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LANDMARK SUPREME COURT JUDGMENT ON COLLECTIVE ACTIONS AND ITS IMPLICATIONS FOR THE O’HIGGINS FX CLAIM

UK|FX

1 MARCH 2021

Introduction

The claim by Michael O’Higgins FX Class Representative Limited (the O’Higgins PCR) is a collective action against banks who participated in the FX cartels (the O’Higgins FX Claim). On 11 December 2020, the UK Supreme Court issued a landmark judgment on collective actions. This was the judgment in Walter Merricks CBE v Mastercard (Merricks).

In this article we summarise the Merricks judgment and its implications for the O’Higgins Claim. In short, the Merricks judgment has provided welcome guidance on the test that prospective collective actions such as the O’Higgins Claim have to meet in order to be certified and so be permitted to proceed against the defendants. The O’Higgins PCR is confident that its claim meets the standard for certification.

Supreme Court

The CRA

By way of background, collective actions were introduced by the Consumer Rights Act (the CRA) which came into force on 1 October 2015. Amongst other things, the CRA allows collective actions to be brought before the Competition Appeal Tribunal (the CAT). For a proposed collective action to proceed, the CAT must make a collective proceedings order (CPO) which authorises the proposed class representative as suitable to represent the class and which certifies the claims of the proposed class members as eligible to be included in collective proceedings. This step is referred to as ‘certification’.

Under Rule 79(1) of the CAT Rules 2015, such a certification order will be made if the CAT is satisfied that the claims covered by the proposed collective action are: (a) brought on behalf of an identifiable class of persons; (b) raise common issues; and (c) are suitable to be brought in collective proceedings.

Certification therefore takes place with the granting of a CPO and is the formal establishment of a class of victims of the anticompetitive conduct by the CAT. If the CPO application is successful, and certification takes place, then the claim progresses to a trial post-certification to determine whether the class suffered harm and is entitled to damages. If the class is entitled to damages, post-award the class representative will then distribute the damages to individual class members in what is called the ‘distribution phase’.

Merricks

To date, eleven collective actions have been filed under the CRA regime. However, only Merricks has advanced sufficiently far to provide guidance on the test for certification.

By way of background on Merricks, on 6 September 2016, Mr Merricks filed an application for a CPO under the CRA alleging that UK consumers paid, between 22 May 1992 and 21 June 2008, higher prices as a result of Mastercard’s imposition of unlawful ‘interchange fees’. Retailers pay interchange fees whenever they accept a credit or debit card transaction, and Mr Merricks argues that retailers passed these fees onto all consumers (whether they paid by card or not) in the form of higher prices.

In July 2017 Mr Merricks’ application for a CPO failed at the first hurdle when it was dismissed by the CAT. The CAT refused certification on two grounds: (i) that the claims were not suitable for an aggregate award of damages; and (ii) that Mr Merricks’ proposal for distribution of damages in the distribution phase did not accord with traditional English legal principles that damages must be compensatory.

However, the CAT’s first instance decision was subsequently appealed to the Court of Appeal, which in April 2019 found in favour of Mr Merricks. The Court of Appeal found that the CAT’s decision was impaired by five errors of law in relation to: (i) the consideration of the CAT of ‘common issues’; (ii) the likely availability of data; (iii) the CAT having held in essence a ‘mini-trial’ at the certification hearing; (iv) the tying of the distribution proposal to the compensatory principle; and (v) assessing the proposal for distribution at the certification phase.

Mastercard then appealed that decision to the UK Supreme Court. The hearing in the appeal was held on 13 and 14 May 2020 and focussed on two key questions:

  1. What is the legal test for certification of claims as eligible for inclusion in collective proceedings?; and
  2. What is the correct approach to questions regarding the distribution of an aggregate award at the stage at which a party is applying for a CPO?

The delivery of the judgment by the Supreme Court was delayed after the untimely death of one of the five Supreme Court members who heard the appeal, Lord Kerr. However, prior to his death, Lord Kerr had agreed with two of the other four judges in favour of Mr Merricks, while two other judges dissented (i.e. disagreed with the other judges). Judgment was delivered on 11 December 2020, with (in effect) a 3:2 judgment in favour of Mr Merricks.

Implications of Merricks for the O’Higgins FX Claim

The Supreme Court judgment in Merricks is ‘claimant-friendly’ in that it sets a lower standard for certification that had been identified by the CAT. It is worth noting the following about the Merricks judgment:

  • Public Policy: Public policy is a central feature of the judgment and there is a heavy reliance on legislative intent. The Supreme Court expressed the opinion that if these types of claims are not allowed to proceed then it gives rise to “the perception that anti-competitive conduct may never be effectively restrained in the future if wrongdoers cannot be brought to book by the masses of individual consumers who may bear the ultimate loss from misconduct which has already occurred.”
  • No higher standard for collective actions than individual claims: The Supreme Court highlighted that collective actions should not be subjected to a higher legal standard than that imposed on claimants in individual claims. Subject to two exceptions, the certification process does not involve a merits test. The exceptions are:
    • Where the defendant has brought a strike-out or summary judgment application, both of which are possible given the applicability of the relevant sections of the CAT Rules to the collective action regime. The CAT is entitled, at its discretion, to hear any such application at the CPO hearing. No such application was brought in Merricks prior to the original CPO Hearing.
    • Where there is some cause to assess whether the claims should be brought as opt-in or opt-out proceedings.

  • Hurdles to meet: The only ‘hurdles’ over which an applicant is required to pass are that the claims are brought on behalf of an identifiable class, that they raise common issues and that they are suitable to be brought in collective proceedings. In assessing these elements, the CAT ought to conduct a weighing up exercise of the factors at play in the proceedings. In Merricks, the CAT erred in law in treating the suitability of the claim for an aggregate damages award as a hurdle in and of itself rather than merely being a factor to be weighed in the balance when deciding whether to award a CPO.
  • Suitable for collective proceedings: The key test for whether a claim is suitable for collective proceedings is whether it would be more appropriate to bring the claim as separate individual actions rather than one collective action.
  • Difficulties in establishing damages not a bar: In relation to quantum, the fact that the assessment of damages may involve a difficult, extensive and potentially costly process should not be a reason for the CAT to refuse certification.
  • Can use extrapolation or interpolation for data: Gaps in the data can “in some instances” be able to be filled by “techniques of extrapolation or interpolation”, but some gaps may be unbridgeable. However, the CAT owes a duty to the represented class to try and assess the total quantum no matter how difficult.
  • Questioning of experts: The Supreme Court emphasised that questioning of experts can take place at certification stage, even if it “should and will be a rare occurrence”. However, questioning of experts at certification stage should not be an adversarial or hostile questioning.
  • Radically modified compensatory principle: The Supreme Court was clear that the traditional compensatory principle applicable in English litigation is “expressly, and radically, modified” in the CRA regime “by removing the requirement to assess individual loss in an aggregate damages case” and that nothing in the statute or the CAT Rules “puts it back again for the purposes of distribution”. The distribution of any aggregate award of damages is, in any event, to be conducted with judicial oversight, and the only requirement is that it should be fair and reasonable.
  • Distribution can be looked at during certification: Distribution can be looked at the certification stage, even if it would “generally” be premature. However, “[i]n many cases the selection of the fairest method will best be left until the size of the class and the amount of the aggregate damages are known”.
  • Canadian law is persuasive: The Supreme Court found that Canadian case-law on certification, as encapsulated by a statement in a judgment called Microsoft, that “the expert methodology must be sufficiently credible or plausible”, is persuasive authority in the UK.

The dissenting judges argued that the CAT should be entitled to require the class representative to demonstrate that there is a method which is capable of establishing loss in a reasonable and just way, and at proportionate cost, on a class-wide basis.

Implications of Merricks for the O’Higgins FX Claim

The certification hearing in the O’Higgins FX Claim is scheduled for 12 July 2021 and will be applying the standard on certification as set by the Supreme Court in Merricks.

Mr O’Higgins and his team have always taken the view that the O’Higgins FX Claim would have been suitable to be certified as a collective action even on the higher threshold for certification originally applied by the CAT in Merricks. This confidence has been increased by the considerably lower threshold set by the Supreme Court in its Merricks judgment. Even the standard set by the dissenting judges would be comfortably exceeded by the O’Higgins FX Claim.

Updates on the progress of the O’Higgins FX Claim to and post-certification will continue to appear on this claim website and will be emailed to everyone who registers on this claim website here. Any questions from Proposed Class members can be emailed to info@ukfxcartelclaim.com.



Belina Hollway

Author: Belinda Hollway + James Hain-Cole
Scott+Scott UK LLP



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