KEY POINTS

  • The Supreme Court's judgment in Merricks v Mastercard, and subsequent approval by the Competition Appeal Tribunal of the first application for a collective proceedings order under the UK's competition class action regime, represent a significant development for the future of class actions in this jurisdiction.
  • These decisions will act primarily as a driver for growth of the competition collective proceedings regime, and may lead to a rise in group actions based on alleged competition law infringements against financial institutions (and other corporates).
  • Merricks may also have repercussions for the wider litigation landscape, impacting reform of the existing class actions regime. In particular for consumer collective actions, this would change the litigation risk for consumer-facing industries, such as the financial services sector

The recent decisions in the Merricks v Mastercard litigation will most obviously have a significant impact on the competition class actions regime, but may also have repercussions for the wider litigation landscape, particularly in relation to mass consumer claims. In this article, we consider the potential litigation risks for the financial services sector

Historically, the most common procedural mechanism for bringing class actions in the UK has been by way of a Group Litigation Order (GLO), which provides a procedural framework for the case management of individual claims giving rise to common or related issues of fact or law. Such claims are often contractual or tortious in nature, and there are a number of examples of high-profile claims against financial services firms in recent years that have proceeded under a GLO (for example, in relation to alleged misstatements in shareholder communications and allegations of financial mis-selling1 ).

However, in one of the most significant rulings on class action procedure to date, last year the Supreme Court provided some important clarifications on the UK competition class action regime in Merricks v Mastercard, leading to the first application for a collective proceedings order (CPO) being approved by the Competition Appeal Tribunal (CAT) in August 2021. For the reasons discussed in this article, the competition regime has features that are perceived as "claimant-friendly", and its endorsement has triggered a series of further CPO applications. The anticipated growth of the regime following the decision in Merricks is likely to have an impact beyond the sphere of competition law, and this article explores the potential ramifications for class actions in the financial services sector.

THE COMPETITION CLASS ACTIONS REGIME

Competition law infringements are a classic example of where a legal wrong can cause loss to a very large number of potential claimants. These potential claimants are often consumers or small businesses and, whilst the level of individual loss may be relatively small, the total amount can still be very significant. Historically, this meant that it was often not economically viable for potential claimants to bring claims in the UK for losses flowing from competition law infringements.

In 2015, a UK-wide regime was introduced for collective redress for competition law claims. This regime has a number of interesting features, in particular:

  • "Opt-out" mechanism. These so-called "collective proceedings" can be brought on behalf of a class of individuals/ companies as either:
    • "opt-in" claims (ie where individual claimants must take steps to join the action); or
    • "opt-out" claims (ie where a claim will be brought on behalf of all claimants who fall within a defined class, unless they actively choose to opt out).

his is in contrast to the GLO regime, which only allows claims on an opt-in basis. Opt-out claims are highly favoured by claimant firms and funders alike given that the value of the claim is maximised (there can be an award of aggregate damages, ie damage suffered by the class as a whole) and the need to build a book of claimants, with the attendant resources, organisation, expenditure and publicity required, is avoided.

  • CAT approval required. Collective proceedings must be brought in the specialist CAT (the UK's dedicated forum for the hearing of competition claims) and require the CAT's approval to proceed in the form of a CPO.
  • Requirements for a CPO. The CAT will only grant a CPO where certain criteria are met, including that the claims raise the same, similar or related issues of fact or law and are suitable to be brought in collective proceedings, and that it would be just and reasonable for the person bringing the claim to be a representative of the class members.

At the time of writing, 15 applications for collective proceedings orders have been brought in the CAT, and to date only four have been certified to proceed, as discussed in further detail in the next section. Certification decisions are awaited in a number of the other applications.

MERRICKS v MASTERCARD: SUPREME COURT DECISION AND CAT APPROVAL OF CPO

In 2017, the CAT initially refused to certify the application for a CPO in Merricks. The case was ultimately appealed to the Supreme Court which, in December 2020, upheld the Court of Appeal's decision to overturn the CAT's decision.2 The Supreme Court's judgment provided valuable guidance as to how the CAT should, in future, approach the certification of applications for collective proceedings. The case was remitted back to the CAT, which approved the CPO, making headlines as the first CPO to be approved by the CAT.

The Supreme Court focused on the requirement for the proposed claims to be "suitable" to be brought in collective proceedings. A key finding of the court on this issue was that "suitable" should be considered to mean suitable "in a relative sense: ie suitable to be brought in collective proceedings rather than individual proceedings".3

In reaching this conclusion, the Supreme Court drew on the fact that the UK regime was, in part, modelled on the Canadian regime for competition damages claims, where the test is whether it would be preferable, on balance, to bring the claim in collective proceedings, rather than in multiple individual claims.

In Merricks, the claims are being brought on behalf of over 46 million consumers who are alleged to have suffered a loss of roughly £300 each. The Supreme Court concluded that the prospect of individual proceedings by over 46 million consumers would be a "practical impossibility", such that collective proceedings would clearly be preferable.

It is worth noting that a minority of the Supreme Court judges strongly disagreed with this "relative suitability" approach, noting that collective proceedings confer substantial legal advantages on claimants and burdens on defendants which are capable of being exploited opportunistically. In their view, simply requiring members of the proposed class to show that they would face greater difficulties pursuing claims individually would very significantly diminish the role and utility of the certification safeguard.

IMPACT OF THE MERRICKS DECISION ON COMPETITION COLLECTIVE PROCEEDINGS

As a result of the Supreme Court's relative approach to suitability, it will likely be easier for collective proceedings to be brought on behalf of consumers or in circumstances where it would be too difficult or expensive for class members to bring claims individually. This has encouraged claimant law firms and funders to work with potential class representatives to put together more applications for consumer collective proceedings, and there has been a steady stream of CPO applications issued in the CAT since the Merricks judgment.

A number of the CPO applications issued relate to claims that might not ordinarily be thought of as competition infringement claims. These include three applications in respect of the fares offered to customers by different railway operators4 (of which two have now been certified) and one application relating to alleged over-charging of certain customers by BT Group5 (now certified). Unlike many competition claims before the UK courts, none of these claims follow on from a decision of a competition authority or allege that the defendants were party to any anti-competitive arrangements with competitors. All instead seek to establish that the defendants abused their dominant position in a relevant market (often defined quite narrowly in the application) by pricing products in a way that was too high, lacked transparency or was otherwise unfair.

IMPACT OF THE MERRICKS DECISION ON THE FINANCIAL SERVICES SECTOR

There is a risk that the Merricks decision will impact class actions in the financial services sector, either directly or indirectly.

In terms of direct impact, companies operating in the financial services sector usually have strong compliance procedures in place to ensure that their employees are aware of and comply with competition law, not least in response to the rate-fixing investigations in the aftermath of the global financial crisis; nonetheless, future competition infringements and subsequent collective proceedings applications in the sector cannot be ruled out. Of the 15 applications for collective proceedings filed to date, two concern the European Commission's decisions against a number of banks relating to two FX spot trading cartels (the so-called Three Way Banana Split cartel and Forex-Essex Express cartel). The Merricks decision, in particular the relative approach to suitability, may lead to more collective competition claims against financial institutions.

Another way in which the Merricks decision may affect firms directly, arises from the trend we have already observed in claimants seeking CPO approval from the CAT for less traditional competition claims. Here, there is a risk that parties may attempt to shoe-horn financial services disputes, which are not normally considered to be competition law infringements (in particular, in that they do not follow on from a competition authority decision), into the competition collective proceedings framework, in order to take advantage of the opt-out basis available.

As to the indirect implications, a number of market commentators have suggested that the Merricks judgment provides a platform to create a generic opt-out class actions regime for consumer claims, which could apply across all sectors. This is justified on the basis that the "relative suitability" approach of the majority of the Supreme Court in Merricks ought equally to apply to other consumer claims, which would not be financially viable as individual claims.

The UK government also seems to be considering this line of thinking. In July 2021, the government launched a consultation on proposed reforms to competition and consumer policy.6 The consultation seeks views on opening up further routes to collective consumer redress. If a collective proceedings regime is introduced for consumer law claims on an opt-out basis, based on the competition collective actions regime, this would significantly increase the risks of collective claims against any companies operating in consumer-facing industries, including the financial services sector.

The Merricks judgment may have an even broader indirect impact on the class actions system in this jurisdiction, if it is used to reopen the debate as to whether more claims should be allowed to proceed on an opt-out basis (beyond competition law claims). Some corners have called for reform of the procedure for class actions in the UK, in particular questioning whether the GLO regime should continue to operate on an opt-in basis as the default, which is currently complemented by a modest opt-out representative action procedure under CPR 19.6. There have already been numerous attempts to stretch the scope of representative actions (for example, Lloyd v Google, 7 and Jalla v Shell 8 ). The decision in Merricks may be relied upon by those who believe the current class actions system does not do enough to make civil litigation accessible for individual consumers and small-to-medium size businesses seeking redress from larger corporations

Footnotes

1 See for example the RBS Rights Issue Litigation, the Lloyds/HBOS Litigation (Sharp v Blank [2019] EWHC 3078 (Ch)) and Mohammed Arif and Others v Berkeley Burke SIPP Administration Limited [2017] EWHC 3108 (Comm).

2 Mastercard Incorporated and others (Appellants) v Walter Hugh Merricks CBE (Respondent) [2020] UKSC 51.

3 Ibid at 56.

4 Case 1304/7/7/19 Justin Gutmann v First MTR South Western Trains Limited and Another; Case 1305/7/7/19 Justin Gutmann v London & South Eastern Railway Limited; and Case 1404/7/7/21 David Courtney Boyle & Edward John Vermeer v Govia Thameslink Railway Limited & Others .

5 Case 1381/7/7/21 Justin Le Patourel v BT Group plc.

6 Reforming Competition and Consumer Policy: Driving growth and delivering competitive markets that work for consumers, July 2021.

7 Lloyd v Google LLC [2021] UKSC 50.

8 Jalla & Anr v Shell International Trading & Anr [2021] EWCA Civ 1389.

Originally Published by December 2021 edition of JIBFL.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.