Walker v Joint Credit Card Company Ltd

Walton J.: Some time after 7th August, 1975, but during its accounting period ended 31st October, 1975, the Respondent, the Joint Credit Card Company Limited, made a payment of some £75,000 to a company called Eurocard Limited. In connection with this payment the Respondent also incurred legal fees amounting to some £1,023; and the question here at issue is whether these two sums are proper deductions in the computation of the Respondent's assessable profits as payment made on revenue account wholly and exclusively for the purposes of its trade, or otherwise.

The payment came about in this wise. The Respondent (hereinafter called "Access") was set up in 1972 by a consortium of four banks to provide a credit card service and, in particular, to compete with the Barclaycard operation which was already in existence. Access was intended to operate principally in the United Kingdom, and it has done so with conspicuous success. But from the first it also set its sights on becoming part of an international network, with all the advantages which this would bring. In pursuance of that policy, on the 4th June, 1974, it entered into an agreement with Eurocard International S.A. of Belgium, Eurocard Nord A.B. of Sweden, and Finansierings A.B. Vendor also of Sweden. The Belgian company and Eurocard Nord A.B. between them were the owners of the entire share capital of Eurocard Limited, which was a United Kingdom company. This agreement provided for Access credit cards becoming available for use at all retailer establishments in Europe at which the Belgian company's Eurocard was accepted in accordance with its Eurocard scheme, with provision for its becoming available at other outlets in other parts of the world to be agreed. As part of this agreement, Access obtained the right to acquire the issued share capital of Eurocard Limited, or 50 per cent thereof, on certain terms.

So far I have slightly condensed parts of the findings of fact of the Special Commissioners herein. I will now pick the matter up in their own findings. "Master Charge" is the service mark of the International Interbank Card Association ("Interbank") whose object is to extend the use and acceptance of credit cards as widely as possible on a reciprocal basis throughout the world. It operates by granting licence agreements for the use of the Master Charge symbol on terms which require the licensee to ensure that all cards bearing the Master Charge marks will be honoured by the retailers with whom it has agreements. The Interbank rules include as specific obligations of membership that each member will (i) accept paper from affiliated merchants arising from the use of Interbank Cards issued by other members on their affiliated banks; and (ii) accept and pay for paper received from other members or their affiliated banks arising from the use of Interbank cards issued by it.

There is normally only one Interbank licensee in each country but in May 1974 Access was accepted as a member in the United Kingdom in spite of the fact that Eurocard Limited already had a licence agreement with Interbank. Access membership was to become effective from 1st March, 1975, when Access cards would be usable at all Master Charge outlets abroad. On 1st April, 1975, holders of all Master Charge cards would be able to use Access's retail outlets in the United Kingdom.

During 1974 discussions took place between Access and Eurocard as to the price to be paid by Access for the share capital of Eurocard Limited under the option to purchase already referred to. Access did not regard Eurocard Limited as a serious competitor in the United Kingdom credit card business; nor did it consider that there was any lasting value in its share capital. In 1973 Eurocard Limited had only 7000 cardholders and only 3500 outlets in the United Kingdom, most of those outlets being connected with the tourist trade. Access thought that, once it had become a licensee of Interbank and able to service Master Charge cards in the United Kingdom, it would soon drive Eurocard Limited out of business. The situation was, however, for the time being untidy and Access was prepared to buy Eurocard Limited at a reasonable price. It offered £50,000 which Eurocard rejected, asking instead for £138,000. Access was not prepared to increase its offer and the negotiations came to an end in January 1975. Access at first took the view that the option would stay open for the remainder of the 5-year period provided for in the agreement, but Eurocard was advised that Access had, in effect, repudiated the option and Access subsequently accepted that this was so.

For the time being, therefore, Access and Eurocard Limited were left to carry on business independently in the knowledge that, from 1st April, 1975, they would both be full members of Master Charge and bound to provide credit facilities for each other's cardholders. This did not greatly concern the Board of Access because it still expected to be able to take over Eurocard's share of the United Kingdom market without difficulty, being a larger and more efficiently run organisation. Access took the necessary steps to inform its own retail outlets of the extension of the use of the Master Charge marks which would follow when its own membership of Interbank became effective, as required by the Interbank rules already referred to. Eurocard Limited at about the same time published a pamphlet entitled "Eurocard 1975" which announced "outstanding new benefits" (including a reduction in commission rates, a guarantee of immediate payment and simplified processing) to retailers who accepted Interbank cards and processed them through Eurocard. The pamphlet advised retailers, inter alia, that: "Your contract with Eurocard covers the acceptance of all Interbank cards so, from 1 April 1975, you may accept Access cards, if you do not already do so, without any separate or new agreement. Alternatively, if you already accept Access cards you may, if you wish, start to process Access sales slips through Eurocard Ltd. if these new terms are more advantageous to you".

The Access Board considered that the "Eurocard 1975" pamphlet went far beyond the Interbank requirement of explaining the interchange system to the member's retail outlets and amounted to an attempt by Eurocard Limited to "poach" Access business. If Access sales were processed through Eurocard the commission of 2¹/₂ per cent would be paid to Eurocard Limited and Access would receive only a 1 per cent discount under the interchange arrangements with Eurocard. Counsel's opinion confirmed the view that the action of Eurocard Limited in soliciting Access's business amounted to wrongful interference with, and inducement to a breach of, Access's contractual relationships with its retailers. Counsel advised that Access could claim damages and an injunction to restrain such conduct: and he suggested...