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Finality at Last? The Supreme Court’s Take on Years of Interchange Litigation

On 17th June 2020, the UK Supreme Court (UKSC) has handed down its long-awaited Judgment in respect of unlawful interchange fee claims brought by several UK retailers in three sets of proceedings. In the Judgment, the UKSC has largely sided with the Court of Appeal’s (CoA) ruling of July 2018, in which three conflicting Judgments in the lower Courts were reconciled in favour of the retailer claimants. However, this Judgment does not bring complete finality to the proceedings as a task remains for the UK Competition Appeal Tribunal (CAT) to decide on certain aspects relating to exemption and quantum in a future hearing yet to be listed.

Lead up to the judgment

Last year, we reviewed the significance of the CoA’s decision. To recap:

  • The CoA held that MasterCard’s and VISA’s (the Schemes) multilateral interchange fees (MIFs) were a restriction on competition in accordance with Art.101(1) TFEU. Whilst this outcome was synonymous with the outcome of the CAT’s assessment (Sainsbury’s v MasterCard), the CoA judgment arrived at the same conclusion but through a different analysis. Perhaps more significantly, this outcome overturned two separate findings of the Commercial Court (Asda, Argos and Morrisons v MasterCard (AAM) and Sainsbury’s v VISA) that the MIFs were not a restriction of competition – with that finding also being reached for different reasons by the lower Courts.
  • Unlike on Art.101(1) TFEU, the CoA was not convinced that any of the lower Courts had correctly assessed the arguments under Art.101(3) TFEU. This provision governs whether – despite the finding of a restriction of competition – there is a legal exemption – i.e., that is to say whether the Schemes’ MIFs are capable of being exempted from competition law, whether in full or in part – on the basis that certain conditions are satisfied, such that the restriction of competition is effectively ‘offset’ by efficiency arguments. Rather than ruling on this aspect, the CoA ordered a remittal back to the CAT of all claims for reconsideration of this issue together with an assessment on quantum to the extent that the Schemes’ Art. 101(3) TFEU arguments do not succeed.

The UK Supreme Court’s ruling

On Art.101(1) TFEU, upholding the CoA, the UKSC was persuaded that the CJEU’s prior judgment in 2014 (which affirmed the European Commission’s 2007 infringement Decision) is binding on the English Courts, noting that the Schemes misinterpreted the EC’s Decision and CJEU Judgment. Even if the UKSC had held that the Decision and CJEU Judgment were not binding, then the UKSC stated it would have followed them nevertheless. In a damning blow to the Schemes, the UKSC confirmed that the MIF fixed a minimum price floor, which merchants are unable to negotiate down. This issue is now settled – it is not capable of being appealed and is a significant victory for the claimants.

On Art.101(3) TFEU, the UKSC confirmed that the CoA was correct when assessing the exemption argument in requiring that the Schemes must produce robust and cogent evidence, including facts and empirical data, in terms of the type of evidence capable of discharging the burden of proof to the civil standard. The UKSC 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”. As such, the UKSC confirmed that the standard of proof for exemption should remain as set by the CoA, and that the standard itself is not excessively high as MasterCard sought to argue. Putting the issue of Brexit aside, the UKSC agreed with the CoA as to the need for consistency of approach across member states when assessing Art.101(3) TFEU.

In addition, on a ground raised by VISA only, the UKSC also sided with the CoA in holding that, in a case involving two-sided markets, in order to satisfy 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 consumers. As it is the merchants who suffer from the restriction of competition, it is the merchants – and not the cardholders – who must receive a fair share of the benefits. However, the UKSC arrived at this conclusion on a slightly different basis, preferring the opinion of the Advocate General in the 2014 CJEU judgment. After refusing to refer the issue to the CJEU for a preliminary ruling, the UKSC provided some guidance on how this condition must be applied in practice in cases where a two-sided market exists.

The UKSC’s one point of departure related to the CoA’s ruling on pass-on. MasterCard contended that, in the context of pass-on and contrary to the CoA’s ruling, it did not have to prove the level of pass-on precisely if such precision could not be reasonably achieved. The UKSC agreed with this 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. The UKSC held that the “broad axe” principle should remain broad in both instances and in line with the compensatory principle.

Concluding remarks

As to next steps, Sainsbury’s claims against the Schemes will now proceed to the CAT for a reconsideration on both Art.101(3) TFEU and quantum. However, the AAM proceedings will only be remitted on the issue of quantum, with no further opportunity for MasterCard to re-argue its case under Art.101(3) TFEU. The UKSC held that the CoA was wrong to allow MasterCard to effectively re-run its case with evidence that it had had the opportunity of adducing in the original trial, and as such the CoA had offended the principle of finality in litigation: “In the adversarial system of litigation in this country, the task of the courts is to do justice between the parties in relation to the way in which they have framed and prosecuted their respective cases, rather than to carry out some wider inquisitorial function as a searcher after truth.

Finality has therefore been achieved in a couple of respects. The UKSC’s judgment is significant in confirming the approach, laid down by the CoA, to the Art.101(3) TFEU assessment in cases such as these dealing with two-sided markets. It remains to be seen when the CAT remittal will take place, and how the CAT grapples with the principles and guidance previously set by the CoA, as confirmed by the UKSC, on how to apply the Art.101(3) TFEU arguments and the question of pass-on.

Related Lawyers: Nicola Boyle, Luke Grimes
Related Practice Areas: Competition Counseling and Compliance, Competition Disputes

Related Lawyers