2015, after the previous regime which allowed approved representative bodies to bring cases on an opt-in basis had proved woefully ineffective in facilitating consumer claims. The new class actions regime, which allows proposed class representatives to choose whether to pursue class actions on an opt-in or an opt-out basis, is currently limited to antitrust claims. However once its contours have been shaped by experience and the regime has proved its efficacy, the expectation is that it will be expanded to cover other kinds of claims. As such, the Merricks judgment, which addresses critical elements of the class certification standard, is one which will shape class action litigation in England for generations to come.

The background to Mr. Merricks’ claim lay in the European Commission’s 2007 decision that the setting of the EEA multilateral interchange fee (which is charged between banks in relation to transactions involving the use of a MasterCard issued in one EEA member state and used in another) was contrary to EU antitrust law. The Commission additionally considered that some part of the interchange fees charged to merchant banks was likely to have been passed on to consumers in the form of increased prices, irrespective of whether those consumers used a payment card or cash to purchase the goods or services in question, although it made no attempt to quantify that.

In September 2016, Mr. Merricks filed a claim with the CAT. He sought to be appointed class representative to pursue a compensation claim on an opt-out basis on behalf of all individuals over the age of 16 who between 1992 and 2008 had purchased goods or services from businesses in the UK which accepted MasterCard. The class was said to encompass 46 million consumers who, he argued, had suffered damages of £16 billion by reason of these unlawful interchange fees. Mr. Merricks sought an aggregate award of damages, in other words an award without assessing the amount of damages recoverable by each individual member of the class. He asserted that an individual assessment of damages suffered by each class member would be impracticable because it would require (i) the determination of the actual purchases of goods and/or services made by each class member and (ii) the assessment of the extent to which each of the businesses from which those purchases were made passed on the interchange fees. He proposed to make annualized distributions to all class members for the years that they were in the class.

MasterCard claimed that the CAT should refuse to certify the proposed collective proceedings because (i) an award of aggregate damages in this case would be inimical to the compensatory nature of damages; and (ii) the proposed distribution mechanism to individual members of the class would also be inimical to the compensatory nature of damages as the amounts received by individuals would bear no reasonable relationship to their actual loss.

In early 2017, a three-day hearing took place to determine whether the CAT should grant a collective proceedings order (CPO) to allow the claim to proceed. The CAT refused to certify the class on essentially two grounds: (i) that whilst Mr. Merricks’ experts had presented a methodologically sound basis for assessing damages, including pass-on, they had failed to establish that there was sufficient evidence to actually carry out the pass-on analysis; and (ii) that it was not sufficient to establish the aggregate damages of the class, it was necessary to show that there was a distribution method that would provide for compensation to each class member on a broadly compensatory basis, which Mr. Merricks was neither proposing to do, nor could he. Having refused to certify, the CAT then also determined there was no right of appeal from that decision, holding that Mr. Merricks’ remedy was instead the more limited right of judicial review.

Mr. Merricks thereupon applied to the Court of Appeal for permission to appeal, needing first to establish that such a right of appeal existed. In a decision delivered in November 2018, the Court of Appeal upheld the arguments presented by Quinn Emanuel and ruled that the CAT was wrong and there was a right of appeal against a refusal of class certification.

Certification Appeal

The substantive appeal against the refusal of certification was heard over two days in February 2019, with judgment being delivered quickly thereafter, on 16April 2019. The Court of Appeal once again accepted and adopted entirely the arguments of Quinn Emanuel, ruling that the CAT had committed multiple errors of law and misdirected itself as to the correct legislative test. In a unanimous decision, the judgment of the CAT was set aside, the Court of Appeal finding that the CAT had been wrong to refuse certification on the grounds that it did. The matter has been remitted back to the CAT for re-hearing because there are funding issues that need to be resolved before certification. However, once those issues are resolved, certification now seems inevitable.

The key points coming out of the judgment are:

  • the test that the proposed class representative has to satisfy at the certification stage is whether the claim has “a real prospect of success,” rather than having to demonstrate that the claims are certain to succeed. In this regard, the test is no different to the test applied by the English courts in any other interlocutory assessment of the prospects of success in litigation made before the completion of disclosure and the filing of evidence.
  • in considering how the UK certification regime was to operate, the Court of Appeal, like the CAT, relied on Canadian authorities, which appears appropriate given that the UK regime is modelled on the regime in place in Canada.
  • the certification hearing is not to be a mini-trial on the merits. Under English law, the function of the CAT at the certification stage is to be satisfied that the methodology proposed by the class representative is capable of, or offers a realistic prospect of, establishing loss to the class as a whole and that data sufficient to allow the methodology to be operated can be made available at trial. In conducting a mini trial, and cross-examining Mr. Merricks’ experts, the CAT had gone too far.
  • aggregate damages is a new type of damages introduced by the collective action regime. In that regard, the traditional common law principles needed to be adapted to accommodate this new type of damages.
  • so long as damages are compensatory at the aggregate level to the whole class, there is no requirement that damages be compensatory to each individual class member. Whilst the Court of Appeal stated that if it is possible to assess damages down to the individual class members, that should be the preferred approach, it was not mandated by the legislative regime and the failure to establish compensatory damages to the individual class members was not a reason to refuse class certification.
  • the issue of how to distribute damages was a matter for the trial judge to be decided at the end of the proceeding, and was not a matter that the CAT should consider at the certification stage. The Court of Appeal also observed that distribution was not a matter for the defendant.

  • the statutory regime expressly envisages certification as a continuing process, under which a CPO may be varied or revoked at any time.


Of potentially broad significance was the Court of Appeal’s finding that the issue of whether the interchange fee overcharge was passed-on to consumers generally, and in what amounts, was an issue common to all the individual claims. The UK’s opt-out class actions regime permits a class to include sub-classes to enable class actions to encompass claims that are not identical in all respects and it appeared likely that a substantial area of dispute in Merricks would concern precisely this issue.

Comment

This judgment sends a clear signal that the English courts are open for class actions and are able and willing to innovate to ensure that the Parliament’s goals in introducing this new regime are realized. The hurdle for initial certification, which had been set by the CAT at a level that commentators feared would stifle the new regime, has been lowered considerably by the Court of Appeal in a move that will encourage more actions to be brought. In particular, the clarification of the approach to certification is likely to provide particular encouragement to those contemplating bringing claims in smaller and less complex cases.

Undoubtedly, companies that sell consumer products, that find themselves infringing competition law, should consider this decision carefully as it increases the likelihood of consumer claims. Funders too will be encouraged as this approach is likely to reduce the costs – and possibly risks - of certification. More broadly, the traditional defence tactic of arguing that direct purchases did not suffer loss because they passed it on (an argument that MasterCard ran in defence of merchant claims) is now dangerous, as it essentially invites indirect consumer class claims.

But it is important to recognize that this is a single judgment, albeit an important one. The Court of Appeal (unlike the more sanguine CAT) clearly found it unacceptable that if certification was refused, the consumers in Mr. Merricks’ proposed class would be wholly without redress (for limitation reasons) and in the months and years to come, this may form a basis for distinguishing the Merricks approach from the approach that is to be adopted in non-consumer claims and/or where no such limitation issues arise. Another element of the Court of Appeal’s approach that already appears ripe for refinement concerns its approach to the definition of common issues. Subclasses are expressly envisaged in the UK’s regime and their role is completely unclear in the approach take by the Court of Appeal. This is something that the courts will need to define as the regime continues to mature. Certification issues, including sub-classes, will be before the CAT again in June 2019, when it will be considering whether to certify either, both or neither of the two class actions that have been brought following on from the European Commission’s trucks decision.

Quinn Emanuel’s competition litigation practice in London is at the forefront of this new developing and important area of competition litigation. We were the architects of Mr. Merricks’ landmark victory in the Court of Appeal. We are also defending the next major class actions currently before the CAT in relation to the truck cartel. No firm has more experience in these cases and sees the issues and strategies from both sides. The competition team in London would be happy to discuss the Merricks judgment or any wider issues about the new collective action regime.