On 17 June 2020, the Supreme Court handed down a much anticipated judgment concerning the default multilateral interchange fees (MIFs) set by Mastercard and Visa (together, the Appellants).[1]

The case considered appeals relating to three separate damages actions brought by retailers against the operators of four-party payment schemes, Visa and Mastercard. Underlying each of these claims is an allegation that the fees agreed between banks participating in the Visa or Mastercard payment schemes were higher than they would be in a competitive market, which in turn inflated the charges that merchants paid when accepting Visa or Mastercard payment cards. The cases raised a number of common issues around the competitive counterfactual (what would the fees have been without an anticompetitive agreement) and how much of the overcharge was passed-on by the merchants to customers.

On liability, the Supreme Court upheld the [Court of Appeal’s] finding that the Appellants’ MIFs had infringed Article 101 TFEU. The Court rejected the Appellants’ arguments that the MIFs were not anticompetitive on three grounds.

  • First, the Court held that it was bound by the CJEU’s judgment in 2014 upholding the European Commission’s decision that Mastercard’s cross-border MIFs infringed Article 101(1) [2] The Court rejected the Appellants’ argument that the CJEU’s decision was factually distinguishable and so did not bind the English courts. The Court found that the “essential factual basis” underlying the CJEU Mastercard Decision was mirrored in the appeals.[3] The Court also noted that, were it not bound to do so, it would nevertheless have followed the CJEU in finding that the MIFs restricted competition.
  • Second, the Court held that any party seeking to rely on the legal exception under Article 101(3) must “identify, substantiate and evaluate the claimed efficiencies and to verify their causal link with the anticompetitive conduct” and provide “cogent empirical evidence in support of that claim.[4] The Court rejected the Appellants’ argument that this requirement was inconsistent with the standard of proof on the balance of probabilities.
  • Third, the Court held that restrictive effects suffered by consumers on one market (in this case, merchants on the card-acquiring market) could not be compensated by benefits enjoyed by consumers on another market (cardholders on the card-issuing market) “unless the two groups of consumers are substantially the same.”[5] Cardholder benefits therefore could not be taken into account when deciding whether consumers received a fair share of any efficiencies under Article 101(3).

On damages, however, the Supreme Court upheld grounds of appeal concerning the application of the “passing on” defence. The Appellants had argued that some or all of the loss suffered by retailers was offset by retailers passing on that overcharge to their customers. Although the Court agreed with the retailers that the burden is on the defendant to plead and prove that the merchants mitigated their loss, the Court held that “in accordance with the compensatory principle and the principle of proportionality, the law does not require unreasonable precision in the proof of the amount of the prima facie loss which the merchants have passed on to suppliers and customers.”[6] The Supreme Court accepted the Appellants’ argument that the Court of Appeal should not have required a greater degree of precision in the quantification of pass-on from the defendant than from a claimant.

The Court’s judgment will have significant consequences for the payments sector and more widely.

  • The judgment will have a direct impact on ongoing litigation in the payments sector, including pending class action litigation in Merricks v Mastercard (a collective damages case brought on behalf of cardholders), the Sainsbury’s claims remitted to the Competition Appeal Tribunal for assessment of damages (and reassessment of Article 101(3), as well as other ongoing claims against Visa and Mastercard.
  • The Court’s conclusions on “pass on” will also have a significant effect on competition damages claims in other sectors. There is some encouragement both for claimants, since the Court confirmed that the burden of proof lies on the defendant to show that loss was mitigated, and for defendants, since the Supreme Court upheld the “broad axe” approach to proving “pass on” that had been rejected by the Court of Appeal and referred to the “heavy evidential burden on the merchants to provide evidence as to how they have dealt with the recovery of their costs in their business […] in order to forestall adverse inferences being taken against [them].”[7]
  • The judgment also sets an important precedent as to how the exemption criteria under Article 101(3) TFEU and section 9, Competition Act 1998 should be applied in cases involving two- sided

The judgment is summarised in more detail below.

Four-Party Payment Schemes

Source: Supreme Court Judgment, page 3

The Appellants operate four-party payment card schemes. Issuing banks (Issuers) and Acquiring banks (Acquirers) can join the scheme, subject to complying with the scheme rules. Under a four-party payment scheme, debit or credit cards are issued to cardholders by the Issuer. Merchants enter into relationships with Acquirers, which allow the merchant to accept the schemes’ payment cards in return for the payment of a merchant service charge (MSC). To settle a transaction between a cardholder and a merchant, the Issuer pays the transaction price, less the MIF, to the Acquirer, who passes the payment on to the merchant, less the MSC. The Court’s judgment concerns the effect of the schemes’ default MIFs on competition in the acquiring market.Source: Supreme Court Judgment, page 3

Procedural Background

In 2007, the EC found that MIFs under the Mastercard scheme were determined by an unlawful collective agreement that removed the competitive pressures that would otherwise have driven MIFs, MSCs, and (ultimately) consumer prices, downward. The EC Mastercard Decision was subsequently upheld by the General Court and CJEU.

The appeal to the Supreme Court related to three sets of UK damages actions by retailers who claimed to have been overcharged as a result of the MIFs set by Visa and Mastercard respectively. The first-instance judgments in these three cases reached different and arguably contradictory conclusions. These proceedings were heard together by the Court of Appeal (CA), which overturned all three first-instance judgments. The CA found that the MIFs had restricted competition and remitted questions of whether the MIF agreements were exempt under Art. 101(3) to the CAT.[8] Visa and Mastercard appealed to the Supreme Court and a number of retailers, including Asda (together, AAM), cross-appealed against the remittal order.

Restriction of Competition

The CA considered itself bound by the CJEU Mastercard Decision, which found that certain Mastercard MIFs restricted competition within the meaning of Art. 101(1). The Appellants argued that the CA had erred in coming to that conclusion, as the MIFs at issue in the English proceedings were factually distinguishable from those at issue in the CJEU Mastercard Decision. In particular, the EC had considered MIFs that applied in cross-border transactions within the EU, whereas the damages proceedings related mainly to MIFs charged on domestic UK transactions. Under Budapest Bank,[9] the Appellants argued, it was for the national court to determine whether particular MIFs at issue that set a floor under the MSC restricted competition.

The Court rejected the Appellants’ arguments and found that the essential factual basis upon which the CJEU Mastercard Decision had been based was applicable to the case at hand. In both cases, according to the Court: “(i) the MIF is determined by a collective agreement between undertakings; (ii) it has the effect of setting a minimum price floor for the MSC; (iii) the non-negotiable MIF element of the MSC is set by collective agreement rather than by competition; (iv) the counterfactual is no default MIF with settlement at par (that is, a prohibition on ex post pricing); (v) in the counterfactual there would ultimately be no bilaterally agreed interchange fees; and (vi) in the counterfactual the whole of the MSC would be determined by competition and the MSC would be lower.”[10] Budapest Bank could be distinguished because it was concerned with a different issue, namely whether the restriction should be characterized as an infringement by object, rather than by effect, and involved a different type of MIF agreement and counterfactual. The CA was therefore correct in considering itself bound by the CJEU Mastercard Decision.

The Court held that, if not bound by the CJEU Mastercard Decision, it would have reached the same conclusion: the collective agreements that set the MIF immunized a significant portion of the MSC from competitive bargaining by fixing an artificial minimum price floor that amounted to a positive financial charge. The Court therefore dismissed the appeal on this ground.

Standard of Proof

The CA held that EU law requires cogent factual and empirical evidence to satisfy the requirements under Art. 101(3); economic theory alone is insufficient. The Appellants complained that the CA had thereby subjected them to an unduly onerous standard of proof. Instead, the standard of proof should be determined by national law, subject to the principles of effectiveness and equivalence.

The Court did not reject that submission. It found, however, that the core of the Appellants’ complaint related not to the standard of proof but to the nature of evidence sufficient to satisfy the standard. The CA was correct that while the usual civil standard of proof applied, the nature of evidence required must be informed by EU law. Against that background, the Court held that Art. 101(3) requires cogent empirical evidence in order to be able to evaluate efficiencies and benefits as required under Art. 101(3). The merchant indifference test[11] advanced by the Appellants was not a “silver bullet” to address the issue, but could only serve as a starting point. The appeal was consequently dismissed on this ground.

Fair Share of Benefits

The third issue concerned the second Art. 101(3) condition, which requires that consumers “receive a fair share of the benefits resulting from the restriction of competition.” The Court emphasised the importance of taking into account the fact that the Appellants’ schemes operated in a two- sided market. In that context, the question was whether benefits to cardholders could outweigh the restrictive effects felt by merchants. The CA answered this question in the negative.

The EC had found that “the efficiencies must in particular counterbalance the restrictive effects to the detriment of merchants.”[12] According to the Court, the EC had therefore proceeded on the basis that anticompetitive harm felt by consumers can be offset only by benefits enjoyed by them directly. The Court found that this approach was consistent with the EC’s guidelines on the application of Art. 101(3).

The Court rejected reliance on certain paragraphs of the CJEU Mastercard Decision, including the statement that “[…] all the advantages on both consumer markets in the MasterCard scheme, including therefore on the cardholders’ market, could, if necessary, have justified the MIF if, taken together, those advantages were of such a character as to compensate for the restrictive effects of those fees.”[13] The Court found that this comment was concerned with the first condition of Art. 101(3), and there was no justification for applying this approach to the second condition. Moreover, such treatment would effectively remove any difference between the two requirements. Instead, the second condition was found to add a distinct requirement of fairness. The appeal on this ground was therefore dismissed.

“Broad Axe”

At issue in the fourth ground of appeal was the burden on a defendant seeking to argue that the claimant has mitigated its loss by passing on all or part of an overcharge to its customers.

As a starting point, the Court analysed the requirements EU law imposes on claims for damages for losses incurred as a result of breaches of competition law, which are compensatory in nature. In the absence of rules at EU level, Member States may lay down procedural rules governing actions that safeguard rights derived from EU law. Domestic rules cannot make it practically impossible or excessively difficult to exercise rights guaranteed by EU law. The Court held, however, that national courts were not prevented from taking steps to ensure that such protection does not enable unjust enrichment. In the English legal system, the Court held, pass-on is an element of quantification that is not only required by the compensatory principle but also necessary to avoid double recovery. It is therefore a question of fact for the national court to decide whether a claimant has mitigated its loss resulting from an overcharge in breach of competition law.

The Court agreed with the retailers that they were entitled to claim as the prima facie measure of their loss the overcharge in the MSC that resulted from the MIF. Requiring merchants to plead and prove their loss of overall profit, the Court found, would most likely offend the principle of effectiveness for two main reasons: (i) a complex trading entity that is required to prove the effect of a particular overcharge on its overall profits may face an insurmountable burden to establishing its claim; and (ii) the claimants may be undercompensated if the overcharge has caused it to forgo discretionary expenditure which had no immediate effect on its profits. The burden of proof that the merchants have mitigated their loss rests on the defendants.

Once there is evidence that a claimant has passed on all or part of an overcharge to its customers, however, the compensatory principle requires the court to consider mitigation of loss. In the words of the Court, there is “a heavy evidential burden on the merchants to provide evidence as to how they have dealt with the recovery of their costs in their business.”[14]

The Court held that there is no requirement to quantify the extent of any pass-on with precision if such precision cannot reasonably be achieved. The court must have regard to the overriding objective of the Civil Procedure Rules: legal disputes should be dealt with at a proportionate cost. The Court observed that where the cost of achieving precision would be disproportionate, the court may have to forgo precision. On the facts of the case, the extent of pass-on could only be a matter of estimation. Insofar as the CA had required a greater degree of precision, the Court allowed this ground of appeal.


AAM’s cross-appeal was also allowed by the Court. The CA found that AAM should have succeeded on its claim under Art. 101(1), but remitted the question of whether Mastercard could benefit from legal exception under Art. 101(3). The CA’s remittance order provided that it was not open to the parties to advance a new case or adduce new evidence on the remittal, but that the parties could rely on evidence from the other two proceedings.

The Court concluded that the CA’s remittal order was impossible to justify without the parties’ consent, as the order would not allow the parties to rebut evidence from the other proceedings.

More fundamentally, remitting the case for reconsideration would offend against the principle of finality of litigation. Under this rule, a party is precluded “ from raising in subsequent proceedings matters which were not, but could and should have been raised in the earlier ones”.[15] According to the Court, Mastercard was aware of the significance of the issue of pass-on and had already had the opportunity to present any evidence it wished in support of its case. Mastercard had lost on this issue after a full and fair trial and should not be allowed to re-litigate the issue.

[1]      Sainsbury’s Supermarkets Ltd v Visa Europe Services LLC and others [2020] UKSC 24.

[2]      MasterCard Inc v European Commission (Case C-382/12 P) [2014] 5 CMLR 23 (CJEU Mastercard Decision).

[3]      Para. 93.

[4]      Paras. 118 and 128.

[5]      Para. 144.

[6]      Para. 225.

[7]      Para. 216.

[8]      Art. 101(3) provides for a legal exception to the Art. 101(1) prohibition where the agreement improves the production or distribution of good or promotes technical or economic progress while allowing consumers a fair share of the resulting benefit.

[9]      Gazdasági Versenyhivatal v Budapest Bank Nyrt (Case C-228/18) EU:C:2020:265.

[10]    Para. 93.

[11]    The merchant indifference test seeks to calculate what level of fee would need to apply for the merchant to be indifferent between accepting a card payment or cash.

[12]    EC Mastercard Decision, para 740.

[13]    CJEU Mastercard Decision, para. 241.

[14]    Para. 216.

[15]    Virgin Atlantic Airways Ltd v Zodiac Seats UK Ltd [2013] UKSC 46, para. 17; Henderson v Henderson (1843) 3 Hare 100.