The UK Supreme Court's VISA/Mastercard interchange fee judgment

The UK Supreme Court recently handed down its eagerly anticipated Judgment in respect of unlawful interchange fee claims against MasterCard and VISA, following almost a decade of litigation.[1] The Judgment provides welcome clarity to merchant retailers as to the unlawfulness of MasterCard’s and VISA’s (together, the “Schemes”) multilateral interchange fees (“MIFs”).

It also provides guidance as to the much-debated issue concerning the assessment of ‘passing-on’ of damages, and the approach to be taken by the English courts when dealing with competing claims between claimants at different stages of the supply chain. This issue arises here since claims have been brought against the Schemes by retailers, but there also is a collective opt-out action on behalf of UK consumers. Despite the Supreme Court ruling, however, it has not provided complete finality for claimants, as it will now be for the UK Competition Appeal Tribunal (the “Tribunal”) to rule on the remaining arguments on whether the Schemes can justify the MIFs, or any part of them, under the test for exemption, and whether they are able to establish that the damages were passed on in whole or part by retailers.

Background to the Supreme Court judgment

The Supreme Court's judgment covers three sets of proceedings brought against the Schemes by leading UK retailers.[2] Each of those proceedings was subject to a separate trial resulting in three independent judgments of the lower courts. Despite the similarity between all three sets of proceedings as regards the basis of claim and cause of action, the Tribunal and High Court ("Commercial Court Division") had all reached very different, and in many senses conflicting, decisions.

The claims against MasterCard were brought relying upon the principles of the European Commission’s Decision in 2007 (the “2007 EC Decision”),[3] which found that MasterCard’s cross-border MIF breached Art.101(1) TFEU. There was no such finding against VISA, given that it entered voluntarily into commitments with the European Commission as regards its cross-border MIF.[4] However, each of the retailers argued that the 2007 Decision should be ‘read-across’ as regards the UK domestic MIFs charged by MasterCard and VISA, and that the English courts should hold that the UK domestic MIF was unlawful for the same reasoning as identified in the 2007 EC Decision.

The claims against Mastercard were brought relying upon the principles of the European Commission's Decision in 2007 (the 2007 EC Decision),[3] which found that Mastercard's cross-border MIF breached Art.101(1) TFEU. There was no such finding against VISA, given that it entered voluntarily into commitments with the European Commission as regards its cross-border MIF.[4] However, each of the retailers argued that the 2007 Decision should be 'read-across' as regards the UK domestic MIFs charged by Mastercard and VISA, and that the English courts should hold that the UK domestic MIF was unlawful for the same reasoning as identified in the 2007 EC Decision.

  • In the first case to reach trial, the Tribunal in the Sainsbury's Mastercard Claim found that Mastercard's MIFs were a restriction of competition in breach of Art.101(1) TFEU, and awarded damages of around £68m to Sainsbury's (excluding interest).[5]
  • By contrast, in claims brought by ASDA, Argos and Morrisons (the “AAM Claim”), the Commercial Court later sided with Mastercard in holding that its MIFs were not a restriction on competition.[6]
  • In the claim by Sainsbury's against VISA , the Commercial Court also sided with VISA in holding that its MIFs were not a restriction on competition (but for different reasons than in the AAM Claim),[7] but nevertheless held that had VISA's MIFs breached Art.101(1) TFEU,[8] then VISA's MIFs would not have been exempt under Art.101(3) TFEU.[9] 

Against the background of this confusion, each of the losing parties in the three proceedings sought to appeal the respective judgments to the Court of Appeal. It was at this juncture that the Court of Appeal ordered that the proceedings be combined in one appeal hearing.[10]

Judgment was given in July 2018, siding with the merchant retailers that the Schemes' MIFs were restrictive of competition, albeit for different reasons than as decided previously by the Tribunal.[11] However, the Court of Appeal did not reach a finding on whether the MIFs could be justified by the Schemes as exempt under Art.101(3) TFEU, and instead remitted this issue to be considered by the Tribunal based upon guidance provided in its judgment. The Schemes each appealed to the Supreme Court, with permission being granted in November 2018, and the appeal hearing took place in January 2020.

Supreme Court judgment – Mastercard/VISA MIFS were a restriction on competition

On the question of whether the MIFs were a restriction of competition under Art.101(1) TFEU, upholding the Court of Appeal, the Supreme Court was persuaded that the judgment of the Court of Justice of the European Union’s (“European Court”) against Mastercard in 2014 (which affirmed the 2007 EC Decision) was binding on the English Courts such that Mastercard's/VISA's UK domestic MIFs were similarly a restriction on competition. Even if the Supreme Court had held that the 2007 EC Decision and European Court Judgment were not binding, the Supreme Court stated it would have followed them nevertheless.[12] As such, the Supreme Court confirmed that the MIFs imposed by the Schemes fixed a minimum price floor, which merchants were unable to negotiate down, thereby restricting competition in the acquiring market. This issue is now settled – it is not capable of being further appealed and provides a reliable precedent for merchant retailers to rely upon as regards the unlawfulness of the MIFs.

The exemption criteria

On the question of whether the MIFs could nevertheless be justified by the Schemes as exempt under Art.101(3) TFEU, the Supreme Court confirmed that the Court of Appeal was correct when assessing the exemption argument and the types of evidence capable of discharging the burden of proof to the civil standard. It confirmed that Mastercard/VISA must produce robust and cogent evidence, including facts and empirical data to justify that the fees should be exempt under Article 101(3) TFEU, they could not just rely on theoretical arguments.[13] The Supreme Court noted that the assessment under Art.101(3) TFEU is "an inherently empirical proposition and necessarily requires...a balancing exercise…involving weighing the pro-competitive effect against the anti-competitive effect of the conduct in question."[14] As such, the Supreme Court confirmed that the standard of proof for exemption should remain as set by the Court of Appeal, and that the standard itself is not excessively high as Mastercard had sought to argue.[15]

Applying the exemption test for two-sided markets

In reaching the above finding, the Supreme Court confirmed that the Mastercard and VISA schemes operate in a two-sided market,[16] namely that: (i) on one side of the market, issuing banks compete with each other for the businesses of customers (i.e., cardholders); and (ii) on the other,  acquiring banks compete with each other for the business of merchant retailers to whom they seek to offer acquiring services.

On a related ground to Art.101(3) TFEU raised only by VISA, the Supreme Court also sided with the Court of Appeal in holding that, in a case involving two-sided markets, in order to satisfy the exemption under Art. 101(3) TFEU, the fair share of the benefits must be received by the consumers in the same market where the MIFs restrict competition: the acquiring market where the merchants are the consumers. As it is the merchants who suffer from the restriction on competition, it is the merchants – and not the cardholders – who must receive a fair share of the benefits. A benefit to cardholders cannot justify restrictions on competition for retailers.[17] However, the Supreme Court arrived at this conclusion on a slightly different basis, preferring the opinion of the Advocate General in the 2014 European Court Judgment. It refused to refer the issue to the European Court for a preliminary ruling, and provided guidance on how this condition must be applied in practice in cases where a two-sided market exists,[18] which will be important for future cases of this type.

The test for passing-on

The Supreme Court's one key point of departure from the Court of Appeal related to the ruling on pass-on. By way of background on this issue, Mastercard in the Sainsbury's Mastercard Claim had argued that Sainsbury's did not suffer any loss because any overcharge was passed on to its customers in the form of higher prices. However, the Tribunal found in favour of Sainsburys on pass-on, declaring that Mastercard had failed to establish an "identifiable increase" in retail prices as a result of the imposition of the MIFs. In doing so, it set a stringent legal test for a successful pass-on defence to be mounted. Despite this finding, the Tribunal nevertheless awarded Sainsbury's compound interest on only fifty percent of the total damages, noting that a substantial amount would in practice have been passed on as part of the overhead costs – although not in a manner which would have amounted to a pass-on defence.[19] This position was upheld by the Court of Appeal – in response to an argument by Mastercard that the Tribunal was inconsistent in these two findings. The Court of Appeal held that the Tribunal was making economic, as opposed to legal, assumptions when restricting the level of compound interest and that this was not, therefore, inconsistent with its finding that the legal test for establishing pass-on had not been met.[20] Prior to the Supreme Court Judgment, the position was that pass-on will only be established as a matter of law where there is a sufficiently close causal connection which can be identified between the overcharge and an increase in the price.

 In its Supreme Court appeal, Mastercard contended that, contrary to the Court of Appeal ruling, it did not have to prove the level of pass-on precisely if such precision could not be reasonably achieved. The Supreme Court agreed with Mastercard in holding that the same standard was to be met by the Schemes, on the one hand, to establish that the merchants may have passed-on the overcharge and, on the other hand, the standard the merchants must meet to prove the degree of any pass-on of the overcharge to them. It held that the 'broad axe' principle should remain broad in both instances and in line with the compensatory principle. To the extent it was suggested that the Court of Appeal had implied a higher requirement (which they thought was not clear) this should be overturned.[21]

In terms of practical implications, it was recognised that whilst Mastercard has the burden to assert pass-on, in practice, once raised this puts the disclosure burden on the claimant to show how it dealt with the additional cost. In this regard, the Supreme Court agreed with the Tribunal that retailers had four principal options in the way that they responded to an increased input cost: (1) suffer a reduction in profit; (2) reduce discretionary spend; (3) reduce other input costs; and/or (4) raise their prices.[22] The compensatory principle requires the Court to take into account whether a retailer had adopted either option (3) and/or (4) and passed on some or all of the overcharge to its downstream customers.[23] As such, the Supreme Court recognized that pass-on should be an empirical exercise, but also acknowledged that the Court should consider proportionality and be willing to accept estimates where appropriate.[24] In particular, the weight placed on the broad axe principle and proportionality will have greater prominence in the minds of litigants and judges going forwards, as the Supreme Court made it clear that it must be an overriding factor when considering the issue and ordering case-management directions.

It is important to note that this decision on pass-on was made against the background of increasing consumer claims being brought under the UK competition collective regime introduced in the Tribunal in 2015. Since the date of the original Tribunal Judgment in the Sainsbury's Mastercard Claim, a consumer collective case had been brought by Mr. Walter Merricks against Mastercard[25] and further cases have since been brought, in which decisions on the extent of pass-on to indirect customers will need to be reached. The Supreme Court referred back in its Judgment to the factors identified by the Tribunal in the Sainsbury's Mastercard Claim in terms of considering the alternative ways in which a claimant may have dealt with the additional cost – i.e., it leaves open a retailer establishing that it did not pass on certain costs or made cuts elsewhere. It does, however, leave open to the Schemes to take the next stage of the fight to pass-on needing to be considered factually in each case, and using the 'broad axe' argument to argue for a reduction in damages. Whilst ostensibly the Judgment may be read as widening the scope of the claimants' disclosure obligations, it is important to note that Sainsbury's in the Tribunal had already disclosed evidence relating to pass-on with a trial on those issues. In many respects therefore, the Supreme Court Judgment can be seen as confirming the pre-existing disclosure obligation on claimants in response to a pass-on defence if mounted, rather than widening it. It will, however, be a matter of case management as to the data deemed reasonable and proportionate to assess pass-on in any particular case.

The Supreme Court concluded that the loss caused by the MIF overcharge was an increased cost which the merchants would "in all probability not address as an individual cost but would take into account along with a multiplicity of other costs."[26] As such, establishing pass-on may involve a degree of estimation and – in accordance with both the compensatory principle and the principle of proportionality – the Court of Appeal was wrong to hold that there must be precision in the amount of loss which the merchants have passed on.

As to what happens next – the issue of pass-on was originally considered closed in respect of Sainsburys – but given the re-opening of the pass-on debate, it seems to be the case that the remittal back to the Tribunal will re-hear the arguments of pass-on/quantum in respect of all three cases. Precisely how "broad" the axe is following the Supreme Court's Judgment is yet to be seen – and so the Tribunal remittal will be eagerly anticipated given the importance of this issue both to the large number of remaining interchange claims brought against the Schemes and to other competition damages claims.

Other lessons from the judgment

The Supreme Court also took the opportunity to provide its views on how English Courts should approach the issue where several proceedings are brought against the same defendant(s) and on similar bases, as well as the principle of finality in litigation.

(a) Pass-on

The approach taken by the Court of Appeal to combine the three sets of proceedings was borne out of a concern that it would be unthinkable for each of the appeals to proceed separately, with a risk that the judgments would be conflicting. The Supreme Court held that the fact that three conflicting judgments arose out of the three trials was not a result of a procedural accident, but rather the result of deliberate and informed choices made by the litigants and the Courts.[27] It is clear that with the learning lessons from the interchange claims, the English courts are now much more aware of the need for active case management of multiple competition claims arising out of the same infringement. This can be seen in the approach taken by the Tribunal of the various follow-on claims brought by truck haulers[28] in respect of the European Commission's Trucks cartel decision,[29] whereby the proceedings are being pro-actively case-managed together in order to avoid the predicament faced by the litigants in the interchange fee proceedings. Similarly, in the hundreds of interchange fee claims that are awaiting the full conclusion of the Sainsbury's/AAM litigation, many of those claims have – perhaps pre-emptively – been transferred to the Tribunal.

It is a notable fact in the interchange litigation that there are hundreds of outstanding claims before the English courts, most of which have been issued but not yet served, and are currently stayed, awaiting the full and final resolution of the claims brought by Sainsbury's and the AAM parties. However, the Supreme Court expressed some caution as to the approach taken by the Court of Appeal on the remittal to the Tribunal – where it was originally envisaged that each of the three proceedings would be remitted together in one hearing. In particular, the Supreme Court noted that the remittal "will not produce a single, comprehensive determination of liability in relation to the other interchange fee damages claims. Those other claims will have to be determined in each case on the basis of pleadings and evidence adduced in that case."[30] Thus, whilst the finding of the Schemes' breach of Art.101(1) will assist existing claimants, each case will turn on its own facts, particularly in relation to the thorny question of pass-on.

(b) Finality of litigation

The Supreme Court held that the Court of Appeal was wrong to allow Mastercard to re-argue its case under Art.101(3) when it previously had the opportunity to adduce evidence, but where it purposefully decided not to by placing significant – and arguably strategic – weight on its Art.101(1) argument.[31] This point was argued by the AAM parties in a cross-appeal before the Supreme Court. This means that it is not open to Mastercard to re-open the issue under Art.101(3) in the AAM Claim. However, Mastercard does have a further opportunity to re-argue the point in respect of the remaining proceedings where it did adduce evidence. This reaffirms the notion that, particularly for defendants who might attempt various legal arguments across several different cases, parties only have one bite of the apple at trial based upon the evidence adduced (or not adduced, as in the case of the AAM Claim). This does however apply equally to claimants – for example, evidence that is found after final judgment that is supportive of the claimant's case will have no bearing, and does not militate in favour of re-opening proceedings. Whether this issue will arise in future claims, particularly when the Tribunal has demonstrated an early and proactive approach to case-management, remains to be seen.

Concluding remarks

The seminal nature of the Supreme Court Judgment is undoubted, both in respect of the micro-issues concerning the specific interchange fee litigation, but also the macro-issues concerning the approach to two-sided markets, passing-on, approach to case management of multiple claims and the principle of litigation finality. The impact of the latter two aspects apply to English litigation as a whole, and so the impact of the Supreme Court's Judgment is by no means confined to the competition litigation arena.

It remains to be seen how the Tribunal ultimately applies the guidance concerning Art.101(3) on exemption, as well as the application of the principles on pass-on laid down by the Supreme Court. The interchange fee litigation is one of the limited sets of proceedings in the English courts where the defendant is facing claims from parties at two different layers in the supply chain (i.e., the merchant retailers on the one hand and the consumers in the other in the Merricks proceedings). Perhaps the 'true' impact of the Supreme Court Judgment is yet to be seen in practice. Whilst Supreme Court Judgments will usually provide the closing chapter in proceedings, this Judgment opens yet another in respect of pass-on. The interchange fee saga therefore continues.


[1] Sainsbury's Supermarkets Ltd (Respondent) v Visa Europe Services LLC and others (Appellants) Sainsbury's Supermarkets Ltd and others (Respondents) v Mastercard Incorporated and others (Appellants) [2020] UKSC 24 (17 June 2020) (the "judgment").

[2] Sainsbury's v Mastercard (the Sainsbury's Mastercard Claim); Asda, Argos and Morrisons v Mastercard (the "AAM Claim"); Sainsbury's v VISA.

[3] COMP/34.579 – Mastercard (Prohibition Decision dated 19 December 2007).

[4] COMP/29.373 – VISA (Commitments Decision dated 24 July 2002) and COMP/39.398 – VISA (Commitments Decisions dated 8 December 2010 and 26 February 2014).

[5] Sainsbury's Supermarkets Ltd v. Mastercard Inc. & Others [2016] UK Competition Appeal Tribunal 2 (14 July 2016).

[6] Asda Stores Ltd. & Others v. Mastercard Inc. & Others [2017] EWHC 93 (Comm) (30 January 2017).

[7] Sainsbury's Supermarkets Ltd v. Visa Europe Services LLC & Others [2017] EWHC 3047 (Comm) (30 November 2017).

[8] Pursuant to Art.101(1) TFEU, certain agreements between undertakings which have as their object or effect the prevention, restriction or distortion of competition within the EEA are prohibited.

[9] Pursuant to Art.101(3) TFEU, the restriction on competition may nevertheless be exempt if certain conditions are fulfilled. The possibility of an exemption exists where there are certain beneficial economic effects that are attributable to the infringement of competition. In the interchange fee cases, this means that either all or part of the MIF may be deemed ‘lawful'.

[10] Sainsbury's Supermarkets Ltd v. Visa Europe Services LLC & Others [2018] EWHC 355 (Comm) (23 February 2018).

[11] Sainsbury's Supermarkets Ltd & Others v. Mastercard Inc. & Others [2018] EWCA 1536 (Civ) (4 July 2018).

[12] Judgment, para. 104.

[13] Id. para. 128.

[14] Id. para. 116.

[15] Id. para. 188.

[16] Id. para. 140.

[17] Id. para. 144.

[18] Id. para. 171.

[19] Supra [3] para. 525.

[20] Supra [9] para. 337.

[21] Judgment, para. 226.

[22] Id. para. 205.

[23] Id. Para. 206.

[24] Id. para. 223.

[25] Tribunal case number 1266/7/7/16 (issued 8 September 2016) in Walter Hugh Merricks CBE v Mastercard Inc. & Others.

[26] Id. para. 225.

[27] Id. para. 246.

[28] See, for example, Tribunal case number 1293/5/7/18 (T) in Veolia Environnement S.A. and Others v Fiat Chrysler Automobiles N.V. and Others, Suez Groupe SAS and Others v Fiat Chrysler Automobiles N.V. and Others and Wolseley UK Limited and Others v Fiat Chrysler Automobiles N.V. and Others.

[29] European Commission, CASE AT.39824 – Trucks (Settlement Decision dated 19 July 2016 and Prohibition Decision dated 27 September 2017).

[30] Id.

[31] Id. para. 240.

*Nicola Boyle is a Partner and Luke Grimes is an Associate in the London office. 

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