Guest blog by Adam Sampson, the former Chief Legal Ombudsman and now managing partner of DNGG Ltd
It’s now been four months since the permission hearing for the first use of the consumer class action powers created by the 2015 Consumer Rights Act (after the first one registered was withdrawn ). Yet still there is no white smoke from the Competition Appeal Tribunal (CAT).
With the value of the claim (against MasterCard) put at £14bn, there is a lot resting on the outcome. While the judgment will clearly largely be based on the individual facts of the case, it may give some wider clues about how the courts intend to interpret the Act.
First, the judgment may help make clear how the courts propose to balance class actions with individual claims on the same issue. Over the last year or so, MasterCard and Visa have faced a number of claims alleging that it had been systematically inflating the ‘interchange fee’, the fee (up to 1% of the transaction cost) charged to the retailers for accepting payments via branded credit or debit cards.
The claims, brought by retailers themselves, have had mixed success: an initial win by Sainsbury’s in the CAT was superseded by a recent comprehensive defeat in the High Court for a wider group of retailers on almost identical facts. Another case is in the offing.
Whatever the underlying position on liability, the question is: whose claims have priority? If there was any overcharge, it was paid by the retailers; Sainsbury’s was compensated on that basis. The consumer class action, however, is alleging that the alleged overcharge was passed on to the consumer in the form of higher prices and it is consumers, rather than retailers, who should be compensated.
While the CAT clearly cannot make a binding determination about whose claim should take priority, its ruling must consider how consumer class actions fit into a wider claims landscape.
Second, the judgment will have to bring clarity about who in practice is entitled to bring a consumer class action. Originally, the MasterCard action was to be brought by a consumer organisation. In the event, the claim is being headed up by one-time Financial Ombudsman, Walter Merricks, a man who, whatever his personal record, has no obvious locus to speak on behalf of all UK consumers.
His moral authority has also been somewhat undermined by the fact that the case is being funded via third-party US investors who stand to profit directly from any court success.
The court will also want to understand how those bringing the claim are ensuring that they are truly in touch with those they purport to represent. The claim is being brought on an opt-out basis: all adult UK residents who may have shopped in an outlet who took MasterCards between 1992 and 2008 are included in the claim unless they explicitly withdraw their consent.
But few will actually be aware of an action being undertaken in their name. The Merricks team has attempted to communicate with the public via press releases and a dedicated website; the court will need to determine if this is sufficient.
Finally, and most difficult, will be the question of what happens if liability is established and the claim succeeds. Not only will the claim have to establish that any increased costs were passed on by the retailers to the consumers (contrary to what the retailers have been arguing in their own claims); they will also have to quantify how great that loss was and how they intend to redistribute any compensation back to consumers.
But the claim covers hundreds of millions of purchases made from hundreds of thousands of shops by tens of millions of consumers at between 10 and 25 years ago. Creating a convincing mechanism by which individuals can be compensated for the additional fraction increase in cost of each purchase is, to put it mildly, a significant challenge.
The claim proposes a very simple standardised redistribution method which does not attempt to relate individual compensation paid to individual loss incurred. It remains to be seen whether this rough and ready solution is enough to satisfy the CAT.
We are still at the early stages of the claim. The hearing in January was only for permission and we are a long way yet from a full consideration of the case – if indeed we ever get there. The case has already attracted considerable press attention and the CAT will be all too aware that their approach to it will be very closely analysed. Given its inherent difficulties, it will be fascinating to see what they make of it.