Sainsbury's Supermarkets Ltd v Mastercard Incorporated

JurisdictionEngland & Wales
JudgeSir Terence Etherton,Sir Geoffrey Vos,Lord Justice Flaux
Judgment Date04 July 2018
Neutral Citation[2018] EWCA Civ 1536
CourtCourt of Appeal (Civil Division)
Docket NumberCase Nos: C3/2016/4250, A3/2017/0889, A3/2017/0890, A3/2017/0892 and A3/2017/3493
Date04 July 2018
Between:
Sainsbury's Supermarkets Limited
Claimant/Respondent
and
(1) Mastercard Incorporated
(2) Mastercard International Incorporated
(3) Mastercard Europe SA (formerly known as Mastercard Europe SPRL)
Defendants/Respondents
And Between:
(1) Asda Stores Limited
(2) Aarcadia Group Brands Limited and others
(3) Argos Limited and Others
(4) WM Morrison Supermarkets Plc
Claimants/Appellants
and
(1) Mastercard Incorporated
(2) Mastercard International Incorporated
(3) Mastercard Europe SA (formerly known as Mastercard Europe SPRL)
(4) Mastercard/Europay UK Limited
Defendants/Respondents
And Between:
Sainsbury's Supermarkets Limited
Claimant/Appellant
and
(1) Visa Europe Services LLC
(2) Visa Europe Ltd
(3) Visa UK Ltd (Together “VISA”)
Defendants/Respondents

and

The European Commission
Intervener

[2018] EWCA Civ 1536

Before:

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

The 1998 Act

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

Lord Justice Flaux

Sir Terence Etherton, Master of the Rolls, Sir Geoffrey Vos, Chancellor of the High Court, and

Part I: Introduction

1

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.

2

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.

3

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:

4

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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11 cases
1 firm's commentaries
  • Sainsbury’s Wins Landmark Interchange Fee Litigation Victory in UK Supreme Court
    • United Kingdom
    • JD Supra United Kingdom
    • 22 June 2020
    ...and Sainsbury’s Supermarkets Ltd (Claimant/Appellant) v Visa Europe Services LLC and Others (Defendant/Respondents) ([2018] EWCA Civ 1536), July 4, [3] Case C-382/12 P - MasterCard and Others v Commission, Judgment of the European Court of Justice (Third Chamber) ([2014] 5 CLMR 23), Septemb......
1 books & journal articles
  • Cross-border litigation: Evaluating the Brexit impact – a socio-legal model for data analysis
    • United Kingdom
    • Maastricht Journal of European and Comparative Law No. 27-2, April 2020
    • 1 April 2020
    ...16; Sainsbury’s SupermarketsLtd v. Visa Europe Services LLC, [2017] EWHC 3047 (Comm); Sainsbury’s Supermarkets Ltd v. Mastercard Inc,[2018] EWCA Civ 1536. See also: M. Danov, 25 Maastricht Journal of European and Comparative Law (2018).218 Maastricht Journal of European and Comparative Law ......

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