Supreme Court breathes life into UK class action regime: Macfarlanes analysis
Background to the UK class regime and the Merricks case
In 2016, Walter Merricks attempted to launch the largest damages claim in English legal history: a £14bn opt-out class action (termed in the UK a “collective proceeding”) against Mastercard on behalf of anyone who had purchased goods or services from any business which accepted Mastercard payments between 1992 and 2008 (a class estimated at 46 million people).
The claim arose from a European Commission finding that Mastercard had unlawfully inflated the interchange fees charged on transactions. Mr Merricks alleged that these inflated fees had been passed on by businesses to their customers, causing loss to consumers.
Collective proceedings of this kind may only be brought in the Competition Appeal Tribunal (“Tribunal”), the UK’s specialist competition court. Before they can proceed, the proposed class representative (“PCR”) must first satisfy the Tribunal that the claim is suitable to be certified. The Tribunal will only grant certification where it is satisfied that:
- the PCR is an appropriate person to authorise to act as class representative;
- the class members’ claims raise the same, similar or related issues of fact or law (the Commonality Condition) (it is worth noting that there is no US-style requirement for such common issues to “predominate” over any issues affecting only individual class members); and
- the claims are “suitable” to be brought in collective proceedings (the Suitability Condition).
In 2017, the Tribunal determined that Mr Merricks had failed to satisfy the Suitability Condition, on the bases that:
- the claims were not suitable for a single aggregate award of damages (the availability of which is unique to the collective proceedings regime), because there was insufficient data to operate the methodology which Mr Merricks proposed for calculating the aggregate loss; and
- there was no plausible way of distributing any damages award in accordance with each individual class member’s particular loss, i.e. on a compensatory basis.
In 2019, however, the Court of Appeal allowed Mr Merricks’ appeal, ruling that the Tribunal had demanded too much of Mr Merricks at the certification stage. In particular, it found that:
- the Tribunal should have considered the question of data availability only in the context of whether the claim had a real prospect of success – it had been wrong to, in effect, conduct a mini-trial; and
- it had been premature for the Tribunal to consider questions of distribution at the certification stage, and in any event the Tribunal had been wrong to conclude that an aggregate damages award had to be distributed on a compensatory basis.
Supreme Court judgment
In unprecedented circumstances, the Supreme Court decision consisted of two opposing judgments each delivered by two panel judges. The judgment of Lord Briggs and Lord Thomas in favour of Mr Merricks (the Judgment) was deemed the prevailing judgment on the basis that the fifth judge on the original panel, Lord Kerr, had expressed his agreement with that judgment before his sad death just three days before the decision was due to be handed down. In the circumstances, Lord Sales and Lord Leggatt agreed that Mr Merricks’ appeal should be upheld, notwithstanding their strongly-worded dissenting judgment (the Dissent).
The Judgment largely confirmed the Court of Appeal’s less restrictive approach to certification and has arguably left the certification test even more applicant-friendly in certain circumstances. In the following paragraphs, we analyse the key issues at the heart of the decision, and their implications.
Limitations on merits or evidential analysis in certification test
In relation to the Suitability Condition, the Tribunal’s Rules set out seven non-exhaustive factors. One of these is “whether the claims are suitable for an aggregate award of damages”. As noted above, one of the Tribunal’s reasons (which it considered fatal by itself) for denying certification was that Mr Merricks had failed to show that such an aggregate award would be suitable. Specifically, the Tribunal considered that Mr Merricks had failed to show that there was sufficient data to operate the methodology which he proposed for calculating the aggregate loss suffered.
The test which the Tribunal adopted in reaching this conclusion (which neither party challenged) was that set out by the Canadian Supreme Court (Canada having a similar, and longer-standing, statutory scheme on class actions) in Pro-Sys Consultants Ltd v Microsoft Corpn  SCC 57 (“Canadian Test”), namely:
“…the expert methodology must be sufficiently credible or plausible to establish some basis in fact for the commonality requirement. This means that the methodology must offer a realistic prospect of establishing loss on a class-wide basis so that, if the overcharge is eventually established at the trial of the common issues, there is a means by which to demonstrate that it is common to the class... The methodology cannot be purely theoretical or hypothetical but must be grounded in the facts of the particular case in question. There must be some evidence of the availability of the data to which the methodology is to be applied.”
In the Supreme Court’s view, this represented the Tribunal’s most serious error. While the Judgment recognised Canadian jurisprudence as worthy of consideration given the regime’s similarity and relative maturity, it considered that the Tribunal had erred in applying the Canadian Test as, in effect, an additional gateway to certification. It found that the UK rules sanctioned no particular merits or evidential analysis at the certification stage, other than that which would apply (as it equally would in individual claims) if the respondent chose to seek summary judgment or strike-out.
On a related note, the Judgment found that, since suitability for an aggregate award of damages was only a factor, and not a condition for certification, under the UK rules, the Tribunal had placed too much weight on its conclusion that Mr Merricks had failed the Canadian Test in any event.
Compensatory principle not essential in distribution of aggregate damages
It is a fundamental principle of English common law that the quantum of any damages award should reflect the actual loss suffered (the “Compensatory Principle”). The second of the Tribunal’s reasons for denying certification had been that, even if it were possible to calculate the aggregate damage suffered by the proposed class as a whole, Mr Merricks had not demonstrated how any such aggregate damages award could be distributed to individual class members in accordance with this principle.
The Supreme Court unanimously rejected the Tribunal’s reasoning on this front. It found that, in the context of collective proceedings, Parliament had “expressly, and radically, modified” the Compensatory Principle by sanctioning the award of aggregate (rather than individualised) damages, and there was nothing to suggest that Parliament had “put… it back again” in the context of distribution. Although it might, in some cases, remain appropriate to distribute any award in a way which approximates individual loss, this is not a requirement, and is unlikely to be a relevant factor at the certification stage.
The Suitability Condition: a relative test, and a relatively low bar
The Supreme Court ruled that the Suitability Condition was a relative one which required the Tribunal to ask the question: “are the claims more suitable to be brought in collective proceedings than in individual ones?”
In the absence of an established body of case law on the UK’s nascent class action regime, the Judgment reached this conclusion following lengthy consideration of: (i) relevant jurisprudence from British Columbia, Canada; and (ii) the policy objectives underlying Parliament’s creation of the UK regime.
On the former, given the “substantially…same purpose” behind the Canadian regime, the Judgment attached weight to the fact that the Canadian regime asks the question whether a class proceeding “would be the preferable procedure for the fair and efficient resolution of the common issues” (emphasis added). In other words, the Canadian regime plainly required a relative assessment of the merits of a class proceeding compared to its alternative. On the latter, the Judgment considered it telling that the UK class regime had been established “as an alternative to individual claims”, in order to address aspects of the individual claim procedure which made it prohibitively difficult for individual consumers to seek redress for unlawful anti-competitive conduct.
Interestingly, similar Canadian regime and policy considerations lay behind the Dissent taking the opposite view on this issue. The Dissent considered that if Parliament’s intention had indeed been to make the Suitability Condition inherently comparative, “it would have been easy to do so by using language such as that used in the [Canadian regime]”, i.e. use of a word such as “preferable” which clearly calls for a relative assessment. In any event, the Dissent disagreed with the Judgment’s logic that because collective proceedings are an alternative to individual proceedings, they are intended to be available in any case where they would be “less unsatisfactory than” individual proceedings. The Dissent considered that such an approach “would very significantly diminish the role and utility of the certification safeguard”.
Some silver linings for Mastercard
The Court of Appeal had criticised the Tribunal for the extent of scrutiny of Mr Merricks’ experts at the certification hearing (including cross-examination by Mastercard’s counsel). The Supreme Court rejected that criticism. That said, the Judgment cautioned that such scrutiny was likely to be the exception rather than the norm, and commented that in Merricks its effect had in fact been to achieve “both greater clarity and a considerable improvement” in Mr Merricks’ experts’ methodologies.
Separately, while the Supreme Court rejected the Tribunal’s application of the Compensatory Principle in the context of distribution, the Judgment nonetheless noted that it might still be appropriate for the PCR’s proposals as to distribution to be considered at the certification stage as one of the factors within the Suitability Condition.
Following the Supreme Court’s ruling, Mr Merricks’ application was remitted to the Tribunal for a further certification hearing in March 2021. Certification will also be determined this year in respect of several other collective proceedings applications which had been waiting in the wings pending Merricks, on issues ranging from train fares to Forex trading.
The Supreme Court’s decision of course bears most directly on Mr Merricks’ claim. As to the extent of its influence on the outcome of other collective proceedings applications, while the principles laid down are undoubtedly applicant-friendly, there remains considerable uncertainty. To take two examples:
Nature of underlying claims
The Judgment’s focus was on a particular type of collective action comprising millions of very small value individual consumer claims, each of which, were they to be brought on an individual basis, would plainly be unviable. This is precisely the type of claim which Parliament appears to have had in mind when creating the regime. Other collective proceedings applications may concern a class comprising considerably smaller groups of corporate entities, each with potentially high value individual claims, some of which may be large, sophisticated and well-resourced. How such other types of collective proceeding fall to be assessed, and whether the Tribunal is prepared to certify them on an opt-out basis, remains to be seen.
Merits/evidential questions at certification stage
The Judgment’s rejection of the Canadian Test as regards merits/evidential analysis at the certification stage in the context of the Suitability Condition – which emphasises how courts are often required in these types of cases to “resort to informed guesswork” and use a “broad axe” in order to arrive at a damages figure – is plainly favourable for prospective applicants. Nonetheless, even if not within the Suitability Condition, there may still be a place in the certification test for this type of analysis in appropriate cases. For instance, where there is a serious debate as to whether the claims raise the same, similar or related issues of fact or law (i.e. whether the Commonality Condition is fulfilled) – where the routes by which the underlying class members are alleged to have suffered damage are arguably not sufficiently similar – the Tribunal may yet be persuaded to delve into evidential analysis or to scrutinise the PCR’s proposed methodology.
There appear, in any event, to be at least three circumstances in which some form of merits/evidential analysis at the certification stage remains appropriate. The first is, as alluded to above, where a respondent chooses to seek summary judgment or strike-out in relation to a collective proceedings application (on the basis that there are no reasonable grounds for the underlying claim, or that it has no reasonable prospect of success). The second is where the Tribunal is faced with an application for an opt-out claim: one of the factors which the Tribunal is required to consider when deciding whether such a claim should indeed be certified on an opt-out (rather than opt-in) basis is the “strength” of the claim. The final circumstance is where multiple opt-out applications are made in respect of (at least substantially) the same underlying claim, prompting a “carriage dispute” between the applicants. In this last scenario, the Tribunal may be willing to contemplate a more thorough assessment of merits in the course of determining carriage than is necessarily required to determine the issue of certification.
Plaintiff law firms and litigation funders have been quick to herald the Supreme Court’s decision as one which will open the floodgates of the UK collective proceedings regime. But the decision addresses only a sample of the issues potentially arising in the context of collective proceedings applications. For all of the Supreme Court’s criticisms of the Tribunal’s handling of Merricks, it stressed the Tribunal’s expertise and the importance of its “gatekeeping role”, in which it is required to conduct a “value judgment”. We can expect many more interesting, and possibly controversial, value judgments from the Tribunal on collective proceedings applications in the months and years ahead.
 Section 4(1)(d) Class Proceedings Act 1996