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Supreme Court upholds retailers’ case on the application of Art 101 TFEU to payment card interchange fees


The Supreme Court has handed down its unanimous judgment in the interchange fee appeals. It has upheld the judgment of the Court of Appeal on the application of Art 101(1) and Art 101(3) TFEU; made clear that no greater precision is required of defendants than of claimants in quantifying any alleged “pass-on”; and allowed the cross-appeal by the claimants in Asda, Argos and Morrisons (“AAM”) v Mastercard against the Court of Appeal’s decision to remit part of their appeal to the Competition Appeal Tribunal, holding that the Court of Appeal should have allowed that appeal in its entirety.

The appeals arise from three sets of proceedings in which retailers brought claims against Visa and (separately) Mastercard, alleging that interchange fees imposed by those schemes were in breach of competition law. Those claims relied in particular on Decision C (2007) 6474 of the European Commission, upheld on appeal by the General Court [2012] 5 CMLR 5 and CJEU [2014] 5 CMLR 23, that the Mastercard MIFs applicable to cross-border transactions within the EEA were in breach of Art 101(1) and that Mastercard had failed to show that it met the conditions for exemption under Art 101(3).

When a cardholder makes a purchase from a shop using their payment card, the cardholder’s bank remits the purchase amount to the retailer’s bank (known as the “acquiring” bank) less a so-called interchange fee. Although such interchange fees can in theory be negotiated bilaterally between banks, in the markets in issue the default “multilateral interchange fee” (or “MIF”) set by the schemes invariably applies. The MIF makes up a substantial part of the fee paid by the merchant to its bank to process the card payment.

There was no dispute in the appeals that the MIFs were set by collective agreement between the schemes’ member banks; and that they had the effect of raising the prices paid by merchants to accept Mastercard and Visa cards compared to those they would pay absent the MIFs (but for which a default rule of settlement at par would apply, and would not be displaced by bilateral agreements).

In all three sets of claims, the claimant retailers alleged that the MIFs thus restricted competition on the market for the services provided by acquiring banks to retailers. The defendant schemes denied that there was any prima facie breach, and contended that if there were, the MIFs were in any case exempt under Art 101(3).

Although the issues were materially the same, the judgments at first instance differed radically. In Sainsbury’s v Mastercard [2016] CAT 11; [2016] Comp AR 33, the Competition Appeal Tribunal’s analysis proceeded on the basis of a counterfactual analysis that all parties ultimately agreed was flawed. In AAM v Mastercard [2017] EWHC 93 (Comm); [2017] 4 CMLR 32, Popplewell J found that the MIFs would be in prima facie breach of Art 101(1) but for a so-called “death spiral” argument, based on the premise that in a world in which Mastercard could not impose MIFs, Visa still would, and would attract all Mastercard’s business, so that the Mastercard scheme would have collapsed. There was thus no prima facie restriction, and in any event Mastercard had proven that the MIFs qualified for exemption under Art 101(3). In Sainsbury’s v Visa [2017] EWHC 3047 (Comm); [2018] 2 All ER 611, Phillips J rejected the “death spiral” argument but found there was no prima facie breach in any event. In a second judgment [2018] EWHC 355 (Comm); [2018] 4 CMLR 24 he held that if that were wrong, Visa had failed to prove exemption.

The Court of Appeal heard a conjoined appeal of all three cases over ten days in April 2018. In its judgment [2018] EWCA Civ 1536; [2019] Bus LR 198; [2019] 1 All ER 903 it held that it was bound by the CJEU decision in Mastercard v Commission to conclude that the MIFs were in prima facie breach of Art 101(1). It further held that the “death spiral” argument was misconceived. On exemption, it concluded that Popplewell J’s Art 101(3) analysis was flawed and that he should have found that Mastercard had failed to prove its case on exemption; but that Phillips J had overlooked (a) important factual evidence; and (b) his finding, in his first judgment, that Sainsbury’s had conceded that MIFs above a certain level qualified for exemption, in making the corresponding finding about Visa. It remitted all three cases to the Competition Appeal Tribunal on the exemption issue, including AAM v Mastercard, but directed that in the remitted case Sainsbury’s should be bound by its concession vis-à-vis Visa.

The following issues were appealed to the Supreme Court:

First, whether the Court of Appeal had erred in law in finding that there was a prima facie restriction of competition in the acquiring market. The schemes argued that the intensity of competition between banks to win merchants’ business in the acquiring market would have been the same with a default rule of settlement at par as it was with MIFs, and therefore the MIFs did not restrict competition. The Supreme Court rejected the schemes’ argument, agreeing with the retailers that the key difference between a scheme with MIFs and a scheme with default settlement at par was between a situation in which the charge is only partly determined by competition and partly by collective agreement on the MIF; and one in which it is fully determined by competition. With default settlement at par, merchants could force down the charge to the acquirer’s individual marginal cost and mark-up. The Supreme Court agreed with the Court of Appeal that it was bound by the CJEU Mastercard decision to reach that conclusion, but held that it would have done the same were it not so bound.

Second, whether the Court of Appeal had erred by requiring the schemes to meet too onerous an evidential standard when seeking to prove exemption. The Supreme Court dismissed the schemes’ appeal on this ground. It also explained why the schemes could not rely on the so-called Merchant Indifference Test developed in the academic literature as determining an exemptible level of MIF, without further evidence.

Third, whether, in order to make out the “fair share” limb of Art 101(3), it was sufficient to show that consumers as a whole were not left worse off by the MIF, or whether that had to be shown of merchants in particular. The Supreme Court dismissed Visa’s arguments on this point (Mastercard not having taken it), holding that the “fair share” test applied to the direct or indirect consumers of the goods or services covered by the restrictive measure in issue – in this case, the merchants.

Fourth, whether the Court of Appeal found, and if so whether it erred in law in finding, that a defendant has to prove the exact amount of loss mitigated in order to reduce damages. The Supreme Court disagreed with Mastercard’s contention that the Court of Appeal had made that finding, but agreed with it that no greater degree of precision was required of a defendant than of a claimant in quantifying pass-on. It also held that there is a “heavy evidential burden” on claimants in relation to pass-on, and that adverse inferences would be drawn against claimants who fail to produce relevant information on what they have done to cover their costs.

Fifth, whether the Court of Appeal had erred in remitting the AAM proceedings for reconsideration in relation to exemption under Art 101(3). The Supreme Court agreed with AAM that, having concluded that Popplewell J should have dismissed Mastercard’s claim to exemption on the evidence before him, it was contrary to the principle of finality in litigation to remit that claim to the Competition Appeal Tribunal for reconsideration, regardless of the position in the other claims.

The judgment is here.

Mark Hoskins QC and Hugo Leith (instructed by Jones Day) appeared for Mastercard.

Sarah Love (instructed by Morgan Lewis & Bockius UK and Mishcon de Reya) appeared for Sainsbury’s.

Daniel Piccinin (instructed by Milbank and Linklaters) appeared for Visa. Daniel Jowell QC also appeared for Visa at first instance.

Max Schaefer (instructed by Stewarts) appeared for AAM. Fergus Randolph QC also appeared for AAM at first instance.