Second collective action under revised UK competition regime started

​On 06 July 2016, a £19bn collective action was launched against MasterCard in relation to the multilateral interchange fees it has charged on card transactions. The action, which is the second of its kind under new rules, will raise interesting issues.

Background to the collective action

A collective action for damages has been added to an escalating suite of litigation facing MasterCard in relation to its multilateral interchange fees (MIFs). The European Commission found in 2007 that MasterCard had breached Article 101 TFEU by deciding as an association of undertakings to charge unlawfully high MIFs. MasterCard is facing various damages actions from UK retailers and is now confronted with a consumer damages claim in the form of this collective action. The claim estimates that UK consumers were subject to £19bn in overpayments as a result of retail prices being inflated to accommodate excessive card charges.

Opt-out collective actions

This is only the second collective action to be launched in the UK since new rules came into force in October 2015 enabling collective actions to proceed on an "opt-out" basis. Opt-out cases can be brought on behalf of all members of a class of claimants, with no requirement that claimants proactively elect to participate in the litigation. A class member would need to explicitly "opt-out" of the proceedings if they do not wish to be included in the claim. The case will proceed before the Competition Appeal Tribunal (CAT). The first hurdle facing the plaintiffs will be to convince the CAT to certify the collective action. The CAT will consider whether a suitable class representative has been proposed, and whether the consumer claims are eligible for inclusion in collective proceedings. If the action proceeds, the CAT will decide whether it should do so on an opt-in, or opt-out, basis.

Key points of contention

The plaintiffs join retailers in arguing that the action "follows-on" from the decision taken against MasterCard by the European Commission in 2007. The Commission found that MasterCard’s fee system encumbered retailers and consumers with illegally high charges, and was upheld by the Court of Justice of the European Union (ECJ) in 2014. A follow-on action would not require the plaintiffs to prove unlawful conduct, only that they suffered loss as a result of MasterCard’s unlawful charges. MasterCard have resisted this assertion, arguing that the Commission decision concerned cross-border interchange fees, whereas the current litigation relates to UK domestic interchange fees. The plaintiffs are likely to contend that cross-border and domestic charges are inherently connected (indeed the Commission found in its decision that EEA MIFs were used as a reference for setting domestic interchange fees).

Interestingly, MasterCard may have to argue against a position that it has itself taken in other proceedings, where it has maintained that retailers suffered no loss as a result of interchange fees, as all costs were passed-on to consumers. The contention that the industry-wide cost can be presumed to have broadly translated into pricing adjustments may now be used against MasterCard.

Evidential challenges

The claimants have a challenging task in evidencing that overcharges were passed-on. Pricing data is highly confidential and retailers will have little incentive to provide support to the collective action, which runs directly counter to their argument that excessive charges were absorbed by retailers. Indirect harm to customers can be difficult to prove and MasterCard have pointed to similar claims in the US (where, however, the general approach to indirect purchaser claims is very different) having been dismissed as speculative or remote.

Commentary

The CAT’s judgment in the Sainsbury’s case against MasterCard was handed down on 14 July 2016 and will provide some comfort, but also concern, for the plaintiffs in the collective action. The CAT found that MasterCard had restricted competition on an effects based analysis and awarded damages of £68.6m to Sainsbury’s. The plaintiffs can therefore be confident in establishing an infringement. However, the CAT’s treatment of MasterCard’s "passing-on" defence will have dampened the action’s chances of showing widespread harm to consumers. The CAT found that “no identifiable increase in retail prices has been established, still less one that is causally connected with the UK MIF”.

It will be interesting to see what impact the judgment has upon proceedings in other retailer actions against MasterCard. A £600m English High Court action against MasterCard by twelve UK retailers (including Morrison’s and Arcadia) had been suspended on 07 July 2016, pending the release of the Sainsbury’s CAT judgment. The Sainsbury’s judgment will be of interest not only to parties engaged in current litigation with MasterCard, but also to any retailers considering their own potential claims. See our article on the judgment here. We will watch this space with interest.