Sainsbury's Supermarkets Ltd v Mastercard Incorporated
Jurisdiction | England & Wales |
Judge | Sir Terence Etherton,Sir Geoffrey Vos,Lord Justice Flaux |
Judgment Date | 04 July 2018 |
Neutral Citation | [2018] EWCA Civ 1536 |
Court | Court of Appeal (Civil Division) |
Docket Number | Case Nos: C3/2016/4250, A3/2017/0889, A3/2017/0890, A3/2017/0892 and A3/2017/3493 |
Date | 04 July 2018 |
and
[2018] EWCA Civ 1536
Sir Terence Etherton, MASTER OF THE ROLLS
Sir Geoffrey Vos, CHANCELLOR OF THE HIGH COURT
and
Lord Justice Flaux
Case Nos: C3/2016/4250, A3/2017/0889, A3/2017/0890, A3/2017/0892 and A3/2017/3493
IN THE COURT OF APPEAL (CIVIL DIVISION)
ON APPEAL FROM THE COMPETITION APPEAL TRIBUNAL
AND ON APPEAL FROM THE HIGH COURT OF JUSTICE
QUEEN'S BENCH DIVISION
COMMERCIAL COURT
THE HONOURABLE MR JUSTICE BARLING, PROFESSOR BEATH OBE, AND MR MARCUS SMITH QC
THE HONOURABLE MR JUSTICE POPPLEWELL
THE HONOURABLE MR JUSTICE PHILLIPS
Claim Nos: 1241/5/7/15(T), CL-2012-000299, CL-2012-000767, CL-2012-000959 and CL-2015-000471
Royal Courts of Justice
Strand, London, WC2A 2LL
Mr Mark Brealey QC, Mr Derek Spitz and Ms Sarah Love (instructed by Morgan, Lewis & Bockius UK LLP and Mishcon de Reya LLP) for the respondent, Sainsbury's, in Sainsbury's v MasterCard (CAT), and for the appellant in Sainsbury's v Visa (Phillips J)
Mr Jon Turner QC, Mr Meredith Pickford QC, Mr Christopher Brown and Mr Max Schaefer (instructed by Stewarts Law LLP) for Asda, Argos and Morrisons (the AAM parties) in AAM v MasterCard (Popplewell J)
Mr Mark Hoskins QC, Mr Matthew Cook and Mr Hugo Leith (instructed by Jones Day) for the MasterCard appellants in Sainsbury's v MasterCard (CAT), and for the MasterCard respondents in AAM v MasterCard (Popplewell J)
Ms Dinah Rose QC, Mr Daniel Piccinin and Mr Jason Pobjoy (instructed by Milbank, Tweed, Hadley & McCloy LLP and Linklaters LLP) for the Visa respondents in Sainsbury's v Visa (Phillips J)
Mr Nicholas Khan QC and Ms Ronit Kreisberger (instructed by the European Commission) for the European Commission
Hearing dates: 16–20, 23–27 April and 2 July 2018
Approved Judgment
INDEX
Section | Paragraph |
Part I: Introduction | 1 |
Part II: The essential chronological background to the three anneals | 12 |
Part III: The essential reasoning of the CAT, Ponnlewell and Phillips JJ | |
The CAT's decision in Sainsbury's v MasterCard | 37 |
Popplewell J's judgment in AAM v MasterCard | 45 |
Phillips J's first judgment on article 101(1) in Sainsbury's v Visa | 49 |
Phillips J's second judgment on article 101(3) in Sainsbury's v Visa | 55 |
Part IV: The Metropole line of authorities and the law concerning the doctrine of ancillary restraint/ objective necessity | 58 |
Part V: The law on exemption under article 101(3) | 75 |
Part VI: The article 101(1) issue: Do the schemes' rules setting default MIFs restrict competition under article 101(1) in the acauiring market, by comparison with a counterfactual without default MIFs where the schemes' rules provide for settlement at par? | 110 |
The schemes' arguments on article 101(1) | 112 |
The merchants' arguments on article 101(1) | 118 |
The Commission's arguments on article 101(1) | 123 |
Discussion and conclusions on article 101(1) | 126 |
The significance of the Commission's decision | 133 |
The significance of the General Court's decision | 140 |
The significance of the CJEU's decision | 147 |
Consistency between Member States | 157 |
Popplewell J's reasoning on article 101(1) | 159 |
Phillips J's reasoning on article 101(1) | 166 |
The CAT's reasoning on article 101(1) | 173 |
The bilateral interchange fees issue in Sainsbury's v MasterCard | 176 |
Our conclusions on the question of whether the schemes' rules setting default MIFs restrict competition under article 101(1) in the acquiring market | 185 |
Part VII: The ancillary restraint death spiral issue | |
The merchants' arguments on the death spiral issue | 191 |
The Commission's arguments on the death spiral issue | 194 |
The schemes' arguments on the death spiral issue | 195 |
Discussion and conclusion on the death spiral issue | 198 |
Part VIII: The article 101(3) exemption issue | 210 |
The AAM parties' appeal against Popplewell J's decision that MasterCard had established exemption under article 101(3) | 211 |
The relevant section of the judgment | 211 |
The AAM parties' arguments on article 101(3) | 230 |
The Commission's arguments on article 101(3) | 236 |
MasterCard's arguments on article 101(3) | 238 |
Discussion and conclusions on the AAM parties' appeal | 242 |
Visa's Respondent's Notice in relation to Phillips J's decision in his second judgment that Visa's MIFs were not exempt | 272 |
The parties' arguments on the judge's treatment of the evidence | 274 |
Discussion and conclusions on the issue of the judge's approach to the evidence | 279 |
The article 101(3) exemption issue in the CAT case | 305 |
Part IX: The Quantum issues | |
Introduction to the quantum issues | 306 |
Do the merchants bear the burden of proving the lawful level of MIF? | 308 |
Should the CAT have reduced Sainsbury's damages for ‘pass-on’? | 320 |
Part X: Our conclusions | |
The article 101(1) issue | 343 |
The bilateral interchange fees issue | 345 |
The ancillary restraint death spiral issue | 346 |
The article 101(3) exemption issue | 349 |
The quantum issues | 352 |
Part XI: The disposal of the appeals | |
When proceedings can and should be transferred to the CAT | 354 |
Disposal of the present appeals | 359 |
Annex 1: The relevant rules of the Visa and MasterCard schemes | |
Visa's rules | 368 |
MasterCard's rules | 372 |
Annex 2: The statutory foundation | |
Article 101 TFEU | 378 |
The European Commission guidelines on the applicability of article 101 to horizontal co-operation agreements ( 2011/C 11/01) | 382 |
The European Commission guidelines on the application of article 81(3) (now article 101( 3)) (2004/C 101/08) | 383 |
390 | |
The Irish Act | 394 |
Annex 3: Summary of the Commission, General Court and | |
CJEU decisions in MasterCard | |
The Commission's decision (19 December 2007) | 396 |
The General Court's decision ( [2012] 5 CMLR 5 (GC)) | 406 |
The CJEU's decision ( [2014] 5 CMLR 23 (ECJ)) | 412 |
Sir Terence Etherton, Master of the Rolls, Sir Geoffrey Vos, Chancellor of the High Court, and
Part I: Introduction
The central question in these three appeals is whether the setting of default multilateral interchange fees (“MIFs”) within the MasterCard and Visa payment card systems contravenes article 101 of the Treaty on the Functioning of the European Union 2012/C326/01 (the “TFEU”). 1 Article 101(1) provides that agreements between undertakings which may affect trade between Member States and which have as their object or effect the prevention, restriction or distortion of competition within the internal market are prohibited as incompatible with the internal market of the European Union. Section 2 of the Competition Act 1998 (the “1998 Act”) makes the same provision in relation to agreements which may affect trade within the United Kingdom, and which prevent, restrict or distort competition within the United Kingdom.
Two of the appeals are brought from the Commercial Court, and one from the Competition Appeal Tribunal (the “CAT”). In the broadest of outline, 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, whilst the two Commercial Court judges decided, for different reasons, in each of AAM v MasterCard (the “ AAM case” or “ AAM v MasterCard”) and Sainsbury's v Visa (the “ Visa case” or “ Sainsbury's v Visa”) that the MIFs charged respectively within the MasterCard and Visa payment systems were not prohibited anti-competitive agreements. It falls to this court to resolve the considerable differences of approach between the three decisions under appeal.
Both the MasterCard and the Visa payment card schemes are known as four-party schemes, though there is in each case a fifth party, namely the scheme operator itself. The schemes operate in an essentially identical way, which can be represented by the following diagram:
The essentials of the four-party payment card scheme can be summarised as follows:
(i) The cardholders contract with one of many issuers as to the terms on which they may use the card issued to them to buy goods from merchants.
(ii) Multiple issuers (mostly banks) contract with multiple acquirers (also mostly banks) to settle the transactions by which cardholders “buy” goods or services from merchants using a payment card on the basis of the rules of the relevant scheme. The scheme rules provide that the issuer will pay the acquirer the value of the cardholder's transaction, (normally) minus the interchange fee due under the terms of the scheme. In these schemes, the positive interchange fee is deducted from the payment by the issuer, but that is not universally the case. It is accepted that schemes can operate without an...
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