Sainsbury’s Supermarkets Ltd v Visa Europe Services LLC and others

A collectively fixed positive multilateral interchange fee restricts competition by effect where it creates a non-negotiable floor under the merchant service charge, while settlement at par would leave the whole charge open to competition. An article 101(3) exemption must be proved on the balance of probabilities through cogent empirical evidence. In a two-sided market, consumers harmed by the restriction must receive objective advantages and be fully compensated; benefits to consumers in the other market cannot ordinarily substitute. Competition damages may begin with the overcharge as the prima facie loss. The defendant bears the legal burden of proving pass-on, but the court may estimate its extent without demanding unreasonable or asymmetric precision. Finality ordinarily prevents a failed defence being reopened after a full and fair trial.

Visa and Mastercard operated four-party payment card schemes under which default multilateral interchange fees were paid by acquiring banks to issuing banks and passed through to retailers in merchant service charges. Sainsbury’s, Asda, Argos and Morrisons sought damages for restrictions of competition contrary to article 101 of the Treaty on the Functioning of the European Union and equivalent provisions of the Competition Act 1998.

In the Mastercard Sainsbury’s proceedings, the Competition Appeal Tribunal found an infringement and awarded damages: Sainsbury’s Supermarkets Ltd v MasterCard Inc [2016] CAT 11. Popplewell J dismissed the AAM claims: Asda Stores Ltd v MasterCard Inc [2017] EWHC 93 (Comm). Phillips J dismissed Sainsbury’s Visa claim on restriction, while later concluding obiter that exemption had not been established: Sainsbury’s Supermarkets Ltd v Visa Europe Services LLC [2017] EWHC 3047 (Comm); [2018] EWHC 355 (Comm).

The Court of Appeal, in [2018] EWCA Civ 1536, held that the MIFs restricted competition, rejected the exemption cases and remitted exemption issues to the Tribunal. Visa and Mastercard appealed. AAM cross-appealed against the remittal. The Supreme Court considered restriction by effect, the evidence required for exemption, fair sharing of benefits in a two-sided market, proof and estimation of pass-on, and finality following a completed trial.

1. Disposition. In a single judgment of the court, the Supreme Court dismissed the appeals on restriction of competition, the evidence required under article 101(3), and the fair-share condition. It allowed the appeal on the degree of precision required to prove pass-on. AAM’s cross-appeal against remittal was allowed.
2. Restriction by effect. The decision in MasterCard Inc v European Commission [2014] 5 CMLR 23 was binding because its essential factual basis was mirrored in the appeals. The collectively fixed positive MIF established a non-negotiable floor under the merchant service charge. It immunised a substantial part of that charge from bargaining. Under the realistic counterfactual of no default MIF and settlement at par, the whole merchant service charge would be determined by competition and would be lower. Even absent binding authority, the court would have reached the same conclusion.
3. Article 101(3) evidence. The applicable standard remained the domestic civil standard of the balance of probabilities. EU law nevertheless determined the nature of evidence capable of satisfying that standard. Because exemption requires a complex balancing of proven efficiencies against anti-competitive effects, an undertaking must produce cogent empirical evidence establishing the nature, causal connection, likelihood and magnitude of the claimed benefits. Economic theory, or the merchant indifference test, could inform the analysis but could not substitute for evidence of real market effects.
4. Fair share in a two-sided market. For the first exemption condition, objective advantages in connected markets may be aggregated only after appreciable advantages have been shown in the market where the restrictive effects occur. The second condition is distinct. The direct or indirect consumers harmed in the restricted market must be fully compensated for those adverse effects. Benefits received by consumers in another market cannot ordinarily make their share fair where the two consumer groups are not substantially the same.
5. Damages and pass-on. The overcharge included in the merchant service charge was a permissible prima facie measure of loss. The merchants did not have to prove the effect upon their overall profitability. Visa and Mastercard bore the legal burden of proving that the loss had been mitigated through supplier savings or customer pass-on. Once pass-on was raised, however, the merchants bore a heavy evidential burden because the relevant pricing and cost information was predominantly within their control. The compensatory principle required avoidance of both under-compensation and over-compensation. Courts could therefore estimate pass-on using the “broad axe” and could not demand greater precision from defendants merely because they bore the legal burden.
6. Finality. Mastercard had received a full and fair opportunity to prove its article 101(3) defence against AAM but had failed to adduce the necessary empirical evidence. The Court of Appeal should have entered the result justified by that trial rather than permitting the defence to be reopened using evidence from other proceedings. Its remittal offended the principle of finality and the rule in Henderson v Henderson. The order was varied to declare infringement and failure to establish exemption at any positive MIF level. The AAM proceedings were to continue to a trial of quantum if not settled.

1. United Kingdom Supreme Court: In Sainsbury’s Supermarkets Ltd v Visa Europe Services LLC and others [2020] UKSC 24, the court dismissed the restriction, evidential-standard and fair-share grounds; allowed the broad-axe ground; and allowed AAM’s cross-appeal. The remittal order was varied so that AAM obtained declarations of infringement and failure to establish exemption, with quantum remaining for trial.
2. Court of Appeal: In [2018] EWCA Civ 1536, the court overturned the four judgments below, held that the default MIFs restricted competition, rejected the exemption cases on the evidence, and remitted exemption issues in all three proceedings to the Competition Appeal Tribunal.
3. Competition Appeal Tribunal: In Sainsbury’s Supermarkets Ltd v MasterCard Inc [2016] CAT 11, the Tribunal held that Mastercard’s UK MIFs restricted competition and awarded damages.
4. Commercial Court: In Asda Stores Ltd v MasterCard Inc [2017] EWHC 93 (Comm), Popplewell J dismissed the AAM claims, relying on the death-spiral argument and alternatively finding exemption.
5. Commercial Court: In Sainsbury’s Supermarkets Ltd v Visa Europe Services LLC [2017] EWHC 3047 (Comm), Phillips J found no restriction. In a later judgment, [2018] EWHC 355 (Comm), he concluded obiter that Visa had not established exemption.