£14 billion consumer class action against MasterCard falls at the first hurdle

Publication August 2017


On 21 July 2017, the Competition Appeal Tribunal (CAT) handed down its judgment in Merricks v MasterCard1 refusing permission for opt-out class action proceedings to be brought against MasterCard.

This judgment is significant: commercially, as it strikes out the largest damages claim ever issued in the UK courts (reported as being worth in the region of £14 billion ($18 billion)); and legally, because it provides important guidance on how the CAT will apply the new opt-out collective action regime and what claims are likely to meet the criteria for certification.

The judgment also provides some useful insight concerning the kinds of funding arrangements that will be permitted by the CAT in collective claims. Funding will play a key role in the development of the class action regime in the UK (as it has in the more developed class action regime in the US). Although there were issues regarding the funding agreement in this case, the CAT confirms how funding agreements can be structured to be compliant with the collective action rules.

The judgment – which may yet be appealed – is undoubtedly a blow to the claimants in this case, but it certainly does not herald an early death to the UK’s class action system. We understand that a number of other collective actions are being formulated and the CAT’s judgment in Merricks will be helpful for claimant representatives and their advisers in structuring classes in other cases. In this respect, it is plausible that the Merricks case will be viewed a few years from now as a milestone in the trial, error and success of the bedding down of the new system. It is feasible to conceive of cases that are better suited as an opt-out collective action but this judgment serves as a chastening message to claimant law firms not to overreach when structuring future actions.

Factual background

In September 2016 Walter Hugh Merricks CBE (the Applicant) issued an application to commence opt-out collective proceedings against MasterCard seeking damages in respect of the European Commission’s 2007 decision that MasterCard’s EEA multilateral interchange fees (MIF) infringed EU competition law.

The claim was brought under section 47B of the Competition Act 1998 – a provision introduced in 2015 which allows a certified class representative to bring opt-out collective proceedings on behalf of others (i.e. to consolidate the claims of a defined class of individuals) provided: (i) the claims are suitable to be brought as collective proceedings; and (ii) the class of claimants is identifiable.

The Applicant sought compensation on behalf of a broad class of claimants – reported to include in the region of 46 million individuals. The class included UK consumers (i.e. individuals that were resident in the UK for a continuous period of at least three months and at least 16 years old) that made purchases of goods or services from UK merchants that accepted MasterCard cards in the period between 1992 and 2008.

The Applicant sought to rely on the Commission’s finding that, in the absence of the infringement, the interchange fees charged between banks (i.e. the fees charged when payments are made for goods using a MasterCard) would have been lower.2 The Applicant argued that the higher MIF resulted in increased merchants service charges paid by merchants to banks, which were passed on to end consumers in the form of higher prices for the merchants’ products.

This claim is one of a number of claims that have been issued against MasterCard in respect of the Commission’s 2007 decision. However, what distinguished it is its scale. A significant number of claims have been issued by named retailers against MasterCard seeking compensation for the increased MIF – arguing that the MIF was absorbed by the retailers and not passed on to end consumers. Significantly, two retailer claims have reached trial:  (i) on 14 July 2016 the CAT awarded Sainsbury’s damages of £68 million to compensate it for loss suffered as a result of the infringement;3 however (ii) on 30 January 2017 the High Court dismissed the claim made by Arcadia against MasterCard which was based on largely similar facts.4 This discrepancy is expected to be resolved by the Court of Appeal’s ruling on appeal.


MasterCard objected to certification of the claims on two grounds: first, that there were not sufficient common issues between the claims; and, second, the Applicant’s proposals for calculation of damages would run contrary to the doctrine that damages in the UK should compensate victims for loss actually suffered. The second objection arose because the Applicant sought an award of aggregate damages which he proposed to divide on an equal basis among all members of the class.

Common issues

The Applicant had argued that the claims falling within the class were “largely identical”. This was rejected by the CAT for three reasons, on the basis that: (i) the level of pass-on of the overcharge to end consumers in the form of inflated prices would differ on a merchant-by-merchant basis (i.e. different merchants may have accounted for the interchange fee, and therefore passed it on to consumers, in different ways – the “pass on issue”); (ii) different class members would, self-evidently, have spent different amounts at each merchant during the period of the claim; and (iii) class members who used credit cards would have paid different interest payments and received different benefits on those purchases made.

Despite these observations the CAT reiterated that the relevant legal test was whether the claims were “suitable to be brought in collective proceedings” – not whether there was substantial commonality of issues between the claims – and that there is no requirement that all of the significant issues in the claims should be common. However, the problem with this case was that suitability did not follow from the damages claims brought.

Award of aggregate damages

An overarching principle of English law is that damages should be assessed on a compensatory basis (i.e. that claimants should only receive damages which compensate them for the loss suffered as a result of the infringement).

The Applicant argued that the CAT should assess damages using a “broad axe” and a “sound imagination”. He argued that it was appropriate for an aggregate award of damages to be made to ensure that consumers obtain redress. The Applicant submitted an economic report explaining how damages would be calculated.

In order to address the problem that pass-on was not common across all retailers, the Applicant’s economists proposed calculating loss based on a weighted average level of pass-on. The CAT had no objection to this approach in principle. However, the CAT concluded that to do this across the entire UK retail market over a 16 year period would be a complex exercise involving significant data which the CAT was not satisfied existed.  On this basis, the CAT concluded that this case was not appropriate for an aggregate award of damages as would apply to a certified class.

Distribution of damages to individual claimants

Next, the CAT considered the Applicant’s proposals for allocation of damages to individual claimants. The Applicant had proposed distributing the damages on a per capita annual basis (i.e. with no consideration given to each claimant’s levels of spending or the merchants in which each claimant made purchases).

The CAT held that the Applicant’s approach would lead to claimants obtaining damages which bear no relationship to the loss that they actually suffered, and was thus contrary to the compensatory principle. In the CAT’s view, the individual issues (i.e. those issues that were not common amongst the class) made it difficult to see how payments to individuals could be assessed on a reasonable compensatory basis.  On this basis, the CAT held that the claims were not “suitable to be brought in collective proceedings” and that the standard for making a collective proceedings order had not been met.

Funding agreement – authorisation of the Applicant

MasterCard also objected to the authorisation of the Applicant on the basis of the terms of the funding agreement that he had entered into with a third party litigation funder. MasterCard did not object to the personal credentials of the Applicant as being the class representative.

The funding agreement provided that: (i) following a damages award, the Applicant would use best endeavours to transfer undistributed proceeds of the claim (i.e. damages awarded that were not paid out to claimants) to the funder; and (ii) following a collective settlement, the Applicant would use best endeavours to obtain orders from the CAT that MasterCard pay the Applicant’s costs and that “The Total Investment Return”5 be paid to the funder.

MasterCard’s objections to the funding agreement were that:

  1. It would not enable the Applicant to continue to fund the litigation or to pay MasterCard’s recoverable costs if he were ordered to do so, given that the funding agreement could have been terminated by the funder;
  2. Even if the Agreement could not be terminated by the funder, the limit of £10 million for funding MasterCard’s recoverable costs was inadequate.
  3. The terms of the funding agreement gave rise to a conflict of interest on the part of the Applicant.

Points (b) and (c) were rejected by the CAT.

However, the CAT accepted point (a) as a reason why the funding arrangement, as notified, could not be authorised under the statutory framework, even if the class was suitable. Section 47C(5) of the Competition Act 1998 provides that unclaimed funds should be paid to charity; but this is subject to the exception in section 47C(6) which permits the CAT to order that all or part of any damages not claimed “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”. This is the provision for payment of funders’ costs in the UK regime.  MasterCard argued that the Total Investment Return did not fall within section 47C(6) on the basis that it did not constitute “costs or expenses incurred” by the Applicant. The CAT held that:

  • the Total Investment Return was a “cost” of the proceedings; but
  • it was not a “cost incurred” as the funding agreement either imposed a “best endeavours” obligation on the Applicant to pay the Total Investment Return or the Applicant was under no such obligation as payment was only necessary in circumstances in which the CAT made an order for payment of the residual amount to the Applicant.

On this basis, the CAT concluded that the terms of the funding agreement would not permit the CAT to order the payment of the Total Investment Return under section 47C(6). Instead, section 47C(5) would apply and the residual amount would be payable to charity.

The Applicant indicated to the CAT at the hearing that he was prepared to amend the funding agreement to resolve this issue, i.e. to impose an obligation on the Applicant to pay the Total Investment Return “limited to such amount of the Total Investment Return as determined by the Tribunal to be payable to the Seller pursuant to the Competition Act 1998 s.47C(6)”. The CAT accepted that the funding agreement in its amended form would not be ineffective as a result of section 47C(6).


The CAT’s judgment should not be misinterpreted as the early death of the fledgling opt-out class action regime in the UK. It confirms that the CAT will closely scrutinise all opt-out class actions that are issued, whether very big or small, as would be expected. The judgment is helpful to those planning future class actions in that it sets out the tests that the CAT will apply to these claims when assessing whether they are “suitable” to be brought as collective proceedings.

Two years ago we had anticipated that the first claims brought under the opt-out collective actions regime would be simple cases (direct purchaser claims brought on behalf of a limited class of clearly defined individuals). Instead, the new regime has been tested very early in its life with the largest claim ever brought in the English courts – brought on behalf of a vast class of indirect purchasers.

Although this claim was unsuccessful, nothing in the judgment suggests that it would not be possible to bring a collective action that would meet the criteria for certification, or that funders will not want to support qualifying claims. The key lesson here might be that keeping it simple and being realistically ambitious in the scope will increase the prospects of certification for the first claims to work through the new system.



Walter Hugh Merricks CBE v MasterCard Incorporated and others [2017] CAT 16


Although the Commission decision only related to the EEA MIF, the Applicant alleged that the UK MIF was directly linked to the EEA MIF meaning that the infringement had an impact on all UK transactions involving UK merchants (not just cross-border transactions).


Sainsbury’s v MasterCard [2016] CAT 11


Arcadia v MasterCard [2017] EWHC 93 (Comm)


The “Total Investment Return” is defined to mean an amount of the proceeds of the action not distributed to claimants in the class (“Undistributed Proceeds”) and any costs ordered to be paid by MasterCard to the Applicant, equal to: “the greater of (i) £135,000,000; or (i) 30% of the Undistributed Proceeds up to £1 billion plus 20% of the Undistributed Proceeds in excess of £1 billion” plus any contractual interest on late payment by the Applicant on this principal amount (paragraph 99 of the CAT’s judgment)

Recent publications

Subscribe and stay up to date with the latest legal news, information and events...