This article, available here, was written by lawyers of a US firm that is, in its own words, a ‘global leader on claimant focused competition damages practice’, enabling victims of anticompetitive conduct to obtain damages for harm suffered. This law firm acts for an intervenor, the Consumers’ Association, in the UK MasterCard proceedings that led to the US DoJ sending a letter to the UK’s Supreme Court. This piece is – as the title indicates – a reaction to that letter.

Hausfeld MasterCard

The paper begins by framing the issue.

The DoJ AAG’s letter to the UK Supreme Court provides an overview of class actions in the US. The authors agree with the general overview of Rule 23 provided by the Division. For example, few would argue with the proposition that, in the antitrust context, indirect purchaser class actions raise more difficult questions of commonality, impact, and manageability than direct purchaser class actions, even though harm may have been sustained at both levels. As a result, indirect purchaser class actions in the United States are often not certified for class treatment under Rule 23 of the Federal Rules of Civil Procedure or comparable class action rules in state courts.

However, the authors disagree with a number of specific assessments in the DoJ’s brief. In particular, it is not clear how the Division’s views on the proper application of Rule 23 would be of assistance to the UK Supreme Court since the UK regime is very different from the US. The UK statute has entirely different standards for certification than the US, including on: the showing required of the plaintiffs’ experts at the certification stage of a proceeding; determining aggregate damages; addressing the distribution of aggregate damage awards to individually injured members; and, finally, allocating any portion of a class recovery that may remain after all identifiable injured class members have been compensated. For example:

– In England, unlike in the US under Rule 23, there is no requirement that common issues predominate in collective proceedings in the UK.

– In the US, motions for class certification are not generally decided until after there has been discovery on class issues, including damage methodology. In the UK, this approach to discovery prior to certification has been specifically disavowed.

– The view advanced by the Division’s discussion of potential difficulties in calculating individual damages after an aggregate award has been made ignores how UK law allows the Tribunal to make an award of damages in collective proceedings without undertaking an assessment of the amount of damages recoverable in respect of the claim of each represented person.

A subsequent section delves into the relationship between class actions and effective civil redress.

From a societal point of view, class actions permit the aggregation of claims which, because of their comparatively small size, would not be brought as individual claims for economic reasons. In effect, class actions often provide the only mechanism by which large numbers of purchasers suffering similar damages from a common wrong can realize any sort of recovery. From the point of view of the courts, class actions provide a mechanism for bundling many such claims into a single action, thus ensuring that an avalanche of virtually identical claims, all of which might have to be needlessly adjudicated separately, does not overwhelm them. Class actions thus preserve scarce judicial resources by offering the prospect of efficient litigation. Such an approach is particularly sensible in follow-on actions, where public authorities have already established guilt.

Regardless of jurisdiction, all class action regimes seek to balance two seemingly contradictory interests. On the one hand, we have the interest in providing effective redress to parties injured by antitrust violations whose claims might be too small to proceed individually (the compensatory or restitutionary interest). On the other, we have the interest in protecting the legitimate interests of defendants whose conduct gave rise to these claims. Different jurisdictions will balance these competing interests differently.

For public policy reasons, the UK appears to have decided that, if given the choice between denying any recovery to claimants with potentially small value claims because of possible imprecision in the calculation of some claimants’ individual damages, and allowing such claims to proceed beyond the certification stage, the better approach is to accept a modicum of imprecision and allow the collective action to proceed. Such an approach can, under appropriate rules, recover the overall damage to the market, provide compensation to actually injured victims, and deprive wrongdoers of their ill-gotten gains. This, of course, reinforces the deterrent effect of the sanction imposed by a competition authority with respect to the same misconduct.

Section IV describes the UK’s collective proceedings regime.

Opt-out collective proceedings in the UK are restricted to UK residents, but non-UK-domiciled class members may opt-in to the proceedings. Such claims are heard before the Competition Appeal Tribunal (the “CAT”), a specialist tribunal.

The equivalent of US class certification takes place early by way of an application for a collective proceeding order (“CPO”), which may only be granted if it would be just and reasonable for the applicant to be authorised as the class representative and the claims which the applicant seeks to combine are eligible for inclusion in collective proceedings. The eligibility requirement is satisfied if the CAT finds that the individual claims raise the same, similar or related issues of fact or law, and are suitable to be brought in collective proceedings. In assessing suitability, the CAT can take into account all matters it thinks fit, including whether the claims are suitable for an aggregate award of damages.

To date only two certification hearings have taken place before the CAT and both were refused. Further applications for CPOs have been made but none have yet been heard as the Tribunal chose to pause all certification hearings pending the Supreme Court’s ruling in the MasterCard case.

Section V discusses the MasterCard case.

The MasterCard case is an opt-out collective proceeding brought before the CAT in 2016 seeking approximately £14 billion (roughly $18 billion) on behalf of a class of 46 million UK consumers. It is a follow-on claim based on a 2007 infringement decision of the European Commission regarding multilateral interchange fees. At the time that the collective action was commenced, some of its largest retail merchants had also sued MasterCard in individual actions before the UK courts.

In July 2017, the CAT refused to grant a CPO to Walter Merricks, the proposed class representative and a former financial ombudsman. The refusal was for two principal reasons. First, the CAT found that Mr. Merricks had not pointed to sufficient data to facilitate the use of the methodology proposed by his experts to determine how the overcharges may have been passed on to consumers. Second, the CAT ruled that Mr. Merricks had not put forward any plausible means of calculating the losses sustained by class members on an individual basis so as to allow for the distribution of an aggregate award of damages.

On appeal, the Court of Appeal overturned the CAT’s ruling and remanded the case back to the CAT for a second certification hearing. The Court of Appeal held, inter alia, that the CAT had applied too strict a test at the CPO stage, and that the class representative only had to demonstrate that the claims have a “real prospect of success.” In essence, the Court of Appeal held that the CAT had erroneously required too much of the proposed class representative at the certification stage. With regard to the calculation and distribution of an aggregate award of damages, the Court of Appeal held that there was no requirement under Section 47C(2) of the UK Competition Act to approach the assessment of an aggregate award through the medium of a calculation of individual loss. The Court also held that distribution is not a matter for certification but rather determination following trial. This is the decision currently under appeal before the UK Supreme Court.

Section VI concludes.

In providing its views of U.S. class action law, the Division’s commentary exalts damage analysis above the importance of recovery for misconduct, and allows economic opinions to control class certification determinations that are fundamentally legal in nature. The MasterCard case presents the UK Supreme Court with the opportunity, early in the life of the UK’s young collective proceedings regime, to ensure that the test for proposed class actions is set at an appropriate level. That level ought to be one which takes into account the complexities of calculating loss in competition law claims, and the unequal position of class representative and defendant from an evidentiary point of view.

Comment

From a content perspective, the most interesting contribution of this paper is its discussion of how the US class action regime differs from the UK’s opt-out collective proceedings for competition damages.

I think the paper also opens a window into how the competition community’s expectation for convergence* goes beyond substantive rules and public enforcement, into other areas where such convergence lacks as solid a rationale, e.g. procedural mechanisms governing non-contractual liability.

The paper’s argument that it is not clear why the Supreme Court should be interested in the detailed mechanisms governing US class actions, given how different the British regime is, is an obvious one – and yet, I was surprised to realise that I had not taken it seriously until I read it on paper. Of course, international experience can always play a useful role by shining a light on difference experiences and helping us think about problems from different angles. At the same time, there is no reason to expect a court to adopt an approach in line with another country’s regime when dealing with procedural mechanisms that are very different – and in effect, reflect a conscious and well-documented choice to take a different path. This is particularly the case given that the UK’s regime is specific to competition infringements, while the US class action regime is a generic regime not limited to antitrust.

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