UK tribunal ruling in Merricks clarifies application of limitation and prescription legislation in competition cases
Following a January 2023 hearing, the UK Competition Appeal Tribunal (CAT) has handed down its latest judgment in the Merricks interchange saga. The collective proceedings allege that UK consumers paid higher prices in shops between 1992 and 2008 due to “excessive” multilateral interchange fees (MIFs), set by Mastercard and charged by cardholders' issuing banks to merchants' acquiring banks. The proceedings were commenced as a follow-on to the Court of Justice of the European Union’s 2014 decision upholding the European Commission’s decision that Mastercard’s intra-European Economic Area (EEA) MIFs breached Article 101 of the Treaty on the Functioning of the European Union (TFEU).
The judgment concerns four preliminary issues:
- Whether the application of the general legislation on limitation/prescription is precluded by the Competition Act 1998 and the CAT rules;
- If the general legislation on limitation/prescription is not precluded, whether Section 11(2) of the Prescription and Limitation (Scotland) Act 1973 (PLSA) applied to the claims insofar as they are governed by Scots law;
- For the purposes of limitation or prescription, what law governs claims by class members in relation to transactions with foreign merchants; and
- As a matter of law, whether Mastercard is entitled to advance a counterfactual based on an alternative, exemptible EEA MIF pursuant to Article 101(3) of the TFEU.
Limitation/prescription legislation applies to pre-October 2015 claims
Although the Merricks proceedings were commenced post-1 October 2015 (the date upon which CAT proceedings became subject to the general legislation on limitation/prescription), they comprised claims that arose pre-October 2015. By way of Rule 119 of the CAT Rules 2015, Mr Merricks, therefore, could rely upon the exceptional “two years after final decision” limitation provision for follow-on claims in the previous CAT Rules 2003.
Further, citing Section 47A of the Competition Act, Mr Merricks contended that all claims were within time. This section governs claims that can be brought before the CAT and includes a disapplication of any limitation/prescription rules to identify those claims. Mr Merricks noted that Rule 119 of the CAT Rules 2015 had not incorporated the old Rule 31(4) of the CAT Rules 2003 – which stated that follow-on claims for damages could not be made if they would be time-barred before the commencement of Section 47A – and therefore did not apply.
The CAT agreed with Mastercard’s position that, since the CAT Rules 2003 and Section 47A of the Competition Act did not come into force until 20 June 2003, some of Mr Merricks’ claims were time-barred under general provisions of limitation/prescription. The CAT explained that the disapplication of rules under Section 47A was only to identify claims that were within the tribunal’s jurisdiction in private actions (ie, it precludes any argument that CAT’s jurisdiction cannot be engaged because the claim is time-barred).
Further, it stated that the omission of Rule 31(4) should not be treated as repealing limitation/prescription rules in this context. It would be “illogical” for the omission to mean that proceedings commenced pre-1 October 2015 might be subject to a time bar in respect of claims arising before 20 June 1997 (by way of Rule 31(4) and general limitation legislation), whereas claims commenced post-1 October 2015 in respect of the same claim period would not have been time-barred. The relevant legislative provisions should be construed to avoid this result, and, as such, the general legislation does apply to claims arising pre-1 October 2015.
The application of Scots law to a continuing infringement
Scots law of prescription, while similar in practice to the English law of limitation, is fundamentally different in that it operates to extinguish the underlying obligation to make reparation for loss, injury or damage (as opposed to working to bar the pursuit of a valid claim).
Section 11(1) of the PLSA provides that, for the five-year prescription period, time begins to run on the date when the loss, injury or damage occurred. However, Section 11(2) states that if a continuing act causes the loss, then the prescriptive period will not begin to run until the continuing act has ceased. There was no similar provision in English law during the relevant period.
For the purposes of Scots law, the CAT found that Mastercard’s rules establishing the system for the MIFs and the individual decisions setting positive MIFs were a continuing act constituted by the scheme. Therefore, the prescriptive period was treated as having begun on 21 June 2008, the date Mastercard was required to (and did) bring the infringement to an end following the European Commission’s decision.
The ‘proper law’ issue
The Merricks proceedings concerned purchases by class members in the United Kingdom from merchants based in foreign jurisdictions. The CAT, therefore, had to determine the applicable law for the claims. The general rules under common law (applying to claims before 30 April 1996) and the Private International Law (Miscellaneous Provisions) Act 1995 (PILMPA) – applying to claims from 1 May 1996 to 10 January 2009 – effectively require the tribunal to determine the jurisdiction in which the restriction of competition occurred.
Merricks differs from previous interchange fee proceedings in which the issue of ‘proper law’ was considered because the proceedings are brought by consumers purchasing from merchants rather than the merchants themselves. This means the location of the loss suffered and the market in which competition was restricted differ, providing no clear answer on the application of the general rules. Conversely, the applicable law in claims brought by merchants (eg, Deutsche Bahn AG v Mastercard Incorporated [2018] EWHC 412 (Ch)) derives from the jurisdiction in which the merchant operated its business (as this is the location in which both the loss and market restriction occurred).
Consequently, the CAT applied the exceptional rules under common law and PILMPA, addressing the most ’suitable’ governing law to address the case’s significant issues: quantum, loss and limitation. On this basis, noting that its decision was “not without hesitation”, the tribunal determined that the applicable laws were English law for claimants residing in England and Wales (and Northern Ireland, as agreed between the parties) and Scots law for claimants residing in Scotland.
The exemptibility issue
As Merricks is a follow-on action, the CAT is bound by the European Commission’s decision that Mastercard’s intra-EEA MIFs infringed Article 101 of the TFEU. On this basis, the CAT held that Mastercard was not entitled to advance an exemptibility counterfactual under Article 101(3) of the treaty.
The tribunal found that the Commission’s decision concerned Mastercard’s MIFs broadly – rather than at a particular level – and had already determined that exemptions did not apply. Mastercard had the opportunity to submit a counterfactual to the Commission before the decision and refrained. Consequently, allowing Mastercard to advance an exemptibility counterfactual by reframing the scope of the decision to apply only to the actual MIF levels would be an abuse of process.
Impact of the CAT’s application
While some of the CAT’s answers to the preliminary questions raised in Merricks are limited to the facts of the case (eg, the exemptibility issue and application of Scots law), the judgment provides welcome guidance on the interrelationship between general legislation on limitation/prescription and the competition-specific legislation/rules, particularly in relation to pre-1 October 2015 claim periods. However, with the CAT’s judgment regarding the application of Volvo and DAF Trucks (C-267/20) to interchange fee proceedings against Visa and Mastercard pending, this will not be the end of the CAT’s limitation rulings on interchange fee proceedings.
Market participants should continue to monitor the CAT’s position on ‘proper law’, as its hesitant application of the rules in Merricks suggests that we may see further developments in this area.
UPDATE (30/05/2023): On 25 May 2023, the CAT dismissed both Mr Merricks’ and Mastercard’s applications to appeal the CAT’s judgment on the preliminary issues. The CAT did not see any real prospect that the Court of Appeal would decide that the general legislation on limitation/prescription was incorrectly applied by the CAT on the grounds put forward by Mr Merricks. Regarding Mastercard’s appeal, the CAT explained that the factors taken into account for the purposes of determining the proper law under the exceptional rules were questions of fact not errors of law and, therefore, a successful appeal would be unlikely. Finally, on exemptibility, the CAT acknowledged that if the only ground for the determination of the issue was abuse of process, it would have given permission to appeal as the principles of abuse of process were applied in a somewhat novel situation. However, since the determination was also reached on the independent ground of the binding effect of the European Commission’s decision, the CAT did not consider that an appeal would have any real chance of success.
It remains to be seen whether Mr Merricks and/or Mastercard will obtain permission to appeal the judgment directly from the Court of Appeal.
This article was published on the GCR Class Actions hub on 24 May 2023.
