Sainsbury’s Supermarkets Ltd v Visa Europe Services LLC & Ors [2020] UKSC 24

Retailers sued Visa and Mastercard, claiming multilateral interchange fees (MIFs) charged on card transactions restricted competition unlawfully. The Supreme Court held the MIFs breached Article 101(1) TFEU, were not exempt under Article 101(3), and clarified the approach to pass-on damages.

Facts

Visa and Mastercard operate open four-party payment card schemes involving issuers (banks issuing cards to cardholders), acquirers (banks providing payment services to merchants), cardholders and merchants. Under the scheme rules, whenever a cardholder uses a card, the issuer pays the acquirer the transaction value less a multilateral interchange fee (MIF) set by the scheme as a default. Acquirers pass the MIF on to merchants as part of the merchant service charge (MSC), which typically accounted for about 90% of the MSC.

The respondent retailers (Sainsbury’s, Asda, Argos and Morrisons) brought damages claims alleging that MIFs infringed Article 101(1) TFEU and the Competition Act 1998. The cases produced inconsistent first-instance decisions: the CAT and Popplewell J found a restriction of competition (though Popplewell J found exemption under Article 101(3) and accepted a ‘death spiral’ argument), while Phillips J found no restriction. The Court of Appeal overturned all four judgments, finding a restriction and no exemption, but remitted the Article 101(3) issue to the CAT.

Issues

(i) Whether the MIFs restricted competition in the acquiring market contrary to Article 101(1) TFEU (the restriction issue);

(ii) Whether the Court of Appeal imposed an inappropriately onerous evidential standard for establishing exemption under Article 101(3) (the standard of proof issue);

(iii) Whether, in a two-sided market, benefits to cardholders could offset disadvantages to merchants when assessing the ‘fair share’ requirement under Article 101(3) (the fair share issue);

(iv) Whether a defendant must prove the exact amount of loss mitigated through pass-on to reduce damages (the broad axe issue);

(v) Whether the Court of Appeal erred in remitting the Article 101(3) issue to the CAT in the AAM proceedings (the remission issue).

Arguments

Visa and Mastercard

They argued that MIFs did not restrict competition because, in a counterfactual of settlement at par, there would still be a default term not subject to competition. They submitted the CJEU’s decision in Mastercard CJ was factually distinguishable and that Budapest Bank required an in-depth effects analysis. On Article 101(3), they contended that the standard of proof was a matter of national law (balance of probabilities) and that the Court of Appeal had wrongly required empirical evidence rather than permitting reliance on economic theory, including the merchant indifference test. Visa argued that in two-sided markets, benefits to cardholders could compensate merchant detriment. They contended that claimants had to prove net loss of profit and precise quantification of pass-on.

Respondent retailers

They submitted that MIFs set a minimum price floor for the MSC which was immunised from competitive bargaining, mirroring the facts in Mastercard CJ. They argued that EU law required cogent empirical evidence for Article 101(3) exemption and that merchants (the consumers in the restricted market) must themselves receive a fair share of benefits. They contended that the overcharge was the prima facie measure of loss and that the burden lay on defendants to plead and prove pass-on.

Judgment

Restriction issue

The Supreme Court held the Court of Appeal was bound by Mastercard CJ. The essential factual basis was mirrored: the MIF was set by collective agreement, operated as a minimum price floor for the MSC, the non-negotiable element was set by agreement rather than competition, and in the counterfactual the whole MSC would be determined by competition. Budapest Bank concerned a different question (restriction by object, not effect) and was distinguishable. Even if not bound, the Court would have followed Mastercard CJ.

Standard of proof issue

While the standard of proof (balance of probabilities) is a matter of domestic law under the Modernisation Regulation, the nature of evidence capable of discharging that standard is governed by EU law. Article 101(3) requires an inherently empirical balancing exercise. The Commission’s Guidelines, GlaxoSmithKline, and Mastercard GC/CJ all require cogent empirical evidence. The merchant indifference test is a useful benchmark but not a substitute for empirical evidence of efficiencies and benefits.

Fair share issue

The Court rejected Visa’s reliance on paragraphs 241 and 247 of Mastercard CJ, which concerned the first condition (appreciable objective advantages), not the second (fair share). Following Advocate General Mengozzi’s opinion, the consumers referred to in the second condition are the direct or indirect consumers of the services covered by the restrictive measure (here, merchants), and they must be compensated in full for the adverse effects they bear. Benefits to cardholders in a separate market cannot compensate detriment to merchants.

Broad axe issue

The merchants were entitled to plead the overcharge in the MSC as the prima facie measure of their loss, without having to prove consequential loss of profit. Damages for breach of statutory duty are governed by the compensatory principle. The legal burden of proving pass-on as mitigation lies on the defendants, but once raised there is a heavy evidential burden on merchants to provide evidence of how they dealt with the costs. Crucially, the court need not require unreasonable precision in quantifying pass-on. The Court of Appeal erred insofar as it required a greater degree of precision from defendants regarding pass-on than from claimants proving loss. The ‘broad axe’ approach from Watson, Laidlaw & Co Ltd v Pott, Cassels & Williamson applies to both.

Remission issue

AAM’s cross-appeal succeeded. The Court of Appeal had rightly concluded that on the evidence at trial Mastercard’s Article 101(3) defence failed. Remitting the issue to allow Mastercard to rely on evidence from other proceedings offended the principle of finality in litigation and the rule in Henderson v Henderson. Mastercard had had a full and fair trial, and allowing re-litigation was contrary to justice and the overriding objective.

Implications

This decision settles the long-running challenge to MIFs as restrictive of competition, confirming that default MIFs in four-party payment card schemes operating as minimum price floors on the MSC infringe Article 101(1) TFEU. The judgment reaffirms that the CJEU’s ruling in Mastercard CJ is binding where the factual matrix is materially the same.

The decision clarifies that, for Article 101(3) exemption, undertakings must produce cogent empirical evidence, not reliance on economic theory alone. The merchant indifference test provides a useful benchmark but is not a ‘silver bullet’ and does not bypass the need for empirical proof of efficiencies and benefits.

On the fair share condition in two-sided markets, the judgment adopts a strict approach: where restrictive effects fall on one side of the market, consumers on that side (here, merchants) must be compensated in full; benefits to consumers on the other side cannot offset merchant detriment unless the consumer groups are substantially the same.

The judgment provides important guidance on pass-on in competition damages. Claimants may plead the overcharge as the prima facie measure of loss. While the legal burden of proving pass-on rests on defendants, courts may use a ‘broad axe’ approach and need not require precise quantification. This aligns English law with the approach subsequently codified in the Damages Directive (though that Directive did not apply retrospectively to these claims).

Finally, the reaffirmation of the rule in Henderson v Henderson and the principle of finality has wider procedural significance: appellate courts should not remit matters for reconsideration on new evidence where a party has had a full and fair trial and lost. The decision is of particular importance to retailers, payment card operators, and competition practitioners dealing with the many pending interchange fee damages claims.

Verdict: The Supreme Court dismissed the appeals of Visa and Mastercard on issues (i), (ii) and (iii) (restriction, standard of proof, and fair share), allowed Mastercard’s appeal on issue (iv) (the broad axe issue) to the extent that the Court of Appeal had required greater precision from defendants than claimants, and allowed AAM’s cross-appeal on the remission issue. The MIFs were held to infringe Article 101(1) TFEU and Mastercard failed to establish exemption under Article 101(3) in the AAM proceedings. The Court of Appeal’s order was varied to substitute a declaration that the MIFs charged to AAM in the relevant period were contrary to Article 101(1) and that Mastercard had failed to discharge the burden of demonstrating exemption under Article 101(3); the AAM proceedings should proceed to a trial on quantum if not settled.

Source: Sainsbury's Supermarkets Ltd v Visa Europe Services LLC & Ors [2020] UKSC 24