Supreme Court lowers the bar for certification of Class Actions in the UK

Hogan Lovells

Hogan Lovells

[co-author: Henry Gafsen]

In a key decision, the UK Supreme Court has given guidance on the threshold for certifying a class action for breach of competition law. The Court’s judgment in Mastercard v Merricks will make it easier to obtain class certification and will likely encourage a significant increase in class actions in the UK.

On 11 December 2020 the UK Supreme Court gave judgment in Mastercard v Merricks. The appeal is the first time the Supreme Court has considered the test for whether a class action should be certified. The UK class action regime, which applies to claims for breach of competition law, allows opt-out or opt-in class actions and was introduced in 2015.

The background to the case is the much-litigated issue of Mastercard’s multilateral interchange fee ("MIF"), applying to debit and credit card transactions. In 2007 the European Commission found that Mastercard's MIF breached European competition law. Relying on that decision, in 2016 Walter Merricks brought a £14 billion opt-out follow-on damages claim against Mastercard on behalf of all adults who had made purchases in the UK in shops accepting Mastercard over a 15 year period - a class of 46.2 million people.

Claims must be certified as being "eligible" by the Competition Appeal Tribunal (the "CAT") to proceed as a class action. This requires the CAT to determine if the claims are suitable for inclusion in a class action. In 2017 the CAT refused to certify the Merricks claim. It decided that it was not "suitable" on two grounds: First, the claim was not suitable for an award of aggregate damages. Second, the proposed method of distributing the damages did not meet the compensatory principle because it did not reflect "even a very rough and ready approximation" of each individual claimant's loss. The CAT's decision was overturned by the Court of Appeal in April 2019 and the case has now been decided by the Supreme Court.

The Supreme Court rejected the appeal by a 3:2 majority. The majority judgment makes a number of key rulings that will be relevant to all future cases:

  1. Whether a claim is "suitable" must be understood as meaning whether "collective proceedings are suitable relative to individual proceedings". In order words, are there advantages in bringing the claims as a class action, rather than many individual claims?
  2. Showing that claims are suitable for aggregate damages is one of many factors to consider, not a required condition. In addition, whether a claim is suitable for aggregate damages is also a relative test, i.e., is it more suitable than individual damages.
  3. Caution is required before imposing restrictions on claimants in class actions that do not apply to individual claims. Critically, this means that difficulties with quantifying damages, which would be overcome in individual claims using the "broad axe" of estimation or even "informed guesswork", ought not to stand in the way of class certification.
  4. The proposed method of distributing aggregate damages to class members does not have to reflect each claimant's individual loss.

The Supreme Court's judgment lowers the threshold for certification in key respects and it may now prove relatively straight-forward for claimants to demonstrate that a class action offers advantages over bringing many individual claims. As the Supreme Court's dissenting judgment noted, it appears to "very significantly diminish" the limitations that certification places on collective proceedings. The majority judgment relies heavily on the policy of wanting to facilitate mass claims under the regime, and in so doing, overrules some of the checks and balances reflected in the CAT's judgment and the strong dissenting judgment in the Supreme Court.

Next steps

A number of collective proceedings that have already been issued were awaiting the outcome in Merricks. Now that the Merricks log jam has been broken, this first wave of collective proceedings will proceed. A number of further claims are also understood to be waiting to be issued and more claims can be expected given the encouragement provided by this judgment.

The Merricks claim itself will be remitted to the CAT to reconsider its certification decision. It still remains to be seen how the CAT will apply the new test, and the CAT remains the sole arbiter of questions of fact on certification applications. Moreover, as no case has yet gone beyond the certification stage, it is still unclear how class actions will fare once they proceed to a substantive trial.

[View source.]

DISCLAIMER: Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.

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