A defendant that wanted to challenge the adequacy of the costs cover provided by the claimant’s third-party funder could not do so because it failed to provide an estimate of its own costs, let alone a budget, the Competition Appeal Tribunal held (CAT) last week.
The CAT was ruling in a claim by Walter Merricks, the former Chief Financial Services Ombudsman, who was seeking certification of a landmark opt-out collective action against Mastercard in Merricks v Mastercard Incorporated and Others [2017] CAT 16 (case no. 1266/7/7/16).
The £14bn claim was a follow-on action after Mastercard was found to have infringed EU law by imposing charges (known as ‘interchange’ fees) on the use of MasterCard debit and credit cards.
It was brought on behalf of a class of 46 million people who used a Mastercard over a 16-year period, with Mr Merricks as the class representative.
However, the CAT refused to certify it as a collective action, saying it was not satisfied that the claimant’s experts would be able to get the evidence to show that the illegal fees were passed on to consumers in the form of higher prices and that there was “no plausible way of reaching even a very rough-and-ready approximation of the loss suffered by each individual claimant”.
Mastercard had also challenged Mr Merricks’ suitability as the class representative because of the third-party funding agreement that was struck with a US funder now owned by Burford Capital, under which it would have earned at least £135m in the event of success.
On this, it failed. The CAT ruled that the funder’s fee did form part of the “costs or expenses” of the claimant for the purposes of section 47C(6) of the Competition Act 1998, and allowed an amendment to the funding agreement to ensure that it was “incurred” by the claimant – the original version of the agreement did not impose an obligation on Mr Merricks to pay the fee. It was changed to create a conditional liability to pay the fee subject to recovering it out of the unclaimed damages pursuant to an order of the tribunal.
Further, it was argued that the limit of £10m for funding a liability for Mastercard’s recoverable costs was inadequate.
Mastercard referred to Mr Merricks’ costs budget of just over £19.5m. Given the scale and complexity of the proceedings, it said he could not show, as required by CAT rule 78(2)(d), that he would be able to pay the defendant’s recoverable costs if ordered to do so.
The CAT rejected the submission, saying there was not “a necessary equivalence” between the two sides’ costs as Mastercard has already been involved in several cases over the same issue.
“The present proceedings would indeed be substantial and complex, but at the same time £10m is on any view a very large sum for the costs of a single action. Mastercard has not put forward any estimate for its own costs, let alone a proper costs budget. If it wanted to challenge the adequacy of the costs cover arranged by the applicant, we consider that would be the first step in the process.
“The tribunal has no basis at this stage to find that £10m is likely to be inadequate for Mastercard’s potential recoverable costs, which (on the standard basis) would have to be proportionate and reasonable.
“We would point out that the tribunal can always subsequently vary or revoke a CPO [collective proceedings order], or stay the collective proceedings on the application of the defendant after a CPO has been granted. If at some later stage Mastercard considered on the basis of the costs already expended and its estimated future costs that £10m was inadequate, it could apply to the tribunal accordingly.
“The applicant and his third-party funder would then have the opportunity to respond by resisting the application or increasing the cover for adverse costs liability under the funding agreement.”
Mr Merricks said he was “surprised and disappointed” by the decision, and that he was “actively considering” an appeal: “The new collective action regime was introduced by the Consumer Rights Act to overcome the difficulty for consumers seeking to recover losses from competition law infringements. I am concerned that this new regime, designed to benefit consumers, may never get off the ground.”
Costs Lawyer Andy Ellis, managing director of Practico, predicted that costs estimates would be standard in future CPO applications.
He added: “Importantly in the context of any appeal and/or in other potential class actions, the CAT emphasised that opt-out collective action regime actions take place in a specific and novel costs ecosystem. Principles of costs recovery in civil litigation do not apply. Subject to approval in a given case, funders’ fees will be able to be recovered from the unclaimed damages pot as well as after-the-event insurance premiums and perhaps conditional fee agreement success fees.
“There was direct and indirect criticism of the impenetrable way in which the funding agreement had been drafted. It was also required to be rectified following argument before the CAT in order to establish the funders’ fee as a cost incurred by the applicant. It is telling that the tribunal was happy to indulge the applicant in the search for a workable solution.”
Mr Merricks, advised by US firm Quinn Emmanuel, was represented on the costs issues by Nick Bacon QC. Mastercard, whose solicitors were Freshfields Bruckhaus Deringer, used Ben Williams QC.
Picture credit: Håkan Dahlström (cropped)