The in-crowd

Massive opt-out collective actions have sprung to life following a major Supreme Court ruling. Neil Rose explores a major new feature of the litigation landscape

 

There are, according to Mastercard’s advertising, some things that money can’t buy. But sadly for the credit card giant, avoiding a landmark £15bn class action – the biggest opt-out claim in English legal history – is not one of them.

At the end of 2020, the Supreme Court gave the green light for the claim to go ahead and, by clarifying certain aspects of the new collective action regime, it paved the way for several other claims that had been waiting for the green light.

The ruling opens with Lord Briggs helpfully explaining collective proceedings were introduced “for the purpose of enabling small businesses and consumers more easily to bring claims for what may loosely be described as anti-competitive conduct in breach of the provisions of the [Competition Act 1998]”.

He went on: “Where the harmful impact of such conduct affects consumers, it may typically cause damage to very large classes of claimants. Proof of breach, causation and loss is likely to involve very difficult and expensive forensic work, both in terms of the assembly of evidence and the analysis of its economic effect.

“Viewed from the perspective of an individual consumer, the likely disparity between the cost and effort involved in bringing such a claim and the monetary amount of the consumer’s individual loss, coupled with the much greater litigation resources likely to be available to the alleged wrongdoer, means that it will rarely, if ever, be a wise or proportionate use of limited resources for the consumer to litigate alone.”

The case before the court was a perfect example of this as, despite the size of the claim, individual consumers will receive around £300 each if successful.

Merricks v Mastercard 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 its 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 over a 16-year period, with one-time financial services ombudsman Walter Merricks – a solicitor who before that was a senior official at the Law Society – the group representative.

For some, collective actions – colloquially called class actions – are an important new weapon in the access to justice armoury. For others, they are moving England and Wales towards the worst of US litigation excesses.

What are collective actions?

Before the Consumer Rights Act 2015, provisions in the Civil Procedure Rules such as group litigation orders and representative actions were vehicles for multiple claimants with the same cause of action.

They have their limitations, however, in cases like Merricks. Group actions require each claimant to actively opt in to the claim – effectively impossible in a claim the size of Merricks, for example.

Meanwhile, a separate Supreme Court ruling last year in a mass data breach claim against Google said that, in representative actions – which appear similar to collective actions – there needs to be an individualised assessment of what has happened to each class member. As the individual class members do not participate in the action, this is also impossible.

The 2015 Act, however, overcomes both of these problems. It facilitates private enforcement of competition law by introducing an opt-out regime in the Competition Appeal Tribunal (CAT) that allows cases to be brought by a defined group of people with similar claims either following on from findings by competition authorities or as standalone actions.

The CAT has to certify opt-out actions by issuing a collective proceedings order (CPO) and can order them to be opt-in. It also has to subject them to a preliminary merits test, while there is a ‘fast-track’ procedure for simpler cases. The tribunal has to approve any settlements.

To counter fears that the regime imports the excesses of US litigation, the CAT is not able to award exemplary damages – although it can award damages without quantifying the loss of each individual claimant – and actions cannot be brought under damages-based agreements.

Where not all of the damages awarded are claimed, the extra funds will go to charity, generally the Access to Justice Foundation, or the tribunal can order that they go towards the group representative’s legal costs and expenses.

“It emerged in the ruling that Mr Merricks has funding for £45m of his own costs and disbursements.” 

It took more than three years for Merricks just to get over the procedural step of being certified. In July 2017, the CAT ruled that it could not grant a CPO, in part because there was “no plausible way of reaching even a very rough-and-ready approximation of the loss suffered by each individual claimant”.

However, this was overturned by the Court of Appeal, whose finding that the CAT had wrongly imposed a higher hurdle for the collective proceedings to jump than it would have done had the claimants been suing individually, was then upheld – albeit by only a 3:2 majority – by the Supreme Court.

Lord Briggs, who was in the majority, noted that refusing to certify a case like this was “likely to make it certain that the rights of consumers arising out of a proven infringement will never be vindicated, because individual claims are likely to be a practical impossibility”.

He added: “The evident purpose of the statutory scheme was to facilitate rather than to impede the vindication of those rights.”

The CAT finally issued the CPO last August. To show how huge these cases can be, and how important third-party litigation funding is to get them off the ground, it emerged in the ruling that Mr Merricks has funding for £45m of his own costs and disbursements, while the third-party funder backing the case, Innsworth Capital, could exit should it look like a return of at least £179m on its investment is unlikely.

Mr Merricks hailed the ruling as heralding “the start of an era of consumer-focused class actions which will help to hold big business to account in areas that really matter”.

His lawyer, Boris Bronfentrinker, a partner at the London office of US firm Quinn Emanuel, added: “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 46 million UK consumers and to holding Mastercard to account for its anti-competitive behaviour.”

Boundary breakers

The CAT now has 14 collective actions on its books. The second to be certified follows on from a 2017 Ofcom decision that found BT had been overcharging customers who only bought a landline and not other services in a bundle.

The representative claimant has the backing of Harbour Litigation Funding to bring the claim of abuse of a dominant position on behalf of 2.3m BT customers, saying claimants could receive up to £500 each – the claim is valued at £600m in total.

At the same time, BT has been given permission to appeal to the Court of Appeal and it is clear that the Supreme Court has not smoothed out all of the edges of collective actions. The litigation over how the regime works will continue.

Others facing collective actions are rail companies around London that, the representative claimant says, did not make ‘boundary’ fares readily available for Travelcard holders to purchase, or make passengers aware of their existence. As a result, he claims customers had to buy a higher-priced ticket than they would have needed because their Travelcard already entitled them to travel for part of their journey.

Merricks v Mastercard is a follow-on action after Mastercard was found to have infringed EU law

There is also a claim against five shipping companies whose cartel is alleged to have led to increased delivery costs for car buyers, as well as one against five banks that are accused of unlawfully manipulating the foreign exchange market between 2007 and 2013.

Apple is facing a claim that it systematically broke the law and overcharged millions of UK users for apps and other purchases made on its App Store, while there are two separate follow-on claims against five truck manufacturers after the European Commission fined them nearly €3bn for price fixing and other cartel activities between 1997 and 2011.

All of these cases are being vigorously defended but Becca Hogan, a partner at London firm Signature Litigation, says the certification of the BT case and also one of the boundary fare cases suggests that predictions that Merricks would open the floodgates to opt-out CPOs in the CAT are “proving to be right”.

She continues: “Another important recent development is that the infrastructure to support group litigation in England is now maturing. We are currently seeing an array of funders which are willing to bankroll such claims. Lawyers are rapidly developing both the expertise and the technological and administrative capacities required to efficiently take a case on behalf of potentially millions of clients.”

Providing a quality legal service to thousands or indeed millions of clients is “not without challenges”, Ms Hogan observes. But law firms are embracing innovations such as using artificial intelligence and automated online systems to onboard clients and to keep them informed as a case progress. Automated chatbots are used to respond to more straightforward client queries.

She says: “These developments in the law of England and Wales, and the wider legal system, are combining to create an extremely powerful way for consumers to discharge their rights. With the first three opt-out collective actions having been approved, it is likely that we will see an increase in claimants pursuing breaches of competition law on an opt-out basis.”

Increased activity

Everything is pointing in this direction. Research by the law firm CMS last year found that a record number of class actions has been filed across Europe in recent years, with more than half of them brought in the UK.

There were 109 class actions launched in Europe in 2020 (counting all claims arising from the same underlying facts only once in each jurisdiction), compared to 70 in 2019 and 48 in 2018. Claims seeking extremely high damages awards “are also being filed more frequently”. Some 53% of class actions filed in the last five years were in the UK, followed by the Netherlands with 13% and North Macedonia with 9%.

The report said a number of factors were behind the trend. “Most important is the increasing availability of new procedural mechanisms that facilitate group claims, whether operating on an opt-in or opt-out basis.”

Other factors were “increased activity” from claimant law firms, whether foreign (often US) firms setting up in Europe or new claimant-focused boutiques being established – “typically launched by partners who have left their larger firms to focus purely on disputes” – and the “ever-expanding role” of third-party litigation funding.

CMS said: “The expansion of claimant law firms and litigation funders service the demand for claims, but they also create demand in and of themselves through proactively building claims of their own volition.”

“Research by the law firm CMS last year found that a record number of class actions has been filed across Europe in recent years, with more than half of them brought in the UK.” The UK in particular has seen significant growth in claimant law firms in recent years. “Numerous US claimant law firms have set up offices, including Scott + Scott, Strange and Butler, Hagens Berman and others.

“Indeed, Scott + Scott’s stated objective on launching its London office was to target antitrust class actions. The Brazilian/US/English firm PGMBM has been particularly active in data protection, product liability and foreign mass torts claims.”

CMS is coming from the issue from the perspective of acting for defendants. Partner Kenny Henderson says: “These remarkable findings will be of major concern to even the largest companies. Claimant firms and litigation funders are busier than ever before, but a particular concern is the trend towards the ‘opt-out’ system favoured by the US.

“These mechanisms facilitate the truly huge claims, valued in hundreds of millions or billions of pounds exposure. Our report shows that class action risk is becoming mainstream.”

A constant voice of opposition has been the US Chamber Institute for Legal Reform, part of the US Chamber of Commerce, which has long lobbied against collective actions and litigation funding. It claims standing in the UK because many of its members operate here.

Responding to Merricks, president Harold Kim said the ruling was “a watershed moment that risks opening the floodgates for US-style class actions in the UK”. He added: “By making it easier for collective actions to be certified, the Supreme Court has signaled that law firms and entrepreneurial litigation funders, not consumers and job-creating businesses, will benefit the most from its lawsuit system.”

The opposing argument, and certainly the one that is winning at the moment, is that these actions deliver access to justice where otherwise claimants would have no effective remedy.

Nicola Boyle, a partner at leading class action firm Hausfeld, says this year looks like it will be even busier on the collective proceedings front than last. The regime “has sprung into life following a period of enforced hibernation”, she explains.

“It’s clear from an analysis of the cases being brought that opt-out collective redress is playing an increasingly important role in seeking to provide not only access to justice for those whose claims would otherwise not be brought but also in the context of standalone claims supplementing the role of public enforcement in promoting consumer welfare and deterring anticompetitive conduct. Long may that continue.”