The certification means that former chief ombudsman of the Financial Ombudsman Service, Walter Merricks, who is the class representative for the claimants, has now successfully cleared the hurdle necessary for the broader group claim to proceed against Mastercard.
In other words, Merricks has not yet won the fight, but he now has permission to enter the ring to throw punches on behalf of a potential class of 46.2m claimants. The potential recoveries are apparently £13.8bn – a figure that Merricks believes is conservative, and would have been higher had the tribunal not excluded deceased claimants and claims for compound interest.
The claim
The claim itself is a follow-on damages claim from the European Commission’s finding that certain fees charged by Mastercard had restricted competition between banks, and resulted in inflated prices for all UK cardholders, irrespective of whether those cardholders had a Mastercard or not.
Merricks is pursuing the claim under the new procedure provided for by section 47A of the Competition Act 1998, which allows group claims to be pursued by a class representative on an opt-out basis. So, anybody who falls within the class criteria – in this case is anyone domiciled in the UK who, between 1992 and 2008, was at least 16 years old and purchased goods and/or services from UK businesses that accepted Mastercard cards – is included in the claim unless they specifically opt out.
Opting out rather than opting in
The opt-out regime was introduced in 2015 since the previous regime, which operated on an opt-in basis, was considered to be ineffective at facilitating broader consumer claims.
Given the novel nature of the opt-out regime, as it is highly unusual for a claim to include a party who has not consented to participate, these opt-out cases must be certified by the tribunal before they can proceed. It is this certification that Merricks has now secured.
Merricks’ journey to what would usually be considered the starting point of standard litigation has been by no means quick, easy or cheap. The tribunal originally rejected the certification in 2017, but Merricks successfully appealed this in the Court of Appeal, a ruling later upheld by the Supreme Court.
The case was then referred back to the tribunal, which has now granted the certification, albeit on a slightly narrower basis than Merricks had sought.
Guidance for other claims
While this judgment, and those that preceded it, provide incredibly valuable guidance on how the new certification should be applied in practice – other competition claims have been put on hold pending this Merricks decision – it may be pre-emptive to herald the judgment as a dawn of a glittering new era for consumer group action cases.
For starters, the new opt-out regime only applies to competition claims. Viable group claims that do not concern anti-competitive behaviour must be brought on the standard opt-in basis using the usual litigation toolkit.
It is widely acknowledged that building a claimant group under any opt-in regime can be expensive and laborious, and can result in group claims failing to get off the ground despite having good merits.
In addition, the judgment has illustrated just how robust class representatives will need to be, both emotionally and financially. The two conditions that must be met for certification for an opt-out claim are:
- Authorisation of the class representative.
- The eligibility of the claim.
To meet the authorisation condition, the tribunal must conclude, among other things, that the class representative:
- Would fairly and adequately act in the interests of the class members.
- Does not have a material conflict of interest with the class members.
- Will be able to pay the defendant’s legal costs.
The aspect of the test outlined first above effectively invites defendants to launch a public character assassination of any individual who might be inclined to put their head above the parapet and become a class representative.
While the assault on his previous career record may not have deterred Merricks, this prospect may understandably deter other well-meaning and motivated individuals from acting as the necessary and pivotal class representative.
Adverse costs order cover
In respect of the last point in the list, the tribunal’s analysis of Merricks’ ability to pay an adverse costs order revealed that Merricks had a litigation funding budget of £45.1m – allowing £12.6m headroom in the legal budget of £32.5m – and an ATE indemnity of £15m to pay the defendants’ costs if the litigation fails.
This is a huge legal budget by any standard, and one that any individual alone is very unlikely to be able to stump up.
An opportunity for litigation funders
These funding requirements present a huge opportunity for litigation funders, a group which the tribunal appeared tacitly to accept as a necessary part of the group claim apparatus. The tribunal considered and approved a term in the litigation funding agreement that allowed the funder to pull out of the claim on 45 days’ notice, and with supporting legal advice, if it looked likely that the funder’s return on the claim fell below £179m.
The clear implication of this being that the funder can reasonably expect to receive a significantly higher return than £179m – nearly four times the funding budget – with this being the floor at which the tribunal accepted that the funder can reasonably pull out.
As such, the judgment provides a strong reassurance and incentive for commercially-minded funders with deep pockets and strong nerves to search hard for the next lucrative claim to get behind. This is bad news for multi-nationals who may have engaged in anti-competitive behaviour, who would do well to get their house in order ASAP.
Merricks must now continue on his novel journey that will no doubt lead to more precedent-setting judgments, potentially on areas such as how to share the damages between an unidentified class.
His immediate next step will be to publicise the judgment to enable claimants to opt out, so do not expect this to be the last you hear of the Merricks v Mastercard case, or indeed opt out group claims.
Caroline Harbord is senior associate and Benedict Walton is partner and head of the commercial dispute resolution team at Forsters LLP
