Court of Appeal hands down judgment in the MasterCard and Visa MIF Litigation

The Court of Appeal has considered the three conjoined appeals in the multilateral interchange fee litigation, proving much needed clarity.

On 04 July 2018, the Court of Appeal handed down its much-anticipated judgment in the multilateral interchange fee (MIF) litigation.

Our article published in January 2018 provides a detailed summary of the first instance claims.

What was the appeal court considering?

The Court of Appeal, (which was comprised of an extremely senior panel including the Master of the Rolls, the Chancellor of the High Court and Flaux LJ) heard conjoined appeals from three first instance decisions:

  • A decision of the CAT in July 2016 (Sainsburys v MasterCard) which found that the UK domestic MIF was anticompetitive and awarded Sainsbury’s £69m damages
  • A decision of Popplewell J in the High Court on 30 January 2017 (Arcadia and others v MasterCard), finding that MasterCard’s MIF did not infringe competition law (ie there was no breach of Article 101(1) TFEU) and in any event would have been exemptible under Article 101(3), and
  • A decision of Phillips J in the High Court on 30 November 2017 (Sainsbury’s v Visa) in which it was held that Visa’s MIF did not breach Article 101(1). In a second judgment dated 23 February 2018, Phillips J held that the Visa MIF was not exemptible (at any level) under Article 101(3).

The three first instance decisions were extremely contradictory, taking markedly different approaches to many of the key issues in dispute.

All eyes were on the Court of Appeal to see if could bring some clarity. The central question for consideration was whether the setting of a default MIF within the MasterCard and Visa payment systems was an unlawful restriction of competition law pursuant to Article 101.

What did the Court of Appeal conclude?

In summary, the Court of Appeal held:

  • The CAT and Popplewell J were correct to find that the MasterCard scheme rules which provided for a default MIF in the absence of bilaterally agreed interchange fees breached Article 101(1).
  • The same is true of the Visa scheme and the conclusion reached by Phillips J in respect of the Visa scheme was therefore incorrect.
  • There is no scope to consider a death spiral argument in terms of analysing whether the default MIFs were objectively necessary for the survival of a 4 party scheme (ie the Visa and MasterCard schemes).
  • The correct approach is to compare the default MIF’s with a situation in which there would be no MIFs and a rule that a transaction be settled at par.
  • The Court of Appeal was bound to follow the Commission Decision of 24 May 2012 on the main issues of Article 101(1).
  • In respect of 101(3), Popplewell J was incorrect in that he should have found that MasterCard had failed to satisfy the first “benefits” condition of Article 101(3). However, Phillips J was also incorrect (in coming to the opposite conclusion on Article 101(3)) because he overlooked important factual and empirical evidence that was before him.
  • The merchants (claimants) do not bear the burden of proving the lawful level of MIF. The correct analysis is to apply Articles 101(1) and 101(3) in order to determine whether or not the default MIF, as charged, is in whole or in part unlawful and then to assess damages on the unlawful amount.
  • The CAT was right not to have reduced Sainsbury’s damages for pass-on.

What happens next?

The Court of Appeal has decided to remit all three cases back to the first instance court, in order to have the Article 101(3) issue reconsidered and for quantum to be assessed.

Interestingly, the Court of Appeal decided that all three cases should be sent to the CAT (even though two had been in the High Court) on the basis that the CAT is an appropriate specialist tribunal better equipped to deal with complex issues of competition claims. All three claims will be heard in the same CAT, with a High Court judge chairing.

The Court of Appeal decided that there would be no retrials. Only limited further evidence will be permitted in the CAT (and only in respect of quantum in the Arcadia v MasterCard and Sainsbury v Visa claims) although all parties will be permitted to rely on the evidence submitted in all three claims.

Our initial reaction

The Court of Appeal has delivered much-needed clarity on the arguments relating to Article 101(1), with a clear decision on the various matters which had led to three separate and contrasting judgments from the courts below.

Although it might feel like a victory for the claimants at this stage, that victory might be short lived if the CAT ultimately concludes that the anticompetitive conduct is capable of exemption under Article 101(3).

It will also be interesting to see how the CAT handles the detailed quantum arguments that will now follow, particularly given the conclusion that it was right not to have reduced pass-on in the Sainsbury’s v MasterCard claim.

It remains to be seen whether any of the parties will seek to appeal the Court of Appeal’s decision to the Supreme Court and if so, whether the Supreme Court will be prepared to take the case. Even if no appeal is sought, there is still some distance left to run before these claims are finally resolved.

A further issue relates to those cases waiting in the wings behind these lead cases. There is likely to be a divergence in approach as to how parties now seek to progress matters. It seems likely that many of the claims will remain behind the test cases. It would also not be surprising to see a number of further settlements being announced.

Chris Owen is a senior associate specialising in competition litigation.

This document (and any information accessed through links in this document) is provided for information purposes only and does not constitute legal advice. Professional legal advice should be obtained before taking or refraining from any action as a result of the contents of this document.