Collective Proceedings Orders present significant risks: what can businesses do to protect themselves?

Collective Proceedings Orders present significant risks: what can businesses do to protect themselves?

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On 18 August 2021, the Competition Appeal Tribunal (CAT) handed down judgment in Merricks v Mastercard and another ([2021] CAT 28). In doing so, it awarded the first Collective Proceedings Order (CPO), and did so in a claim that was enormous in ambit, having a pleaded quantum of approximately £14 billion and a class of some 45 million.

The sheer size and scope of the claim that Mastercard now faces will have caused organisations dealing with consumers and small businesses to sit up and take notice. But the judgment is not just noteworthy in terms of quantum. It also underlines various elements of CPOs that increase the risk that businesses may face claims and significant liability.

Claim size, class size, class representative

A CPO gives consumers a practical ability to bring competition claims as members of a class. Whilst the total quantum of the claim in Merricks is eye-watering, the judgment explains that this amounts to only about £155.80 plus interest for each class member. Faced with the prospect of battling alone, it is unlikely an individual claimant would bring such a claim, given the effort, costs and risks involved. A claimant sharing costs and risk as part of a wider group of claimants under a CPO minimises these concerns. Were it not for CPOs, the risk of a business facing such claims for redress in respect of breaches or alleged breaches of competition law would be remote. However, the Merricks case shows that CPOs make the risk real and the downside to defendants of losing in both terms of costs and damages can be very significant.

This significance is compounded by the fact that a CPO can be made on an "opt out" as opposed to an "opt in" basis. The judgment in Merricks is the first example of the CAT exercising its power to make a CPO on an "opt out" basis following remission from the Supreme Court. A CPO made on an "opt in" basis would likely lead to a smaller class due, for example, to a lack of awareness, capability or resolve to opt into a claim. In contrast, however, a CPO made on an "opt out" basis stretches the available class to the furthest extent possible. In Merricks, the class is effectively every person purchasing goods and services with a Mastercard when resident in the UK and over 16 years old in a 16-year period, alive at the date of issue.

A CPO can be sought by a class representative who need not be directly affected by the issues in dispute. Where this is the case, a proposed representative is subject to scrutiny by the CAT to ensure that they can, inter alia, act "fairly and adequately" in the interest of the class members. In this case Mr Merricks, a solicitor with a CV which includes a stint as the first ever Chief Financial Ombudsman was authorised to act as class representative.


In determining whether to appoint a class representative, the CAT considers whether the representative proposed will be able to pay the defendant's recoverable costs if so ordered. In this case, Mr Merrricks pointed to the funding arrangements that had been put in place. Where the litigation in respect of which a CPO is sought is proposed to be funded by a commercial funder, the CAT is required to ensure that the claim is conducted in the best interests of the class which prevails over that of the funder. That said, the CAT is also concerned to ensure that the funder's legitimate commercial interests are protected. This can lead to a potential conflict of interest, particularly regarding the circumstances in which the funding agreement can be terminated. The issue arose in Merricks, as did a potential concern on the part of the CAT regarding the issue of adverse costs.

The funder in Merricks agreed to amend the termination clause of the funding agreement during the course of the hearing to address the CAT's concerns regarding a potential conflict of interest. It also undertook to pay any adverse costs order made against Mr Merricks despite the funding agreement containing no such obligation. The CAT, the proposed class representative and the funder were open to amending the litigation funding agreement so as to make it possible for the CPO to be granted and for the litigation to proceed. This indicates that any future application for a CPO may not fail due to funding issues, and instead, funders and class representatives may be given the opportunity to fix any problems with funding so that proceedings can continue.

The funder's termination rights as drafted covered circumstances in which they believed they were unlikely to generate a return of £179 million. The amount being made available for funding the litigation was £45.1 million. The expected return for funders in this case therefore appears to be at least a multiple of 3.9 times the amount funded. The returns on successful litigation can be attractive for funders. There is now a reasonably well developed funding market in England, with funders ready to support meritorious claims. There are law firms geared up to act on group redress claims. With available finance, willing lawyers and a court prepared to entertain CPOs, the mechanics and resources to bring a group claim are readily available.

Taking stock and next steps

Merricks is not the only case, the decisions in Le Patourel v BT Group PLC and another ([2021] CAT 30) in September 2021 and then in Gutmann v First MTY South Western Trains Limited and another ([2021] CAT 31) in October, show that CPOs will be part of the legal landscape for the foreseeable future. Avoiding competition law breaches is critical. Here are some basic steps to consider:

  • Putting in place an effective compliance programme. This means ensuring that the programme is endorsed at the highest levels of the organisation, is regularly reviewed, and is not simply a tickbox exercise. Specialist in person (or virtual) bespoke training is by far the best way to give members of staff a real feel for what competition issues in the business look like in practice. Even if it does not allow them to determine whether they are on the right side of the law- it is crucial in developing their sense of when there might be an issue.
  • Seeking specialist advice where prudent at an early stage, and before implementation of policies or procedures. Many infringements of competition law are obvious and perpetrated with some knowledge of the participants of their wrongdoing. Others are more complicated and less obvious to participants. The only way to effectively mitigate risks of competition law complications is to seek specialist advice early on any behaviour which raises suspicions that competition law issues may be in play. For example, if there is any form of collusion or coordination with competitors, if there is collusion or coordination with a number of entities at a different level of the supply chain or if the business is leveraging its market strength (i.e. abusing its dominance). If in doubt seek advice, particularly when structuring products or services that will run for a long time and generate significant revenues (e.g. Interchange fees for credit cards).
  • Dealing effectively with issues when they arise. There are a few different aspects to this. In the UK (and Europe), unlike in the US, adverse decisions by regulators and follow-on claims have historically been the most frequent route to damages claims in relation to competition law infringements. This may be changing over time with standalone competition law litigation increasing markedly in frequency in the UK in particular. It is still the case however that dealing effectively with regulators and with an eye on the risks of follow-on litigation is hugely important for any business that finds itself under regulatory scrutiny. Those applying for leniency or immunity from regulators also need to consider the risks of doing so very carefully. Whether dealing with regulatory actions or with standalone litigation the same rules apply - work hard to get the bottom of the issues early on and come up with a strategy that leaves as little to chance as possible. Ensure that all relevant parts of the business are kept in the loop. It is also the case that prudent settlement or early resolution of cases may limit the risks of further complications.
  • Adopting an international approach. A national approach may not work for global businesses. As the Merricks case emphasises, infringements in other jurisdictions can give rise to UK claims While UK businesses may be tempted following Brexit to see themselves in isolation, anti-competitive effects will cross borders with any impacted goods, services or consumers: claims will travel. This necessitates a global approach to compliance, and to the assessment of risks arising

This article was first published in Practical Law, see here.

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