This is a UK judgment by the Court of Appeal concerning the correct approach to payment cards’ interchange fees. The decision was issued on appeal from three different lower court judgments that focused on whether the setting of default multilateral interchange fees (“MIFs”) within the MasterCard and Visa payment card systems amounted to an anticompetitive collusive practice.

It is important to begin by describing the factual background of all these cases. Unlike American Express, or the card system at stake in the US Supreme Court judgment discussed above, MasterCard and Visa are four-party card schemes. Such schemes work as follows: a merchant accepts certain credit and debit cards pursuant to an agreement with an “Acquirer”, i.e. a bank or financial institution belonging to the MasterCard or VISA scheme. The card will have been issued by another bank belonging to the scheme (the ‘Issuer’). The Acquirer will charge a fee to the Merchant for the services it provided in respect of a transaction. This fee is known as the Merchant Service Charge (“MSC”), and covers (i) the fee the Acquirer pays MasterCard or Visa (“the Scheme Fee”); (ii) a fee charged by the Issuer to the Acquirer (the Interchange Fee or “IF” or ‘MIF’) and (iii) the Acquirer’s own fee (“the Acquirer Margin”).


The main issue in each of these cases was whether the mechanism for setting default multilateral interchange fees (“MIFs”) within the MasterCard and Visa payment card systems amounts to an anticompetitive collusive practice

Three diverging approaches were adopted by, respectively, the Competition Appeal Tribunal (CAT) and two judges of the High Court. Broadly, the CAT decided in Sainsbury’s v MasterCard (the “CAT case” or “Sainsbury’s v MasterCard”) that the MIFs charged within the MasterCard payment system were prohibited anti-competitive agreements. The two High Court judges decided, for different reasons that the MIFs charged within the MasterCard and Visa payment systems were not prohibited anti-competitive agreements. All these cases were preceded by a European Commission decision on the same topic which found that MIFs were anticompetitive clauses that were not justified under Art. 101(3) TFEU.

The decision of the Court of Appeal addressed six main issues:

Do MIFs have the effect of restricting competition? (paras. 110-191)

The question here was whether the MIFs imposed by VISA and MasterCard restricted competition by comparison to a situation where the schemes’ rules provide for settlement at par (i.e. zero) and any such fee resulted from bilateral arrangements between banks. The relevant standard to assess this was the case is whether the MIFs were ‘likely’ to have such a restrictive effect in the relevant market.

The Court of Appeal found that the MasterCard and Visa schemes infringed competition law. The Court of Appeal began by noting that the scheme rules set by MasterCard and Visa set default MIFs payable in the absence of bilateral agreements. This means that, unless bilateral interchange fees were agreed between issuers and acquirers, no interchange fee would have had to be paid if Visa and MasterCard had not imposed such fees by default. While card schemes must have a rule governing payment settlement, such a rule does not have to include an interchange fee, negative or positive.

The magic of setting the settlement value at zero is that it does not require the imposition of default interchange fees – which is why the CATs finding that bilateral interchange fees would likely be negotiated between issuers and acquirers in the counterfactual world was mistaken. The Court of Appeal said that its approach was in line with European decisions. In particular, the Commission and the European courts both adopted as the relevant counter-factual a world where there were no multilateral interchange fees and ex post pricing was prohibited, which is not materially different from a counterfactual with no default MIF plus settlement at par.

The issue is, then, whether in this counterfactual world there would be more competition in the acquiring market. The Court of Appeal held that the imposition of a default multilateral interchange fee amounts to a restriction of competition on the acquiring market by comparison with a counterfactual where no such fee is imposed, because it imposes a floor below which the merchants’ service charge could not fall. A number of arguments supported this view. First, the CJEU had decided that positive MIFs of the kind charged by MasterCard are a restriction on competition, and this was a binding decision on a matter of law as regards the types of MIFs set out in this case. Second, in this case the MIF limited the pressure which merchants could exert on acquiring banks, resulting in a reduction in competition between acquirers as regards the amount of the merchants’ service charge. Third, an argument that the competitive process would not differ in the actual and counterfactual worlds is not sustainable. The default MIFs may be a transparent common cost, which is passed on by acquirers to merchants and does not figure in the negotiations between them. It does not follow, however, that acquirers will nonetheless compete as strongly for merchants’ business in relation to the acquirer’s margin and the additional services they offer in such a scenario as they would in the absence of the default MIFs.

Are the MIF’s ancillary restraints? (para. 191-209)

After finding that the imposition of default MIFs is prima facie anticompetitive, the Court of Appeal then turned to the question of whether such a restriction could be justified. A first potential justification is that the default MIF was an ancillary restraint because its absence would lead to the demise of the card schemes sub judice.

A particular question in this regard was whether the existence of another card-system which could impose a MIF (i.e. Visa for MasterCard, and vice-versa; this is called an ‘asymmetric counterfactual’) was relevant to determine the relevant counterfactual. The argument here was that if one card-scheme had a default MIF while the other did not would lead to banks moving from the former scheme to the latter, leading to a ‘death spiral’ for the card-scheme without a default MIF.

The Court of Appeal pointed out that ancillary restraints must be essential to the survival of a particular type of business without regard to whether individual businesses would need the restraint to compete with other businesses of the same type. The application of an asymmetric counterfactual is inappropriate because Visa and MasterCard are in the same exact business and are fierce competitors, with competition authorities and regulators seeking to constrain both schemes in a broadly similar fashion. As such, such a counterfactual is “not merely unrealistic but seems highly improbable”. Furthermore, it should not be open to one unlawful scheme to save itself by arguing that it otherwise would face elimination by reason of competition from the other scheme, which is itself unlawful.

Given this, the only relevant question as regards ancillary restraints is whether a four-party card payment scheme could survive without the imposition of a default multilateral exchange fee. The Court of Appeal found that the short answer to that question is in the affirmative, and that the contrary had not been suggested by MasterCard or Visa.

Do MIF’s meet the criteria for the application of Art. 101(3) TFEU? (para. 210 – 305)

A second way to justify an anticompetitive restraint is by demonstrating that it produces more efficiencies than anticompetitive effects. Art. 101 (3) TFEU sets out four cumulative requirements for such a justification: (1) The agreement must contribute to improving the production or distribution of goods or contribute to promoting technical or economic progress (i.e. there must be benefits). (2) Consumers must receive a fair share of the resulting benefits. (3) The restrictions must be indispensable to the attainment of these objectives. (4) The restrictions must not create the possibility of eliminating competition in respect of a substantial part of the products in question. Whether these conditions are met is a matter of fact.

One argument put before the Court was that charging positive MIFs led to an increase in the use of cards and, therefore, to an increase in the amount of the benefits enjoyed by merchants as a result of the use of cards. [Note: You may recognise this as a variant of the ‘output growth’ argument accepted by the US Supreme Court in AmEx, discussed above]. The Court of Appeal had a number of issues with this proposition. First, there was not sufficient evidence of a causal nexus between the restriction and the efficiencies identified. Second, it was not established that the MIF provided appreciable objective advantages for the relevant consumers of such a character as to compensate for the disadvantages which the MIF entailed for competition.

In a multi-sided market, where a restriction affects more than one market, its effect on all such markets must be considered. However, when there are negative effects on consumers in one market, those effects cannot be balanced by positive effects on consumers in another market, unless the group of consumers in each market is substantially the same. This will not be the case if the benefits would accrue to customers and not to merchants, who bore the brunt of the default MIF. Furthermore, merely demonstrating that overall output (i.e. increased card usage) increased, and that merchants benefitted from it, does not suffice to justify the imposition of a default MIF. Art. 101(3) TFEU is only satisfied if the merchants are no worse off as a consequence of the restriction. Unless it is shown that merchants obtain greater benefits from the default MIF than the anti-competitive disadvantage it imposes upon them, the second condition of this legal provision will not be satisfied. In this instance, the inability to establish how much MIF revenue was passed through can prove fatal to showing, under the balancing exercise, that the advantages to the relevant consumers (in this case, merchants) caused by the default MIFs outweighed the disadvantages inherent in the restriction.

Quantum (paras. 306 – 342)

Having established that MasterCard and Visa’s schemes were anticompetitive, this created the precondition to the imposition of damages for losses suffered by its victims (in this case, the claimant merchants). The Court of Appeal identified two questions at issue as concerns the quantum of damages.

The first was whether merchants bear the burden of proving the lawful level of MIFs for purposes of calculating damages for loss, even though the burden of proving that a MIF adopted by Visa and MasterCard complied with Article 101(3) TFEU would fall on Visa and MasterCard. The Court of Appeal held that the correct approach is to apply articles 101(1) and (3) TFEU together in order to determine whether or not the default MIF, as charged, is in whole or in part unlawful, and then to assess damages on that basis. Otherwise, a heavy burden would be placed on merchants, This burden would be incompatible with the enforcement of competition legislation through private claims in national courts as regulated by EU law (i.e. with the principle of effectiveness as regards the right to compensation for competition damages).

Furthermore, the present cases are not ones where the court is compelled to use a broad brush to determine damages in the absence of precision in the evidence as to the extent of the harm suffered by the claimant. A broad-brush approach was justified in cases where there is a lack of evidence on which the claimant can rely to prove loss. In the present cases, courts should be able to determine the unlawful amount that was charged by way of the default MIF without reliance on such tools.

A second question concerned pass on. . In competition cases, pass-on arises where the direct purchaser passes on all or part of an unlawful overcharge to its own customers, the indirect purchasers. Direct purchasers are only entitled to the difference between the amount of the overcharge and the part of it that it passed on to indirect purchasers. The question was whether the CAT – which awarded damages to Sainsbury – was incoherent when it held that MasterCard had failed to prove that any part of the MIF had been passed on to Sainsbury’s customers while also holding that Sainsbury’s was entitled to compound interest on only 50% of the MIF because 50% had been passed on.

The Court of Appeal held that whether or not the unlawful charge has been passed on is a question of fact, and that the burden of proving passing on lies on the defendant who asserts it. Passing on should be identified by reference to the existence of a sufficiently close causative link between an overcharge and an increase in the direct purchaser’s price. This builds on the law on mitigation, and, as in such cases, it is a matter for the judge to decide whether, on the evidence before her or him, the defendant can show that a sufficiently close causal connection exists. Passing on can be established by a combination of empirical fact and economic opinion evidence. However, the Court held that it was not appropriate on these appeals to be more specific as to the nature and type of evidence capable of satisfying a trial judge that there is a sufficiently close causal connection.

In any event, there is no place for the ‘broad axe’ principle used to estimate damages in the context of the burden of proof lying on the defendant to establish a pass-on of the unlawful overcharge in order to reduce the amount recoverable by the claimant. It is true that the CAT stated that it had applied a broad axe in reaching its conclusion that Sainsbury’s was entitled to damages representing compound on 50% of the overcharge. However, that statement was not in the context of establishing the recoverable amount of the overcharge as a matter of fact, but of an economic assessment as to the consequences for Sainsbury’s of the overcharge in the context of its claim for interest.

In short, the Court held that there the MIFs restrict competition and are not ancillary restraints. It also transferred the two High Court cases to the CAT, which would have to reconsider the application of Article 101(3) TFEU and the assessment of the quantum of the claim as regards each of the cases. The Tribunal emphasised that the cases will be remitted for reconsideration and not for a retrial, so that it will not be open to any party to adduce fresh evidence before the CAT, save in respect of quantum where the matter was not previously heard.  However, each of the parties is entitled to rely on evidence that was adduced in the other two cases, since the cases will all be heard by the same tribunal at the same time in order to ensure consistency.



Following a period of turbulence and uncertainty, the Court of Appeal adopted an elegant solution that ensures consistency in how English courts will approach multilateral interchange fees in cases such as this. The elegance is clear in how the Court of Appeal recognised that these cases were, in practice, quasi-follow on claims from European Commission decisions, and that it would make sense to follow the European approach. The judgment also adopted the practical step of allocating the outstanding issues in all cases to the CAT, which will be able to use its specialist expertise to arrive at a unified approach to all remaining matters in accordance with the guidance contained in this judgment.

While it is not my place here to comment on the correctness of the solutions adopted by the Court of Appeal, I think it is worthwhile pointing out a number of differences with the approach adopted by the US Supreme Court.

First, it is not assumed that evidence that an increase in the use of cards and therefore an increase in the amount of the benefits enjoyed by merchants as a result of the use of cards is evidence of procompetitive effects. The Court of Appeal finds that this is not the relevant counterfactual. If an anticompetitive effect is identified, a justification based on increased output requires proof that the increase in the use of cards is the result of efficiencies related to the restraint.

Another interesting, related difference with the US approach is the requirement that, while one may balance benefits on both sides of the market, countervailing efficiencies must be observed in the same side of the market (e.g. if merchants must pay higher fees, they must also be shown to benefit from offsetting higher card use). This is in line with the European approach described in the article reviewed above.

On a personal note, I also found this case very interesting because it dealt with passing on – and, in line with other European courts, adopted a predominantly legal approach to it in line with wider legal doctrines that allow courts to balance the benefits a party may have derived from a civil wrong from the loss caused by that same wrong. This is a matter which I discuss in more detail in an article published in the Common Market Law Review which can be found here.

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