This article first appeared in Insurance Day, May 2021
Landmark ruling is one of several recent developments in the UK and the EU that indicates a move towards opt-out class action proceedings.
The UK Supreme Court’s landmark decision in Merricks v Mastercard in December 2020 takes us a step closer to the granting of what would be the largest group action in the history of England and Wales.
Although the judgment directly affects cases in the sphere of private competition law, it is one of several recent developments in the UK and the EU that indicates a move towards opt-out US-style class action proceedings in England and Wales. However, the rug could yet be pulled from under those claimants and funders seeking to take advantage of this trend outside competition law, so watch this space.
The judgment could impact the insurance market by not only providing a different method by which parties may bring claims but by increasing the number of claims. In circumstances where there are mass small-value claims that may generally not be pursued, there may now be an avenue for these to band together to form one large-value claim. Insurers should begin considering these potential group claims in their underwriting processes.
Mastercard had appealed former financial services ombudsman Walter Merricks’ application to lodge a £14 billion (US$19.8 billion) opt-out group action, called a collective proceedings order (CPO), in the Competition Appeal Tribunal (CAT), after claims it broke competition law by charging excessive “interchange fees” whereby the fees a retailer pays to a credit or debit card company when a consumer uses their card are passed on to the consumer.
The claim has been brought on behalf of all UK shoppers, unless they opted out, and will affect anyone who was living in the UK of working age between 1992 and 2008, even if they did not have a Mastercard.
In April 2019, the Court of Appeal overturned the CAT’s decision not to allow the CPO to proceed. The Supreme Court largely agreed with the Court of Appeal and the application will now go back to the CAT to be reconsidered in line with the legal direction provided by the Supreme Court.
Although there are several ways for a group action to be managed in England and Wales, the mechanism described above, and the “representative action” system, which is available for any type of civil claim, are the closest we have to a US-style class action regime, where eligible claimants are automatically assumed to be part of the class unless they actively elect to opt out.
As representative actions require claimants to have the “same interest” in the claim, this has historically made it extremely difficult to pursue group actions via this mechanism. It has, however, recently seen a renaissance of sorts, particularly in data breach claims. The judgment provides guidance on how the CAT should approach certification of a CPO. However, the following features indicate that a potentially broader application is possible.
First, in terms of access to justice and enforcement, “the realistic alternative to a class action is not 17 million individual suits, but zero individual suits, as only a lunatic or a fanatic sues for US$30”.
The Supreme Court started its judgment by observing that: a CPO gives consumers access to justice where it may not otherwise be available, particularly where individual consumer losses may be small but together they may amount to a sizeable sum; a defendant will likely have access to greater litigation resources; and a CPO serves as disincentive for behaviour by potential defendants. which is likely to harm consumers generally.
It was precisely this kind of consideration that influenced the European Commission to introduce the directive on representative actions (the EU Directive), which seeks to ensure means are available in all EU member states by which EU consumers can bring collective (or group) actions in respect of infringements of EU law.
The Supreme Court felt strongly that difficulties in quantifying damages across a potentially vast number of claimants should not be used to limit or deny access to justice, advising that the onus is on the courts to interpret the evidence as far as possible and take a broad-brush approach where necessary.
It is striking that the only references in the judgment to safeguards against abuse are contained in the dissenting decision of Lord Sales and Lord Leggatt. This oversight possibly gives an indication of the general direction of the English courts – that increasing collective consumer redress is the immediate priority and that the safeguards have been operating a little too strictly to date.
The claim brought by Merricks was a “follow-on” action, which relied on a decision of the European Commission to establish breach of statutory duty. Where breach is already established, a court may be more inclined to and a way to certify a group action. It remains to be seen whether that flexibility will be adopted in actions where a claimant class is required to prove a breach, where there may be additional factors that make them less suitable for certification.
In addition to the EU Directive, there are increasing attempts to bring representative actions in England and Wales. Recently, the UK Supreme Court heard Google’s appeal against an order that granted Richard Lloyd permission to bring a large-scale, opt-out representative action that alleges data privacy breaches. The Supreme Court’s decision is hotly anticipated, not least because there are now other large-scale representative actions waiting in the wings, pending this decision.
If the Supreme Court in Lloyd v Google allows the representative action to proceed, it is likely, alongside Merricks v Mastercard and the influence of the EU Directive, to increase the appetite of claimants, consumer groups, and funders to pursue this type of action and the field would be wide open for the proliferation of large opt-out group action applications in England and Wales across different areas of law. Even if the action is not allowed to proceed it is likely to only delay the advance of large opt-out group actions, as opposed to putting a stop to them.
Businesses and insurers need to be alive to the demand for large scale opt-out group actions, no matter what the outcome of these landmark cases, as it is likely to be just a matter of time before the impact of the US-style class action system is felt, one way or another.
Not only must insurers and businesses ensure they deal efficiently with any small claims as and when they arise to prevent matters from going further, but they must also ensure sufficient resources are put in place to handle these group actions matters should they materialise. In preparing for this likely impact in both England and Wales and EU, the insurance market should ensure they asking the right questions of their insureds at the appropriate time.