Yesterday the Court Appeal handed down the latest judgment in an ongoing claim that seeks up to £14bn in damages and interest for UK consumers: Merricks v Mastercard Inc [2019] EWCA Civ 674. The claim relates to certain fees charged by MasterCard prior to July 2008 whenever a customer used their card to make a payment.
Nature of MIFs
Mastercard charged multilateral interchange fees (“MIFs”) to both card issuers and acquirers (e.g. banks) for participating in its payment scheme and having payments transferred between the respective banks of the cardholders and retailers. In reality the entire cost of the MIFs was passed on to the retailers. This is because the banks charged retailers a ‘merchant service charge’ (“MSC”) as a fee for operating the Mastercard system. In practice the MSC payable by the retailers was never lower than the MIF payable by the banks.
2007 Commission Decision
In 2007, the European Commission decided that the MIFs charged by Mastercard involved a breach of EU competition law. The level of MIF had a direct effect on the amount of the MSC. In turn, retailers were likely to have passed on part of the MIF to consumers in the form of increased prices, regardless of their method of payment. However, the Commission made no finding as to the level of pass-on (which may vary between different market sectors and also be affected by other market factors).
Present Claim
In the current action, issued on behalf of UK consumers in 2016, it is alleged that unlawful MIFs charged by MasterCard were passed on ultimately to consumers, with the result that they faced increased prices when purchasing goods and services. The claim is made on behalf of all individuals over the age of 16 who have been resident in the UK for a continuous period of at least 3 months and who between 22 May 1992 and 21 June 2008 purchased goods or services from businesses in the UK which accepted Mastercard (an estimated class of 46.2m people).
The claim was issued against MasterCard using the collective proceedings regime introduced by the Consumer Rights Act 2015 (by amending the Competition Act 1998). It is being led by ex-chief ombudsman of the Financial Ombudsman Service Mr Walter Merricks.
Role of Competition Appeal Tribunal
The present claim came before the Competition Appeal Tribunal (“CAT”) as a ‘follow-on’ claim consequent on the 2007 Commission Decision. The CAT had to decide whether to certify a “collective proceedings order” (“CPO”) under section 47B of the Competition Act 1998, which would allow the proceedings to continue. It could only certify a CPO in respect of claims which are “eligible” for inclusion in collective proceedings (s47B(5)). “Eligibility” depended on CAT considering that the claims raise the “same, similar or related issues of fact or law and are suitable to be brought in collective proceedings” (s47B(6)). CAT had refused the CPO on the ground that the claims were ineligible.
Level of ‘Pass On’ of MIF
Mr Merricks proposed the use of expert evidence to quantify the level of pass-on of the MIF to end consumers. The proposed methodology was a calculation of global loss based on a weighted average pass-on. The CAT considered this an ineffective method to determine the level of pass-on. Mr Merricks had, for instance, been unable to specify what data would be available for each of the relevant retail sectors. This meant that these claims were not suitable for an aggregate award.
The Court of Appeal held that this was setting the hurdle too high for the certification stage: the requirement was merely that the claim had a real prospect of success. Since s47C(2) permitted an aggregate award, the expert methodology need only offer a realistic prospect of establishing the level of pass-on on a global, class-wide basis. If it subsequently transpired that the experts were unable to access sufficient data, then the CPO could always be varied or revoked.
Distribution of Aggregate Award
CAT had also considered it impossible to determine an appropriate method of distributing any aggregate award. The loss suffered by each individual could not be calculated and therefore these claims were not suitable for an aggregate award.
However, the Court of Appeal considered that the ability to make an aggregate award and the purpose of enabling collective proceedings both indicated that damages need not be distributed on a compensatory basis, where that was impracticable. CAT should only have considered whether the claims were suitable for an aggregate award of damages which, by definition, did not include the assessment of individual loss. Distribution was a matter for the trial judge.
The application for certification was remitted to CAT for re-hearing.
Post-2008 MIFs
It is noted that MasterCard reduced its MIFs in 2008 and the claim does not concern MIFs charged by MasterCard after that reduction. It should also be noted that MIFs are now subject to specific regulation (the Interchange Fee Regulation) which, amongst other things, introduced a fee cap for such fees on 9 December 2015.