UK's first major class action commenced under new 'opt-out' procedure

This article was produced by Nabarro LLP, which joined CMS on 1 May 2017.

Summary and implications

The UK’s first major class action has been started against MasterCard under the procedure introduced by the Consumer Rights Act 2015 (the Act). The Act, which came into force in October 2015, provides an “opt-out” procedure where consumers (or businesses) within the defined class are automatically included unless they opt out. Affected parties could therefore be entitled to compensation without having to participate actively in litigation themselves. This brings the UK closer to the US model for class actions.

Prior to the Act, “opt-in” group litigation orders were used to co-ordinate a large group of claimants all pursuing the same claim. Individuals needed to register formally, one by one, in order to become claimants in the proceedings.

MasterCard class action

The class representative, Mr Merricks, a former financial services ombudsman, is spearheading the case against MasterCard for allegedly charging unlawfully high interchange fees – fees paid by retailers to consumers’ credit or debit card company when a card is used to shop. It is alleged that these increased fees were then passed on to consumers through higher retail prices.

The class is estimated to include 40m people living in the UK between 1992 and 2008 who bought goods or services from businesses that accepted MasterCard cards. With the claim alleged to be worth £14bn this could mean compensation of around £350 per person. For now, any affected consumers do not need to take any action. The UK Competition Appeal Tribunal (CAT) will now consider whether to make a collective proceedings order, allowing the case to proceed.

Interestingly, the case is being funded by a third-party litigation funder, Gerchen Keller Capital, which is understood to have provided around £40m of funding for the case.

Previous competition cases

In September 2014, the European Court of Justice handed down its judgment against MasterCard confirming the 2007 European Commission decision that its EEA interchange fees breached competition law. In July 2016, the CAT - in the UK's first competition law stand-alone damages judgment - ruled in favour of Sainsbury's that MasterCard's UK interchange fees also breached competition law, awarding the retailer £68.6m in damages.

Wider implications

Historically, group litigation has been complex, as communicating with such a large number of claimants can be a challenge in itself. Therefore, the new class action regime should make it easier to run cases and also increase the number of affected individuals who can be compensated.

The new class action regime could mark a sea-change in the approach taken to court cases affecting groups of individuals and leave large corporations more vulnerable to class actions. The outcome of the current class action against MasterCard is likely to determine whether there will be an increased appetite to bring such claims in the future, and indeed for funders to fund them.

With e-payments and card transactions a growing market, the industry is likely to follow the outcome of the case closely to assess its wider implications.