The Competition Appeal Tribunal (CAT) yesterday approved the first collective proceedings order (CPO), allowing the £14bn Mastercard opt-out class action to go forward at last.
It emerged in the ruling that the class representative, solicitor Walter Merricks, has funding for £45m of his own costs and disbursements, while the third-party funder backing the case could exit should it look like a return of at least £179m on its investment is unlikely.
The claim is a follow-on action after Mastercard was found to have infringed EU law by imposing charges (known as ‘interchange’ fees) on the use of Mastercard debit and credit cards. It is claimed that this increased costs for retailers and consumers.
It is brought on behalf of a class of 46m people who used a Mastercard between 1992 and 2008, but in July 2017, the CAT dismissed Mr Merricks’ application for a CPO because it was not satisfied that his experts would be able to get the evidence to show that the illegal fees were then passed on to consumers in the form of higher prices.
The Court of Appeal ruled that the CAT “demanded too much” of the proposed representative at the certification stage in proving that the fees were passed on, a decision upheld last December by the Supreme Court.
As a result, Mastercard did not oppose the application for the CPO but the CAT still had to be satisfied with a new litigation funding agreement (LFA) with Innsworth Capital, which took on the case from the original funder, Gerchen Keller Capital, before the Court of Appeal hearing.
The LFA provides for £15m of adverse costs, compared to £10m under the original LFA, and gives Mr Merricks access to funding for his costs and disbursements of £45.1m; it was £33m under the previous LFA.
“We are satisfied that this should enable Mr Merricks to pursue the proceedings adequately for the class members,” the tribunal ruled, noting that Mr Merricks’ revised costs budget was for just under £32.5m.
The tribunal noted that Innsworth could terminate the LFA if it “reasonably” ceased to be satisfied about the merits of the claims or that they were no longer commercially viable because it was unlikely to obtain at least £179m as a return.
The CAT said it had expressed concern during the hearing that this gave too broad a discretion to Innsworth, as it was under no obligation to take independent advice before terminating.
As a result, Innsworth agreed that to amend the LFA so that to provide that it could only reach such views based on independent legal and expert advice.
“We consider that this amendment fairly addresses our concern,” the CAT said.
Innsworth also agreed to provide Mastercard with an undertaking that it would discharge a liability for costs ordered against Mr Merricks.
The quantum of the principal claim is estimated at up to £7.2bn, rising to about £13.8bn with simple interest or £16bn with compound interest.
Mastercard opposed the latter and the CAT held that the claim for loss by way of compound interest could not be “fairly resolved in these collective proceedings”. The class members will remain entitled to seek simple interest.
The tribunal also rejected Mr Merricks’ bid to amend the claim form to extend the class to include people who died before it was issued, which would have added 13.7m people to the class.
While a class “can include the representatives of the estates of deceased persons, it cannot simply include persons who are no longer alive”, the tribunal said.
Even if it were wrong on this, the application to amend was made after the limitation period had expired, it added.
Mr Merricks, a one-time senior Law Society official who went on to be Chief Financial Services Ombudsman, said: “Mastercard has thrown everything at trying to prevent this claim going forward, but today its efforts have failed.
“The tribunal’s ruling heralds the start of an era of consumer-focused class actions which will help to hold big business to account in areas that really matter, which is an area I have spent much of my working life fighting for and something which I am proud to be a part of.”
His solicitor, Quinn Emanuel partner Boris Bronfentrinker, added: “The tribunal’s judgment marks an important landmark in both the timeline of Mr Merricks’ case, and also in the development of the CPO regime more generally, being the first CPO ever to have been granted.
“It has been a long and winding journey that started back in 2016. Many doubted the suitability of this claim for a collective action, but the entire legal team representing Mr Merricks never stopped believing.
“It is very satisfying to know that Mastercard must now defend on the merits a claim of £15bn in the knowledge that it has a binding finding of infringement against it.
“We now look forward to securing what should be the largest damages award in English history for the class of some 46m UK consumers and to holding Mastercard to account for its anticompetitive behaviour.”
Gareth Shaw, head of money at consumer group Which?, said: “This is a really positive step for consumers. Which? has campaigned long and hard for an effective collective redress scheme which gives large numbers of people the opportunity to hold companies to account where they have been harmed by manipulative business practices.
“This claim proceeding to trial could open the door for many other cases to follow suit – ensuring victims of anti-competitive behaviour can get the justice they deserve.”
The Supreme Court ruling unblocked the CPO regime under the Consumer Rights Act 2015 and various other cases are now proceedings in the CAT, covering issues such as train boundary fares, delivery costs for car buyers, foreign exchange and truck prices.