FML Timeline: Walter Hugh Merricks v Mastercard

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The claim arose from a decision of the EU Commission that Mastercard had breached EU competition law by setting default fees for card transactions between EU jurisdictions.

It was alleged that consumers had paid too much for goods and services in the UK, as retailers had increased their prices in order to absorb the card fees.

A claim was commenced in the name of Walter Merricks, the former financial services ombudsman, and certification was sought for the claim to proceed on an opt-out basis.

The class was defined as any individual aged 16 or over and resident in the UK for at least three months, who between May 1992 and June 2008 bought goods or services from a business accepting Mastercard cards. The claim was valued at £14bn and represented around 46.2m people.

Decision

The application for a CPO was dismissed. The Tribunal found that the claims were ‘not suitable’ to be brought in collective proceedings.

In an application for a CPO, the applicant does not have to establish his case to anything like a trial standard, but has to do more than simply show it has an arguable case.

In particular, the expert evidence adduced by the applicant must show a methodology for calculating damages that is sufficiently plausible to satisfy the Tribunal that there is the required commonality across the proposed class. While the Tribunal was satisfied that various aspects of the proposed methodology were viable, there were two issues:

1. The degree to which merchants passed on the costs of card fees to consumers (which would vary between merchants depending upon a wide range of factors). The proposed methodology was to create a "weighted average" for the pass-through by merchants using data from various sectors and apply that across the board. The Tribunal concluded that applying this across 16 years of the UK retail market was too complex and not feasible.
2. The varying level of spend between consumers (which would determine how much extra they had actually paid as a result of increased prices due to card fees). The Applicant argued that this was a matter of "distribution" that should not prevent the claim getting underway. The Tribunal found that there was ‘no plausible way of reaching even a very rough-and-ready approximation of the loss suffered by each individual claimant using this method.

Funding

A separate issue related to the funding of the claim. Mastercard objected to the authorisation of Mr Merricks as a suitable representative, based on the terms of the funding agreement between him and a third party funder. This agreement provided that, in return for a £35m investment in the claim, the funder would be entitled to a return of the greater of £135m or 30% of the undistributed proceeds of the claim up to £1bn and 20% of any unclaimed amount beyond £1bn.

The Consumer Rights Act 2015 allows the Tribunal to award “all or part of any costs, fees or disbursements incurred by the class representative in connection with the collective proceedings” out of any unclaimed damages. Mastercard argued that this did not permit funding costs to be awarded, but the Tribunal disagreed, finding that the language of the statute was broader than the provisions covering the recovery of costs in ordinary litigation.

Mastercard also complained that the £10m of adverse costs cover in the Applicant’s funding agreement would be inadequate. The Tribunal accepted the principle that a funded claimant must be able to show that the funding agreement provides adequate costs protection for a defendant, but rejected this ground for objection in the absence of evidence that Mastercard’s costs were likely to exceed £10m.

Noteworthy/ Novel points

Had the CPO been allowed, it would have enabled the largest legal action ever commenced in England to proceed.

The breadth of this proposed action was what led to its downfall. The class was practically as broad as could be imagined, encompassing all consumers of any goods and services over a sixteen year period.

The length of the period for which losses was claimed was itself an issue: practices of retailers changed significantly, as did the use of cards by the public. It is clear that claimants will need to propose a sufficiently detailed methodology for calculating not just the total loss suffered by the class, but the loss suffered by each member.

For more information, read our article "Mastercard class action refused".