CAT awards £68.6m in damages to Sainsbury in MasterCard damages action

Background

J Sainsbury launched its standalone damages action against MasterCard in the English High Court in 2012. It claimed that it had suffered loss as a result of MasterCard’s unlawfully high UK multilateral interchange fees (MIFs). Sainsbury claimed that the UK MIF set by MasterCard infringed Article 101 TFEU and/or the Chapter I prohibition of the UK Competition Act 1998. Sainsbury did not launch a follow on damages action but it did rely on some of the findings in the European Commission’s 2007 decision against MasterCard. The Commission’s decision, which found that MasterCard’s intra-EEA MIFs system encumbered retailers and consumers with illegally high charges in breach of Article 101 TFEU, was upheld by the Court of Justice of the European Union (the ECJ) in 2014. Following the coming into force of the UK Consumer Rights Act 2015 (the CRA) on 01 October 2015, which expanded the CAT’s jurisdiction so that it could hear standalone damages actions from that date, Sainsbury’s claim was transferred to the CAT.

CAT’s judgment

On 14 July 2016, in the first major final ruling on a damages action heard by the CAT under its new powers pursuant to the CRA, the CAT ruled that MasterCard must pay Sainsbury’s £68.6m plus interest in damages.

The CAT noted that the findings of the Commission’s 2007 decision were not binding on it - that decision related to intra-EAA MIFs carried out in an earlier period than the period covered by Sainsbury’s claim and applicable to different transactions. The CAT heard evidence on UK MIFs applicable to transactions in the UK geographic market (ie these were not cross-border transactions). The CAT further remarked that where a legal conclusion has been expressed by the ECJ or the European General Court based on facts that are materially indistinguishable from those before the CAT, then that conclusion is binding on the CAT. In the Sainsbury’s case, there was only one such instance: the issue of whether the setting of a MIF by MasterCard was a decision by an association of undertakings is common to both the Commission’s case and Sainsbury’s action.

The CAT found that the setting of the UK MIF amounted to an agreement or agreements between undertakings, the agreement being the MasterCard Scheme Rules between MasterCard and the various parties licensed pursuant to those rules. The CAT went on to find that the setting of the UK MIF constituted a restriction of competition by effect. In reaching this conclusion on the nature of the infringement, the CAT referred to the ECJ’s ruling in Cartes Bancaires and then stated that: “it is clear that the essential criterion for discerning a restriction on competition “by object” is that the agreement by its very nature reveals a sufficient degree of harm to competition, so as to obviate any need for an effects-based examination”. That was not the case here.

MasterCard could have run its payment card system without the setting of UK MIFs. The CAT examined the counterfactual scenario in the absence of MasterCard having set UK MIFs and found that MIFs would have been agreed in place of the UK MIF on a bilateral basis. These would have been the equivalent of 0.50% (as opposed to 0.9%, which was the UK MIF rate) for credit card transactions and the equivalent of 0.27% for debit card transactions (as opposed to 0.36%, which was the UK MIF set by MasterCard).

The CAT further found that the UK MIFs set by MasterCard were not capable of exemption under Article 101(3) TFEU. The CAT also noted that it was possible for some level of UK MIFs to be exemptible but in this case that level would inevitably be lower than the bilaterally agreed interchange fees. MasterCard’s illegality defence - namely that Sainsbury’s claim should be barred because Sainsbury’s Bank had participated in the setting of the UK MIF and Sainsbury’s (being the supermarket and the bank) ought not to be able to recover damages for the consequences of its own wrongful acts - was also rejected by the CAT. The CAT ruled that Sainsbury’s supermarket and Sainsbury’s Bank were not part of a single economic unit and in any event Sainsbury’s Bank did not bear significant responsibility for the infringement in the case before it. The principle of ex turpi causa (ie a claimant cannot seek to recover damages on the basis of the consequences of its own wrongful acts) was therefore not applicable in this case.

The CAT calculated damages by working out the difference between what Sainsbury actually paid in UK MIFs and the lower bilateral fees that it should have paid (in the CAT’s counterfactual assessment). The Tribunal also ruled that MasterCard’s pass on defence failed - Sainsbury was found to not have passed on the extra cost of inflated UK MIFs to consumers by increasing the shelf price of goods. The CAT stated that “no identifiable increase in retail price has been established, still less one that is causally connected with the UK MIF”. It further stated that MasterCard had not identified any purchaser or class of purchasers of Sainsbury’s products to whom an overcharge had been passed and who would be in a position to claim damages.

Comments

The CAT’s significant award of damages and its substantial examination of all of the issues in the case is to be welcomed and may signal a tidal wave of competition law damages cases being heard before the CAT in the future. The CAT was prepared to make a substantial damages award on the basis of an infringement by effect in the first final ruling on a competition damages action made by any English Court.

Interestingly, in making its judgment, the CAT stated that it was less assisted by the evidence of economic experts than it might have been. It advised that in future “where significant economic evidence is being adduced by economic experts who lack specific expertise in the particular factual field under consideration, we consider that the parties need to be especially assiduous in ensuring that the economic experts are: (1) Clearly instructed on the legal principles they are to apply, and in particular any assumptions they are being required to make. (2) Absolutely clear as to the factual material on which their reports are to be based.”

On the one hand, the CAT judgment will be welcomed by retailers who are already engaged in litigation with MasterCard or contemplating proceedings. On the other hand, the classification of MasterCard’s conduct as giving rise to an infringement by effect and the CAT’s comments on the relevance of the Commission’s 2007 decision could prove to make it more difficult and costly (including an increase in the level of economist involvement) for retailers to bring their cases.

The CAT’s rejection of MasterCard’s passing-on defence is likely to dampen the perceived prospects of a large collective action launched on 06 July 2016 on behalf of consumers. See our article on the collective action here. It is notable, however, that the CAT did not consider it had compelling evidence in relation to passing on of the overcharge by Sainsbury’s to consumers before it, and it was generally critical of the relevance of the economic evidence in the case, so it remains to be seen how the consumer claim will fare, if certified by the CAT as appropriate for a collective action.

In light of the foregoing, it will be interesting to see what impact the judgment has upon other proceedings against MasterCard. A £600m English High Court action against MasterCard by twelve UK retailers (including Morrison’s and Arcadia) had been suspended on 07 July 2016, pending the release of the Sainsbury’s CAT judgment.