"The Battle for Waterloo" – Interchange claims to be determined under 18 national laws of the claimants rather than Belgian law
On 9 March 2018 the High Court handed down its decision on the preliminary issue relating to applicable law in Deutsche Bahn AG & Others v Mastercard Incorporated & Others (Case Nos: HC-2012-000196 and HC-2014-000636).
The court was asked to consider the law to be applied to claims brought against MasterCard in relation to unlawful interchange fees by seven corporate groups including operating entities from 18 European countries. The judgment of Barling J is the first ruling of the English courts to consider applicable law in the context of competition claims involving multi-jurisdictional elements. The claimants had argued that Belgian law should be applied to the claims, being the location of the key decision-making by Mastercard in setting its network rules and intra-EEA interchange fee. However, the High Court found for the defendants in deciding that the restriction of competition took place in this case in each of the national markets and that the applicable law was that of the national laws of each of the claimants. The law to be applied to the claims is of particular importance for limitation and the next step will be for the court to determine how far back the claims can extend under each of the relevant domestic laws, based initially on an agreed sample of test countries.
Hausfeld & Co LLP acts for the Claimants in these proceedings, together with our co-counsel Cuatrecasas.
This case stands apart from many of the other interchange claims against Mastercard – and VISA – in that it involves claims by corporate groups that operate across multiple jurisdictions in the EU. The claims, filed in the High Court in 2012, cover 17 EEA countries and Switzerland. It is the claimants' contention that Mastercard acted contrary to Article 101 TFEU by setting the level of multilateral interchange fees ("MIFs") at an unlawfully high level, thereby inflating the merchant service charge ("MSC") charged to the claimants on cross-border and domestic payments. It is also contended that the central acquiring rule ("CAR") unlawfully demarcates the EEA along national boundaries, such that a central acquirer (based outside of the merchant's country) would be required to pay to the issuing bank the MIF of the merchant's country, rather than that of the acquirer. Mastercard's interchange fees have been investigated by both national competition authorities and the European Commission.
The inclusion of interchange fees relating to a number of EU countries beyond the UK introduces issues relating to applicable law and limitation that have not had to be considered in other interchange claims brought in London to date. In particular, the three claims that have already reached a first instance judgment and will be heard in together in the Court of Appeal next month are largely confined to claimants domiciled in the UK. Due to the wide jurisdictional scope, at a case management conference in November 2015, the parties agreed to a hearing of preliminary issues regarding applicable law and limitation in four sample countries representing a significant portion of the value in the claim, being the UK, Germany, Italy and Poland (the Test Countries). The first question on applicable law was heard by the court in May 2017, and involved consideration of 3 different claim periods to which different tests for determining applicable law apply.
Three distinct periods of applicable law
The claim period in question begins in 1992, and the test for determining the applicable law in the English courts is subject to a fragmented regime: the period 11 January 2009 to date is determined by reference to EU Regulation No. 864/2007 (Rome II) (the Rome II Period); the period 1 May 1996 to 10 January 2009 by reference to the Private International Law (Miscellaneous Provisions) Act 1995 (PILMPA 1995 Act) (the PILMPA 1995 Act Period); and the period 22 May 1992 to 30 April 1996 by reference to principles of English common law (the Common Law Period).
Rome II Period – from 11 January 2009
The position on the Rome II Period was largely agreed by the parties during the hearing. The test is based on where the market is, or is likely to be, affected and Barling J's judgment therefore reflects the agreement by the parties that from this date the applicable law is the country in which the merchant was based at the time during which the MSC was paid to the acquiring bank.
The test for determining the applicable law was framed differently under the each of the PILMPA 1995 Act and the Common Law Period with the emphasis on the elements of the tort in the first and on the wrongful act in the second. In both cases the claimants contended that Belgian law should apply, being the place where the MIFs and CAR were set by Mastercard. By contrast, Mastercard argued that the applicable law for both periods was that of the country where the transaction occurred. In upholding Mastercard's position, Barling J adopted a position which is consistent with the new test since adopted under Rome II, as explained below.
The PILMPA 1995 Act - 1996 –2009
The relevant test for the PILMPA 1995 Act Period derives from s.11, which provides that the law to be applied is the "law of the country in which the events constituting the tort…occur". However, where elements occur in different countries, s.11(2)(c) states that it is the law of the country in which the "most significant" events/elements occur. The court considered each of the elements of the tort, namely the setting and management of the MIFs and adoption of the CAR, the restriction of competition and the loss suffered by the claimants, but concluded that the most significant elements/event of the tort was the restriction of competition itself as it goes to the "heart of such an infringement." This was determined on the basis that ‘but for' a restriction of competition, there would be no tort. This restriction was determined by the court to be distinguishable from the events in setting the interchange fees and to take place, not where a decision regarding a level of MIF was taken, but instead in the location where the merchant was based at the time that the MSCs imposed were higher as a result of the restriction on competition. Based on this analysis, the court then determined that the applicable law was that of each of those 18 countries where the merchants were based.
The test under section 11 may be disapplied by section 12 of the 1995 Act where "it appears, in all circumstances…that it is substantially more appropriate for the applicable law…to be the law of the other country". Barling J rejected the claimants' request to do so, holding that this was a high hurdle and on the facts, having found that not all of the relevant conduct by Mastercard was carried out in Belgium, he held the connection to the countries of the merchant, both in terms of the restriction of competition and the loss suffered, meant that it was appropriate to apply the domestic laws.
The Common Law Period – pre-May 1996
The relevant test for the Common Law Period derives from the ‘double actionability' doctrine. This test states that the relevant act must be both actionable as a tort under English law and under the law of the foreign country in which it was committed. However, this can be disapplied where one country has the most significant relationship with the act.
In deciding where the tort was committed, Barling J considered where the "effects" of the tort arose. He cited his previous findings under the 1995 PILMPA Act as to the most significant element/event of the tort as similarly applying and found that the market on which each merchant operated was the "centre of gravity" of the tort. Barling J further found that the Foreign Limitations Period Act 1984 meant that both relevant countries' limitation acts apply, so that the shorter of the two would be applicable. This means in effect that whilst a tort may have been found to have been committed in e.g. Germany and German law to be applied, if the English limitation period is shorter, it will restrict the period of the claim otherwise permitted. The court held that the claimants had not justified grounds for disapplying English law in favour of Belgian law under the exception of the double-actionability doctrine, rejecting arguments made by the claimants that the application of the double-actionability rule in this way breached EU principles of effectiveness and equivalence.
Despite the fragmented regime underpinning how applicable law was to be determined across the claim period, the net result was nevertheless the same across all three periods, namely that the applicable law is that where the merchant is established. Whereas Rome II focuses on a narrower approach concerning the market where the loss was occurred, the other periods focus on the circumstances surrounding the tort. Given the difference in the tests applying prior to the introduction of Rome II in 2009, the claimants had cautioned Barling J against the rolling-back of the Rome II analysis to the 1995 Act period on the basis that Rome II "was a conscious departure from the broader approach adopted under the 1995 Act". The judgment provides an insight into how the High Court might nevertheless now determine applicable law through the lens of Rome II, even where Rome II itself does not apply, although cases may turn on their particular facts.
The judgment is important in the context of considering which laws will be applied to competition claims brought in England involving European infringements dating back before 2009, which involve claimants and defendants from different jurisdictions. This is particularly relevant for limitation periods which differed under different national laws prior to the more recent introduction of minimum prescribed limitation periods under the Damages Directive. Applicable law will, as a result, continue to be a key topic in relation to historic infringements preceding the Damages Directive, particularly in cases involving claimant groups affected across a number of jurisdictions. A right was introduced under Rome II for claimants to elect to apply the law of the forum in which the claim is brought, where the defendant is sued in its home jurisdiction and that is one of the affected markets. This may assist in some cases to avoid the application of multiple separate laws, however this will only apply to claims for losses which arose after 11 January 2009.
The impact of the court's ruling on applicable law in the meantime still remains to be determined, with questions of interpretation of limitation periods still to be resolved in appeals pending in a number of member states and to be determined in the second part of the preliminary issue trial.