Sainsbury's Supermarkets Ltd v Mastercard Incorporated and Others
| Jurisdiction | England & Wales |
| Judge | Mr Justice Barling |
| Judgment Date | 19 December 2013 |
| Neutral Citation | [2013] EWHC 4554 (Ch) |
| Docket Number | Case No: HC12A00429 |
| Court | Chancery Division |
| Date | 19 December 2013 |
[2013] EWHC 4554 (Ch)
IN THE HIGH COURT OF JUSTICE
CHANCERY DIVISION
Royal Courts of Justice
Strand
London WC2A 2LL
The Honourable Mr Justice Barling
Case No: HC12A00429
Mark Brealey QC and Derek Spitz (instructed by Mishcon de Reya) for the Claimant
Thomas Sharpe QC and Matthew Cook (instructed by Jones Day LLP) for the Defendants.
Introduction
At this CMC there are two main applications before me. The first is an application by the defendants for the trial of a preliminary issue, supported by the third witness statement of Nicholas Paul Cotter, a partner in Jones Day, the defendants' solicitors. The second application is by the claimant for specific disclosure and other related directions. That application is supported by the witness statement of Robert Paul Murray, a partner in Mishcon de Reya, the claimant's solicitors. I shall refer to the defendants collectively as "MasterCard" unless the context requires me to distinguish between them.
Background to both applications
The present claim is one of several sets of proceedings based on an allegation that MasterCard's interchange fee arrangements in relation to its credit and debit card schemes were and are unlawful because they infringe EU and domestic competition rules. The defendants are the principal legal entities which own and/or operate the worldwide MasterCard credit and debit and Maestro debit card schemes. The arrangements pursuant to which these schemes work are helpfully described in an agreed summary of issues prepared by the parties on 6 September this year, for an earlier application in this matter.
Briefly, in any transaction carried out under the arrangement there are four parties: the bank (known as the "issuer" bank) who issues the card to a cardholder; second, the cardholder who uses the card to buy an item at a merchant's premises; third the merchant who accepts the card in payment for the item; and fourth the merchant's bank (known as the "acquirer" bank) which pays the merchant. Thus, if a cardholder purchases an item in a shop, the issuer bank is responsible for making payment to the acquirer bank for the latter to pay the merchant. At the time the issuer makes this payment, the issuer deducts and retains a percentage of the transaction value. This deduction is called the interchange fee. The acquirer charges a separate fee to the merchant for the provision of payment card services. This fee is called the merchant service charge.
The scheme's rules impose an obligation upon acquirers, and through them, upon merchants that wish to accept the MasterCard cards, to accept all MasterCard branded cards, regardless of the identity of the issuing bank. This is called the "honour all cards" rule. The scheme also includes a number of default rules which apply in the absence of a bilateral agreement between an issuer / acquirer pair. One of these default rules is the default level of interchange fee. In practice, nearly all transactions are conducted under the default terms of dealing. When the interchange fee is set as a default under the scheme it is referred to as the "fall back" or "multilateral" or "default" interchange fee, also commonly known as the "MIF". I will use the latter expression in this judgment.
Different MIFs apply, depending on the nature of the transaction. These include, first of all, what I will call an "EEA MIF", which applies to transactions where a card issued in one EEA state is used at a merchant in a different EEA state, where the relevant issuer and acquirer have not negotiated a bilateral interchange fee. Secondly, there are domestic MIFs, which are the fees that apply only to intra-country transactions, for example where a card issued in the UK is used at a merchant based in the UK, and the relevant issuer and acquirer have not negotiated a bilateral interchange fee. I will refer to that fee, in the context of this case, as the "UK MIF."
Between 1992 and 2007 the European Commission carried out an investigation into the lawfulness of the EEA MIF. In December 2007 it reached a decision ("the Decision") addressed to the defendants, concluding that the EEA MIF restricted competition between acquirer banks in that period by setting a floor for, and thereby inflating, the merchant service charge made by acquirer banks. The relevant MIF therefore infringed what was then article 81(1) of what was then the EC Treaty, and the defendants had, according to the Commission, failed to produce satisfactory evidence that the MIF in question was exempt under what was then article 81(3) of that Treaty. The Decision was appealed to the General Court, which upheld it in a judgment in May 2012. The defendants appealed again to the European Court of Justice. The oral hearing was in July this year, and the Advocate General's Opinion is expected at the end of January 2014, with judgment to follow, probably before the summer break 2014. None of these times, of course, is written in stone, but represent the current expectation.
The present proceedings are concerned exclusively with the lawfulness of the UK MIF, in force from December 2006 onwards. This, of course, was not the subject of the Decision. Nevertheless, it is clear from the Particulars of Claim that the claimant relies to some extent on the Commission's findings in the Decision. The Particulars of Claim set out those findings and state at paragraph 36 that the Decision has what is called:
"a direct read-across as regards the legality of domestic MIF arrangements across the EU."
Mr Thomas Sharpe QC, who appears for the defendants, told me that the Court of Justice is expected to make findings on, first, whether MasterCard was an association of undertakings on the 25 May 2006 onwards, and so within the scope of article 81(1) of the EC Treaty, and article 53 of the EEA Agreement; second, whether the EEA MIF was a restriction of competition infringing article 81(1) and article 53(3), between 1992 and 19 December 2007; and third, assuming that is the case, whether that MIF was objectively necessary for the operation of the MasterCard payment card scheme, and so fell outside those provisions. Mr Sharpe submitted that findings on those issues would be of fundamental importance to the present claim, and that if any were to be made in favour of the defendants, it would make the case advanced by the claimant unsustainable.
Mr Mark Brealey QC, who appears for the claimant agreed that success in the Court of Justice by the defendants on the issues in question would cause problems for the claimant. He did not go so far as to agree that the claim would be unsustainable.
I should note that, in addition to the European Commission's investigation, there was one by the UK Office of Fair Trading, being an inquiry into the UK MIF. That resulted in a decision adverse to MasterCard in 2005. However, that determination was quashed by the Competition Appeal Tribunal in 2006. I am told that the Office of Fair Trading continues to investigate the UK MIF in respect of the period after 2004, but that the investigation is awaiting the judgment of the Court of Justice. I also understand that national competition authorities in some other EEA member states have reached adverse decisions in respect of their domestic interchange fees, but this does not concern me in the present context.
It is common ground in these proceedings that, as things stand, the Decision and its ultimate fate are in the hands of the Court of Justice, and that the issues involved are sufficiently central to the issues in this case that the substantive trial of the action should not precede the outcome of that appeal — even if that were logistically practicable, which seems unlikely on the present ETA of the judgment of the Court of Justice.
The present claim
The claim form was issued on 19 December 2012, with an amended claim form on 15 April 2013, and Particulars of Claim on 18 April 2013. The defence was served on 19 June 2013, and the reply on 13 November 2013. As I have said the claim concerns only UK transactions based on the UK MIF.
The claimant contends: that MasterCard is an association of undertakings; that by reference to the relevant findings in the Decision or in any event, the UK MIF restricted competition by acquirer banks; and that consequently the defendants were in breach of what is now Article 101(1) of the TFEU and/or the Chapter I prohibition in the Competition Act 1998. The claimant also contends that, while the burden of proving exemption under Article 101(3) and the corresponding national provision, is upon the defendants, the exemptable level of the UK MIF is either 0.2% for debit cards / 0.3% for credit cards, as agreed by MasterCard in the undertakings that it gave to the European Commission in 2009 in relation to the temporary EEA MIF, or alternatively is 0.04%, based on the claimant's own data. It is contended that the UK MIF was and continues to be higher than it should have been, and that this has resulted in the claimant paying higher merchant service charges to its acquirer bank than it would otherwise have done. The claimant seeks compensatory damages in relation to that overcharge. It also seeks exemplary damages, interest, and declaratory relief, namely that the UK MIF paid by the claimant was unlawful.
The proposed preliminary issue
One of the matters pleaded by the defendants in the defence is that any claim...
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