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You are here: BAILII >> Databases >> England and Wales Court of Appeal (Civil Division) Decisions >> Merricks v Mastercard Incorporated & Anor [2019] EWCA Civ 674 (16 April 2019) URL: http://www.bailii.org/ew/cases/EWCA/Civ/2019/674.html Cite as: [2019] Bus LR 3025, [2019] WLR(D) 239, [2019] EWCA Civ 674 |
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ON APPEAL FROM THE COMPETITION TRIBUNAL
Mr Justice Roth (President), Professor Colin Mayer CBE and Ms Clare Potter
[2017] CAT 16
Strand, London, WC2A 2LL |
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B e f o r e :
LORD JUSTICE HAMBLEN
and
LORD JUSTICE COULSON
____________________
WALTER HUGH MERRICKS CBE |
Appellant |
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- and - |
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(1) MASTERCARD INCORPORATED (2) MASTERCARD INTERNATIONAL INCORPORATED (3) MASTERCARD EUROPE S.P.R.L |
Respondents |
____________________
Mr Mark Hoskins QC, Mr Matthew Cook, Mr Hugo Leith and Mr Jon Lawrence (instructed by Freshfields Bruckhaus Deringer LLP) appeared on behalf of the Respondents
Hearing dates : 5-6 February 2019
____________________
Crown Copyright ©
Lord Justice Patten :
Introduction
"47B Collective proceedings before the Tribunal
(1) Subject to the provisions of this Act and Tribunal rules, proceedings may be brought before the Tribunal combining two or more claims to which section 47A applies ("collective proceedings").
(2) Collective proceedings must be commenced by a person who proposes to be the representative in those proceedings.
(3) The following points apply in relation to claims in collective proceedings—
(a) it is not a requirement that all of the claims should be against all of the defendants to the proceedings,
(b) the proceedings may combine claims which have been made in proceedings under section 47A and claims which have not, and
(c) a claim which has been made in proceedings under section 47A may be continued in collective proceedings only with the consent of the person who made that claim.
(4) Collective proceedings may be continued only if the Tribunal makes a collective proceedings order.
(5) The Tribunal may make a collective proceedings order only—
(a) if it considers that the person who brought the proceedings is a person who, if the order were made, the Tribunal could authorise to act as the representative in those proceedings in accordance with subsection (8), and
(b) in respect of claims which are eligible for inclusion in collective proceedings.
(6) Claims are eligible for inclusion in collective proceedings only if the Tribunal considers that they raise the same, similar or related issues of fact or law and are suitable to be brought in collective proceedings.
(7) A collective proceedings order must include the following matters—
(a) authorisation of the person who brought the proceedings to act as the representative in those proceedings,
(b) description of a class of persons whose claims are eligible for inclusion in the proceedings, and
(c) specification of the proceedings as opt-in collective proceedings or opt-out collective proceedings (see subsections (10) and (11)).
(8) The Tribunal may authorise a person to act as the representative in collective proceedings—
(a) whether or not that person is a person falling within the class of persons described in the collective proceedings order for those proceedings (a "class member"), but
(b) only if the Tribunal considers that it is just and reasonable for that person to act as a representative in those proceedings.
(9) The Tribunal may vary or revoke a collective proceedings order at any time.
(10) "Opt-in collective proceedings" are collective proceedings which are brought on behalf of each class member who opts in by notifying the representative, in a manner and by a time specified, that the claim should be included in the collective proceedings.
(11) "Opt-out collective proceedings" are collective proceedings which are brought on behalf of each class member except—
(a) any class member who opts out by notifying the representative, in a manner and by a time specified, that the claim should not be included in the collective proceedings, and
(b) any class member who—
(i) is not domiciled in the United Kingdom at a time specified, and
(ii) does not, in a manner and by a time specified, opt in by notifying the representative that the claim should be included in the collective proceedings.
(12) Where the Tribunal gives a judgment or makes an order in collective proceedings, the judgment or order is binding on all represented persons, except as otherwise specified.
(13) The right to make a claim in collective proceedings does not affect the right to bring any other proceedings in respect of the claim.
(14) In this section and in section 47C, "specified" means specified in a direction made by the Tribunal.
47C Collective proceedings: damages and costs
…
(2) The Tribunal may make an award of damages in collective proceedings without undertaking an assessment of the amount of damages recoverable in respect of the claim of each represented person.
(3) Where the Tribunal makes an award of damages in opt-out collective proceedings, the Tribunal must make an order providing for the damages to be paid on behalf of the represented persons to—
(a) the representative, or
(b) such person other than a represented person as the Tribunal thinks fit.
…
(5) Subject to subsection (6), where the Tribunal makes an award of damages in opt-out collective proceedings, any damages not claimed by the represented persons within a specified period must be paid to the charity for the time being prescribed by order made by the Lord Chancellor under section 194(8) of the Legal Services Act 2007.
(6) In a case within subsection (5) the Tribunal may order that all or part of any damages not claimed by the represented persons within a specified period is instead to be paid to the representative in respect of all or part of the costs or expenses incurred by the representative in connection with the proceedings.
(7) The Secretary of State may by order amend subsection (5) so as to substitute a different charity for the one for the time being specified in that subsection.
…
(9) In this section—
…
(b) "damages" (except in the term "exemplary damages") includes any sum of money which may be awarded by the Tribunal in collective proceedings (other than costs or expenses);
…"
"8. Mastercard operates what is commonly known as a four party payment card scheme, since payments made under the scheme generally involve four parties: (1) a cardholder; (2) the cardholder's bank (known as the "Issuing Bank"); (3) a merchant; and (4) the merchant's bank (known as the "Acquiring Bank"). Issuing and Acquiring Banks are licensed by Mastercard. They must pay fees to Mastercard to participate in the scheme and comply with the Mastercard Scheme Rules.
9. The scheme operates on a contractual basis as between all four parties, and in addition Mastercard as the scheme operator, which may be represented diagrammatically as follows:
10. In order to pay for goods or services using Mastercard, the cardholder presents his or her card to the merchant. Details of the transaction are passed by the merchant to its Acquiring Bank, and then by the Acquiring Bank to the cardholder's Issuing Bank. In the case of credit cards, the Issuing Bank sends an invoice to the cardholder, typically on a monthly basis, and the cardholder either pays the whole of that invoice or takes advantage of further credit under the terms of his or her arrangement with the Issuing Bank. In the case of debit cards, the Issuing Bank deducts the amount chargeable to the cardholder for the transaction from the balance in the cardholder's account. In the meantime, the Issuing Bank transmits payment to the Acquiring Bank, less a transaction fee known as the interchange fee ("IF"). The Acquiring Bank in turn generally deducts the amount of the IF, along with a fee for its acquiring services, from the payment it makes to the merchant. The total deduction made by the Acquiring Bank from the amount paid to the merchant is called the merchant service charge ("MSC"). However, the IF accounts for the vast majority of the MSC.
11. The Issuing Bank and the Acquiring Bank may have bilaterally agreed the level of IF that will apply to transactions between them, or in some cases they may be the same bank. But except for those situations, the level of the fee defaults to one set by Mastercard. This default fee is known as the multilateral interchange fee: the MIF.
12. Different MIFs apply for different territories and card types. As to the territorial aspect, it is important for present purposes to note that:
(i) where a card issued in one EEA Member State is used at a merchant based in a different EEA Member State, a cross-border MIF applies. This is the EEA MIF referred to above which was the subject of the EC Decision;
(ii) where a card issued in the UK is used to pay a merchant based in the UK, the domestic UK MIF applies. We were told that around 95% of the value of the present claim is based on the UK MIF; and
(iii) outside of the EEA, where a card is used at a merchant based in a different global region from the Issuing Bank, for example if a US tourist uses a card issued by a US bank to make purchases in London, a different cross-border MIF applies.
13. As already mentioned, the EC Decision held that the setting of the EEA MIF by Mastercard constituted a decision of an association of undertakings. The EEA MIF was found, in effect, to set a minimum price which merchants had to pay to their Acquiring Bank for accepting Mastercard branded consumer credit and charge cards and Mastercard or Maestro branded debit cards. On that basis it had the effect of inflating the base on which Acquiring Banks set their MSC charged to merchants, thereby restricting competition between Acquiring Banks to the detriment of merchants (and subsequent purchasers). It was held that in the absence of the EEA MIF, the MSC set by Acquiring Banks would be lower both for cross-border transactions and for domestic transactions in those Member States where no separate domestic MIF had been agreed or where local banks had specifically agreed to adopt the EEA MIF. Further, some banks viewed the EEA MIF as a benchmark for setting domestic IFs. The EEA MIF was not objectively necessary, since a payment system such as Mastercard's could operate without a MIF. The EC Decision stated, at recital para 411:
"A further consequence of this restriction of price competition is that customers making purchases at merchants who accept payment cards are likely to have to bear some part of the cost of Mastercard's MIF irrespective of the form of payment the customers use. This is because depending on the competitive situation merchants may increase the price for all goods sold by a small margin rather than internalising the cost imposed on them by a MIF."
14. The infringement was found to last from 22 May 1992 until the date of the EC Decision (i.e., 19 December 2007), and Mastercard was directed to bring it to an end within six months.
15. Since the appeals before the European Courts against the EC Decision have been dismissed, that decision is binding on the Tribunal: sect 58A CA."
"The determination of the extent of pass-on to the represented class will be complex and will be a matter for expert evidence in light of any appropriate disclosure and factual evidence (as to which, the proposed class representative relies upon the relevant proposals set out in the collective proceedings litigation plan)."
"… An individual assessment of damages suffered by each member of the proposed class would be impracticable. For example, such assessment would require (i) the determination of the actual purchases of goods and/or services made by each member of the proposed class during the infringement period (see paragraph 94 below), by whatever means of payment (including cash), and (ii) the assessment of the extent to which each of the businesses from which those purchases were made passed on the higher charges resulting from the proposed Defendants' infringement of Article 101 TFEU. In fact, the only practicable way of proceeding is by way of an aggregate award of damages. The expert report on common issues explains at Section 5 how it is proposed that such an award will be calculated."
"where applicable, an estimate of the amount claimed in damages, including whether an aggregate award of damages is sought, supported by an explanation of how that amount has been calculated;"
"(1) The Tribunal may certify claims as eligible for inclusion in collective proceedings where, having regard to all the circumstances, it is satisfied by the proposed class representative that the claims sought to be included in the collective proceedings—
(a) are brought on behalf of an identifiable class of persons;
(b) raise common issues; and
(c) are suitable to be brought in collective proceedings.
(2) In determining whether the claims are suitable to be brought in collective proceedings for the purposes of paragraph (1)(c), the Tribunal shall take into account all matters it thinks fit, including—
(a) whether collective proceedings are an appropriate means for the fair and efficient resolution of the common issues;
(b) the costs and the benefits of continuing the collective proceedings;
(c) whether any separate proceedings making claims of the same or a similar nature have already been commenced by members of the class;
(d) the size and the nature of the class;
(e) whether it is possible to determine in respect of any person whether that person is or is not a member of the class;
(f) whether the claims are suitable for an aggregate award of damages; and
(g) the availability of alternative dispute resolution and any other means of resolving the dispute, including the availability of redress through voluntary schemes whether approved by the CMA under section 49C of the 1998 Act or otherwise."
(1) Quantify the total volume and value of all relevant Mastercard transactions accepted by businesses selling in the UK during the infringement period (referred to as the volume of commerce ("VOC"));
(2) Quantify the extent to which the VOC was subject to the overcharge in respect of Mastercard domestic or EEA MIFs; and
(3) Quantify the proportion of the overcharge that was passed on to the proposed class. This requires a determination of the level of MIF pass-on from Acquiring Banks to merchants as part of the MSC and the extent to which the MIF overcharge was passed on through retail prices to consumers.
"… and will require further investigation and analysis. We accept that MSC Pass-On is a matter for further evidence and analysis and that different views have been expressed in recent legal proceedings. However, we see no credible basis for the assertion that the MSC was not passed-on to consumers within the proposed class across the United Kingdom during what is a long Full Infringement Period.
6. 2 Our intended approach to assessing the MSC Pass-On
6.2.1 In our opinion, in the absence of evidence to the contrary, it is appropriate to assume a single, but not necessarily constant over time, weighted average MSC Pass-on rate across the United Kingdom economy. This approach is consistent with the approach adopted in the Mastercard and Visa Undertakings. The averaging of the MSC Pass-on rate takes account of any data limitations and the computational complexity of determining MSC Pass-On across the United Kingdom economy for over one and a half decades.
6.2.2 For the reasons set out in Section 6.3 below, the MSC Pass-On is likely to be high (50%-100%) and could have been fully passed-on.
6.2.3 We will undertake independent research to determine the most likely pass-on rates based on past research, studies and data. This will include, for example:
(a) market studies, competition authority decisions and other research as described in Section 6.3 below; and/or
(b) evidence and analysis filed by the different Businesses that are bringing similar damages claims against Mastercard. Assuming the MSC Pass-On rate is consistent across Businesses operating in the same sector, which we consider is a reasonable economic assumption at this preliminary stage, then, based on the evidence from those claims, it may be possible to estimate the MSC Pass-On across key sectors such as food and drink, clothing, household goods, motoring, entertainment, travel and other retailers. This covers approximately 70% of all payments processed with a card in the United Kingdom (see Appendix 3);
6.2.4 If MSC Pass-On rates are ultimately found to be significantly different for different sectors of the United Kingdom economy, then we may be able to calculate a weighted average MSC Pass-On rate (weighted by reference to the VOC and pass-on rate associated with each sector during each year of the Infringement Period). This approach will depend on the availability of evidence and whether that evidence relates to the same period as the Full Infringement Period.
6.2.5 We note that, whether we are quantifying the loss suffered by the proposed class as defined, or sub-groups of the proposed class, or even an individual consumer, the approach we will adopt would be the same. In other words, MSC Pass-On is a common issue amongst the proposed class.
6.3 Our current assumption
6.3.1 At this preliminary stage prior to disclosure and the exchange of witness evidence, our starting position is that during the Full infringement Period, it is likely that there was full pass-on of the MIF (including the Overcharge) to members of the proposed class."
"There is no realistic prospect of obtaining sufficient evidence from a sufficient number of different merchants for the Full Infringement Period, which runs from 1992 until 2008 (i.e. between 8 and 24 years ago)."
"6.13 The proposed class representative should send with the collective proceedings claim form any evidence relied on in support of the application for a CPO. That may include, for example, a witness statement by or on behalf of the proposed class representative addressing the considerations raised by Rules 78 and 79; and an expert's report regarding the way in which the common issues identified in the claim form may suitably be determined on a collective basis.
…
6.28 The Tribunal does not encourage requests for disclosure as part of the application for a CPO. However, where it appears that specific and limited disclosure or the supply of information (cf Rule 53(2)(d)) is necessary in order to determine whether the claims are suitable to be brought in collective proceedings (see Rule 79(1)), the Tribunal may direct that such disclosure or information be supplied prior to the approval hearing."
"75. The experts emphasised that there is a lot of published data and studies on the passing on of input costs, and on credit and debit card usage. However, that is precisely the material surveyed in the RBB Report quoted above (see para 51), which found it incomplete and difficult to interpret. We have no doubt that some sectors have been the subject of detailed study, but there is nothing before us to contradict the overall finding of the RBB Report. We note that no real attempt appears to have been made to consider what data are available for each of the broad sectors over the relevant period.
76. Overall, we recognise that the methodology put forward by the experts in their oral evidence, in response to the Tribunal's questioning, is considerably more sophisticated and nuanced than that set out, rather briefly, in their Experts' Report. We have to say that it is unfortunate that the written report did not set out and explain their approach in this way. Indeed, the statement in their Report that at this preliminary stage the experts' starting position was that "it is likely that there was full pass-on of the MIF (including the Overcharge) to members of the proposed class" is unsustainable and was not adhered to in their oral evidence.
77. We accept that in theory calculation of global loss through a weighted average pass-through, as explained in the evidence and as summarised above, is methodologically sound. But making every allowance for the need to estimate, extrapolate and adopt reasonable assumptions, to apply that method across virtually the entire UK retail sector over a period of 16 years is a hugely complex exercise requiring access to a wide range of data. We certainly would not expect that analysis to be carried out for the purpose of a CPO application, but a proper effort would have had to be made to determine whether it is practicable by ascertaining what data is reasonably available. Given the massive size of the claim, a difference of even 10% in the average pass-through rate makes a very substantial difference in financial terms.
78. Accordingly, applying the Microsoft test (para 58 above), we are unpersuaded on the material before us that there is sufficient data available for this methodology to be applied on a sufficiently sound basis. It follows that we are not satisfied, and indeed very much doubt, that the claims are suitable for an aggregate award of damages: see rule 79(2)(f)."
"79. If the total loss could be calculated in the aggregate manner discussed above, it is nonetheless necessary to consider how that would translate into determination of the level of individual loss. That is particularly important since, as we have pointed out, the proposed methodology does not really go to determination of a common issue to the individual claims, but in a sense circumvents the problem of an issue which is not common by seeking to go directly to determination of a total sum for all claims. Such an approach can only be permissible, in our view, if there is then a reasonable and practicable means of getting back to the calculation of individual compensation."
"87. This cannot be dismissed as a "mere" question of distribution, to be addressed only after an aggregate award has been determined. First, it is largely because of the methodology of seeking to calculate the loss on a top-down, aggregate basis, and not on the basis of a common issue concerning loss suffered by each member (or most members) of the class, that the fundamental problem arises. As a result, if, hypothetically, a million people opted out of the proceedings, there would be no proper way of reducing the quantum of damages accordingly (and, conversely, of increasing it if a large number of people now domiciled outside the UK sought to opt in): it would simply lead to everyone in the class getting more (or less) money out of the total pot.
88. Secondly, even if it were possible to determine with some broad degree of accuracy the weighted average for pass-through and thus to estimate the aggregate loss for the class each year, it is the significance of the individual issues remaining which mean that it is impossible in this case to see how the payments to individuals could be determined on any reasonable basis. As we have explained above, there are three sets of issues which are relevant: individuals' levels of expenditure; the merchants from whom they purchased; and the mix of products which they purchased. There is no attempt to approximate for any of those in the way damages would be paid out. The governing principle of damages for breach of competition law is restoration of the claimants to the position they would have been in but for the breach. The restoration will often be imprecise and may have to be based on broad estimates. But this application for over 46 million claims to be pursued by collective proceedings would not result in damages being paid to those claimants in accordance with that governing principle at all.
89. Accordingly, in our judgment, these claims are not suitable to be brought in collective proceedings as required by sect 47B(6) CA. It follows that the Tribunal cannot make a CPO in this case: sect 47B(5)(b) CA."
Pass-on
"to do more than simply show that he has an arguable case on the pleadings, as if, for example, he was facing an application to strike out. Collective proceedings on an opt-out basis can bring great benefits, if successful, for the class members which those individuals (or small businesses) otherwise could never achieve; but like almost all substantial competition damages claims they can be very burdensome and expensive for defendants. The eligibility conditions set out in sect 47B(6) CA, and adumbrated in the CAT Rules, require the Tribunal to scrutinise an application for a CPO with particular care, to ensure that only appropriate cases go forward."
"… 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 (i.e. that passing on has occurred). 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."
"[102] … The "some basis in fact" standard does not require that the court resolve conflicting facts and evidence at the certification stage. Rather, it reflects the fact that at the certification stage "the court is ill-equipped to resolve conflicts in the evidence or to engage in the finely calibrated assessments of evidentiary weight" (Cloud, at para. 50; Irving Paper Ltd. v. Atofina Chemicals Inc. (2009), 99 O.R. (3d) 358 (S.C.J.), at para. 119, citing Hague v. Liberty Mutual Insurance Co. (2004), 13 C.P.C. (6th) 1 (Ont. S.C.J.)). The certification stage does not involve an assessment of the merits of the claim and is not intended to be a pronouncement on the viability or strength of the action; "rather, it focuses on the form of the action in order to determine whether the action can appropriately go forward as a class proceeding" (Infineon, at para. 65).
[103] Nevertheless, it has been well over a decade since Hollick was decided, and it is worth reaffirming the importance of certification as a meaningful screening device. The standard for assessing evidence at certification does not give rise to "a determination of the merits of the proceeding" (CPA, s. 5(7)); nor does it involve such a superficial level of analysis into the sufficiency of the evidence that it would amount to nothing more than symbolic scrutiny.
[104] In any event, in my respectful opinion, there is limited utility in attempting to define "some basis in fact" in the abstract. Each case must be decided on its own facts. There must be sufficient facts to satisfy the applications judge that the conditions for certification have been met to a degree that should allow the matter to proceed on a class basis without foundering at the merits stage by reason of the requirements of s. 4(1) of the CPA not having been met."
"[110] The multitude of variables involved in indirect purchaser actions may well present a significant challenge at the merits stage. However, there would appear to be a number of common issues that are identifiable. In order to establish commonality, evidence that the acts alleged actually occurred is not required. Rather, the factual evidence required at this stage goes only to establishing whether these questions are common to all the class members.
[111] Myers J. concluded that the claims raised common issues. I agree that their resolution is indeed necessary to the resolution of the claims of each class member. Their resolution would appear to advance the claims of the entire class and to answer them commonly will avoid duplication in legal and factual analysis. Those findings are entitled to deference from an appellate court."
"115. … The requirement at the certification stage is not that the methodology quantify the damages in question; rather, the critical element that the methodology must establish is the ability to prove "common impact", as described in the U.S. antitrust case of In Re: Linerboard Antitrust Litigation, 305 F.3d 145 (3rd Cir. 2002). That is, plaintiffs must demonstrate that "sufficient proof [is] available, for use at trial, to prove antitrust impact common to all the members of the class" (ibid., at p. 155). It is not necessary at the certification stage that the methodology establish the actual loss to the class, as long as the plaintiff has demonstrated that there is a methodology capable of doing so. In indirect purchaser actions, this means that the methodology must be able to establish that the overcharges have been passed on to the indirect-purchaser level in the distribution chain."
Distribution
Conclusion