Multilateral interchange fees

Last year we discussed the contrasting judgments of the Competition Appeal Tribunal (CAT) in Sainsbury’s and the Commercial Court in Arcadia (Gazette, 18 September 2017). A few months later, a differently constituted Commercial Court reached yet a third conclusion in relation to the legality of multilateral interchange fees (MIFs) in the Visa judgment. The Court of Appeal considered all three cases together, handing down judgment on the conjoined appeals on 4 July 2018.

This article will focus on three of the elements of the Court of Appeal judgment of wider implication, namely its observations on: the burden of proof; pass-through; and case management.

Burden of proof

A critical question considered by the Court of Appeal was, if the MIFs were not exempt under article 101 of the Treaty on the Functioning of the European Union (TFEU), whether the claimants bore the burden of proving what level of MIF, if any, would have been exemptible and, hence, lawful. Identifying such a level of lawful fee was a prerequisite for calculating damages.

In Arcadia, Popplewell J had reasoned that, as the claim was for tortious damages, it was for the claimants to establish the extent of their loss by reference to the extent of the unlawfulness. In other words, it was for them to show the difference between the MIF that could lawfully have been charged and the MIF actually charged.

According to the Court of Appeal, the correct approach that the burden of proof lies on the party asserting that some arrangement, other than the actual arrangement, would have been lawful and what that lawful arrangement would have been (here the MIF that could lawfully have been charged). In other words, and contrary to Popplewell’s conclusion, the burden lay on the defendants.

This is a conclusion with potentially far-reaching consequences. For example, in cartel cases, it has hitherto been assumed that the claimant bears the burden of proving the level of any overcharge that resulted from the cartel. The Court of Appeal suggests that this is wrong. Rather, the claimant having demonstrated (usually by reference to a prior commission infringement decision) that the prices charged have been tainted by cartel behaviour, it would then be for the defendant to demonstrate what level of price could have been charged absent the cartel.

This aspect of the Court of Appeal’s judgment may be seen to reflect the policy and approach underlying the 2014 damages directive (namely, a presumption that cartels cause harm), but whereas the directive’s presumption applies in the UK only in respect of loss or damage suffered on or after 27 December 2016 as a result of infringements of competition law taking place on or after that date, the Court of Appeal’s ruling is subject to no such restriction.

In practice, of course, UK claimants typically start their claim with an assertion of a 26% overcharge based on the Oxera study. The Court of Appeal’s approach allows them to dispense with such an approach. As a consequence, the starting point for the court will no longer be the 26% asserted by the claimants but the – inevitably – much more modest figure put forward by the defendant. Certainly (unless this is overturned by the Supreme Court) the days of UK defendants refusing to put forward a positive case on overcharge would appear to be over.

Pass-through

In Sainsbury’s, the CAT held that Mastercard had failed to prove that any part of the MIF had been passed on to Sainsbury’s customers because they were unable to establish any identifiable increase in retail prices causally connected to the MIF, and because they could not identify a purchaser or class of purchaser to whom the overcharge had been passed on who would be in a position to claim damages. At the same time, the CAT reduced by 50% the compound interest to which it found Sainsbury’s to be entitled on the basis that 50% of the MIF had been passed on to its customers. Mastercard challenged the consistency of these two findings on appeal.

The Court of Appeal considered there was no inconsistency between these two findings. It observed that in each case it is a matter for the judge to decide whether, on the evidence before him, the defendant can show there is a sufficiently close causal connection between an overcharge and an increase in the direct purchaser’s price to justify reducing the damages claim for pass-through. That increase can be shown by a combination of empirical fact and economic opinion evidence. The evidence adduced by Mastercard had failed to convince the judge. In restricting compound interest on the basis that 50% of the MIF was passed on by Sainsbury’s, the court observed that the CAT was making economic assumptions different from the legal principles it had applied when considering whether Mastercard had demonstrated that Sainsbury’s had passed on part of the MIF.

Significantly (and helpfully from the defendants’ perspective), the Court of Appeal confirmed that it was not part of the legal test for pass-on that the defendant must be able to identify a purchaser or class of purchaser to whom the overcharge was passed on who would be in a position to claim damages, thereby slightly lessening the burden on defendants in establishing pass-through.

Case management

Having concluded that the MIFs were restrictive of competition within the meaning of article 101(1) of the TFEU, the Court of Appeal:

• remitted the Sainsbury’s case back to the CAT for reconsideration of the article 101(3) exemption issue and for the assessment of quantum;
• remitted the Visa case to the CAT (rather than the High Court from whence it had come) for reconsideration of the article 101(3) issue and for the assessment of quantum;
• remitted the Arcadia case to the CAT (rather than the High Court from whence it had come). The Court of Appeal had concluded that Popplewell J ought to have concluded on the evidence he heard that Mastercard’s claim for exemption under article 101(3) ought to have failed, but in view of the fact that Sainsbury’s and Visa were to be allowed to reargue article 101(3) issues, the CAT concluded it was correct for Arcadia to be able to argue it too; and
• emphasised that the cases are being remitted for reconsideration and not for retrial. Consequently, it will not be possible for any party to adduce new evidence, save in respect of quantum in Visa and Arcadia.  Each party will, however, be entitled to rely on evidence filed in the other cases. 

Comment

The Court of Appeal sought to create order where there was chaos and, in so doing, it handed down a judgment with far-reaching consequences for competition damages litigation in England.

That the lessons of the interchange fee litigation have been learned by the CAT and the courts can be seen in the way in which the current avalanche of ‘trucks’ litigation is being handled. The myriad claims have been transferred to the CAT where they are being managed by a single judge, with a view to avoiding the unedifying spectacle of duplicative and inconsistent litigation on, essentially, common issues across courts.  

Equally, as regards the ever-growing number of interchange fee claims, it seems likely that, with the exception of the Merricks judicial review/appeal listed for 31 October, all will be stayed pending the final determination of Sainsbury’s, Arcadia and Visa.

Louise Freeman and Elaine Whiteford are partners in Covington’s European competition practice