Interchange fee appeals
This case is among the most significant antitrust cases in the UK to date
Earlier this year, the UK Supreme Court handed down a unanimous judgment in Sainsbury’s v Visa & others & Mastercard & others , upholding the Court of Appeal decision that the default multilateral interchange fees set by MasterCard and Visa and charged by card issuers to retailers restrict competition.
The dispute related to the scheme rules set up by Mastercard and Visa to govern card payments within their networks between 1992 and 2007. The scheme rules provided for the payment of fees charged by a cardholder’s bank to the merchant’s bank for each sales transaction made at a merchant outlet with a payment card on each transaction, known as ‘multilateral interchange fees’. The merchant’s bank then passed on the interchange fees to retailers as part of their overall service charge. Retailers argued that they had no ability to negotiate interchange fees and that by imposing such fees, Mastercard and Visa were interfering with the marketplace as banks would have otherwise competed to reduce or eliminate these fees.
Under English law, those who suffer losses as a result of a breach of competition law can claim damages from the perpetrators of the breach. In this case, Sainsbury’s sought damages from Visa and Mastercard for the increased interchange fees it had had to pay due to their anti-competitive behaviour.
Mastercard argued that retailers did not suffer any loss because any overcharge was passed on by them in full to their customers in the form of higher prices, much as an increase in VAT would be.
The Supreme Court held that the burden of proof is on the defendants to establish that that pass on by the retailers did in fact occur, although once that has been done, there is a heavy evidential burden upon the claimants, in this case the retailers, to provide evidence as to how they have dealt with the increased costs in their businesses, for example by passing them on to their customers, absorbing them, etc. The Supreme Court held that the law does not require unreasonable precision in the proof of the amount of the prima facie loss which retailers may have passed on.
This means that where a retailer has paid an overcharge as a result of the scheme rules, it can claim damages from Mastercard and Visa but in turn they can look to prove that the retailer has mitigated its loss by passing on, in whole or in part, the cost to its customers.
What does this mean for retailers?
This case is among the most significant antitrust cases in the UK to date. Given the impact of the COVID-19 pandemic on revenue in the retail sector, the Supreme Court’s finding on liability is good news for retailers, who will now be in a stronger position should they wish to lodge their own claims for compensation in respect of the high interchange fees.
The case will now be passed back to the Competition Appeal Tribunal to quantify the extent of Sainsbury’s losses and the level of interchange fees that can be reclaimed from the card issuers as damages.