20 Jan 2021

(by Sebastian Peyer) In December 2020 the UK Supreme Court handed down its long-awaited decision in Merricks v MasterCard.[1] This is the first decision of the UK’s highest court on the relatively new opt-out collective action procedure introduced by the Consumer Rights Act 2015. The Court did not disappoint in confirming the claimant-friendly approach to class actions taken by the Court of Appeal. The latter had previously overturned the Competition Appeal Tribunal’s (CAT) decision refusing certification of the class. This decision is likely to mark a turning point for the collective action process in the UK. It will hopefully encourage more opt-out claims and overcome the disappointing track record of zero claims that have received certification so far.


Opt-out collective actions are of great importance to ensuring compensation is paid to those injured by anti-competitive behaviour. Typically, the harm is felt by – or passed down to – large numbers of individual consumers who do not have an incentive to bring an action, or even typically know that they are victims. The opt-out regime was introduced to remedy this.

Mr Merricks, the former Chief Ombudsman of the Financial Ombudsman Services and proposed class representative, sought damages from MasterCard of around £14 billion on behalf of 46 million UK consumers. The EU Commission found that MasterCard had breached EU competition law by imposing a multilateral interchange fee (‘MIF’) for cross-border transactions in the European Economic Area (‘EEA’) in its MasterCard payment schemes. The claim alleged that merchants had passed on the cost of this fee to UK cardholders, although it was not generally possible to determine the exact overcharge for individual consumers, based on the data available.

In order for an opt-out collective action to be brought, the CAT must issue a collective proceedings order (CPO). They must be satisfied that it would be just and fair for the proposed representative to act on behalf of the class,[2] and whether the claims are eligible for inclusion in the collective proceedings. [3] Claims are eligible if a) they raise the same, similar or related issues of fact or law and are b) suitable to be brought in collective proceedings.[4] These two points are contentious in Merricks v MasterCard.

The CAT refused the certification of Mr Merricks’ claim in 2017. It reasoned that the merchant pass-on, i.e. if and to what extent merchants included the MIF in products and services they sold to consumers, was not a common issue, that the suitability test was not satisfied because the claims were not suitable for an aggregate damages award due to evidentiary difficulties, and that the distribution of a potential award did not respond to the compensatory principle. This raised the bar considerably and risked killing off opt-out actions, as I described in an earlier blog post. The Court held that the CAT’s decision was marred by errors of law finding, inter alia, that the merchant pass-on is a common issue and that the claims are suitable for an aggregate damages award. Concerning the proposed methodology to estimate damages, the Court of Appeal held that the CAT set too high a threshold for the applicant.

Decision of the Supreme Court

The majority in the Supreme Court sided with the claimants and confirmed the decision of the Court of Appeal.[5] The Court addressed a number of very important points that are likely to lower the threshold for future CPO applications and, as an unintended but welcome consequence, may also facilitate third-party funding of opt-out collective actions.

Compensatory principle and access to justice -The purpose of opt-out group actions is to enable individuals to access justice. This is a very important finding as the ‘compensatory principle’ had been overstated by the CAT. The Supreme Court clarified that the compensatory principle has been ‘radically modified’ in opt-out group actions. The requirement to individually assess losses has been removed by allowing an aggregate damages award.

What does suitability mean? – As to the suitability criterion, the Court held that suitability must be understood in comparison with a potential individual claim for the same loss. What it means is that the CAT has to ask what the potential alternative for compensation would be.[6] Based on such a comparison, opt-out collective actions are ‘preferable’ if individual claims are unsuitable for obtaining redress.

Quantification of damages – not an unsurmountable obstacle – Part of the CAT’s assessment at the certification stage is to probe the claimant’s ability to prove the amount of aggregate damages. Based on the relative understanding of the suitability, i.e. a comparison with an individual claim, the Supreme Court clarified that issues of quantification would not normally justify individual claims to be struck out. Thus, there is no justification for denying certification in a group claim when quantification is difficult, or data are likely to be missing. Courts have dealt with quantification issues before.

What do claimants need to show? – Claimants will welcome the Supreme Court’s view on thresholds in CPO applications. It only asks claimants to ‘plead a triable issue’ similar to what is required in an application for summary judgement or a strike-out application.[7] The Supreme Court rejected the idea that there is a particular merit threshold. Thus, evidentiary difficulties concerning damages calculation are not supposed to weigh heavily against the claimants at the certification stage. Lord Sales (dissenting) argued that much effort could be wasted if it turns out at trial that there is simply no way of establishing a suitable amount of damages. However, legal history demonstrates that courts are ingenious in determining damages when solid evidence is scarce.

A major step towards an effective opt-out collective action process

The Court’s decision is a leap forward towards a more effective opt-out collective action regime in the UK. Up to this point we have not yet seen a successful CPO application – one indicator that uncertainty and a demanding certification threshold have held claimants back. The Supreme Court’s comparison of collective proceedings with individual proceedings to determine whether the former is the suitable process is not reflected in the statutes. However, the comparison clearly shows what the purpose of the collective action process is: access to justice for a group of individuals who would not seek redress otherwise. The focus on effectiveness rather than an approach wedded to the letter of section 47B of the Competition Act 1998 will improve applicants’ success chances at the certification stage.

In their dissenting judgment, Lord Sales and Lord Leggatt disputed the suitability of an aggregate damages award. It is worth highlighting that their arguments are underpinned by the fear that opt-out collective actions are capable of being misused. They worry that class action representatives would have enormous leverage and that class action may be used unfairly and oppressively. I find these concerns rather surprising in a system that is not short of safeguards and where wide discretion has been given to the CAT to withdraw a CPO at any time during the proceedings. The ‘risk of class action abuse’ argument has been frequently used in the policy debate leading up to the implementation of the opt-out collective action regime. But there is little evidence to support this assertation. More importantly, there has not been a single successful CPO application yet, let alone an application with clearly dubious merits.

Positive impact on litigation funding

The Supreme Court’s view on class actions as a device to access justice has the potential to improve the situation for small and medium-sized claimant groups. Smaller class actions are being held back because third-party funding has effectively become unavailable to them. Third-party litigation funders are essential in collective actions because opt-out collective actions are costly, there is no other viable source of funding, and the CAT critically assesses the applicant’s financial resources as part of the certification process. The current view is that third party litigation funders can only be reimbursed for their costs and fees after the award has been distributed to the class.[8] This view is primarily based on the understanding that collective actions follow the compensation principle. I have pointed out elsewhere that this approach is highly problematic as it discourages collective actions on behalf of smaller groups.[9] The problem is that a damages award can be more effectively distributed when the group is small and most group members are known. Fewer funds will be left undistributed. This is good for compensation but if funders can only recover costs from left-over funds, they effectively face a loss and are unlikely to fund the action. The Supreme Court’s clarification that collective actions provide access to justice and that individual compensation is not always possible, should help to correct the misconception that funders cannot recover their cost before the damages award is distributed to the class.


The Supreme Court decision is great news for potential applicants in future cases. Claimants facing potential difficulties establishing the exact loss for the class can breathe a sigh of relief. Applicants bringing cases on behalf of indirect purchasers will be especially relieved, as the dreaded question of pass on is no longer going to be a major obstacle at the certification stage. Whether the Supreme Court’s decision will be enough for Mr Merricks to successfully prove his large claim against MasterCard is, however, highly uncertain given the ambitious size and scope of that claim.