On 14 July 2016, the Competition Appeal Tribunal handed down a 300-page judgment in the case of Sainsbury's Supermarket Ltd v MasterCard Incorporated and others. As a result of the judgment, MasterCard has had to pay Sainsbury’s over £68 million (plus interest) for fees imposed as a result of customers using debit and credit cards in store.
Sainsbury Supermarket Ltd v MasterCard Incorporated and others, Case 1241/5/7/15 (T) is a landmark case as it is the first ruling delivered by the Competition Appeal Tribunal focusing on interchange fees and the infringement of UK competition law. This has opened the floodgates and there is expected to be a whole raft of further litigation on the same issue.
So what are interchange fees?
Interchange fees are the fees paid by the merchant’s bank (the service/goods provider’s bank) to the bank that issued the MasterCard to the customer. In this case, it is a default fee established multilaterally by MasterCard pursuant to a merchant services agreement (and is consequently referred to as a Multilateral Interchange Fee or ‘MIF’).
So what’s the issue?
The Competition Appeal Tribunal was looking at the anti-competitive effect of the setting of the UK MIF.
The UK MIFs were imposed on Sainsbury’s as part of the MasterCard payment scheme. The MasterCard payment scheme involved Issuing Banks being licensed by MasterCard to provide cards to customers and Acquiring Banks being licensed by MasterCard to provide merchants with the ability to accept MasterCard card payments. The MasterCard payment scheme rules were governed through a merchant services agreement that set a default level of fees to be paid by Acquiring Banks to Issuing Banks upon the use of MasterCard debit and credit cards. Sainsbury’s argued that these fees were ultimately borne by the merchants (i.e. Sainsbury’s).
Sainsbury’s argument is that the UK MIF set a floor on the interchange fee that was higher than would be negotiated absent the UK MIF. Sainsbury’s was, therefore, claiming damages for a breach of the Competition Act based upon the level at which the MIFs were set and ultimately the level paid under the merchant services agreement.
MasterCard put up a defence
MasterCard didn’t roll over easily. It argued that Sainsbury’s shouldn’t be awarded damages on the basis that it participated and benefited from the alleged unlawful MasterCard payment schedule as a part of the Sainsbury’s group is an Issuing Bank (an illegality defence). Additionally, MasterCard argued that any fees paid by Sainsbury’s were ultimately borne by customers and therefore Sainsbury’s did not suffer the loss.
The Judgment …
The Competition Appeal Tribunal found that in the setting of the MIFs MasterCard had restricted competition. ‘But for’ the MIFs, the Issuing Banks and Acquiring Banks would have been able to reach bilateral agreements on the level of interchange fees and these fees were likely to be far less than the MIFs. Consequently, if there were lower bilateral interchange fees then the merchant service charges would have been lower.
The Competition Appeal Tribunal calculated that should Sainsbury’s have reached bilateral agreements then it would have paid the equivalent of 0.50% fee for credit cards and 0.27% in the case of debit cards. On this basis, the Competition Appeal Tribunal found that the overcharge was £102,787,541.00 for credit cards and £760,405.74 for debit cards.
The Tribunal dismissed MasterCard's defence that Sainsbury's Bank had partaken in the infringement and should therefore not benefit from any illegality. However, it did take account of the fact that Sainsbury's Bank received interchange fees under the MasterCard payment scheme and reduced the award of damages accordingly. As a result of the benefit, the damages were reduced by 80% to £68,582,245.00 together with interest.
The Competition Appeal Tribunal also concluded that there was insufficient evidence to show that the loss suffered was passed on to customers and in fact, Sainsbury’s did suffer loss at the setting of the MIFs by MasterCard.
Interested in reading more?
Sainsbury's Supermarket Ltd v MasterCard Incorporated and others, Case 1241/5/7/15 (T), 14 July 2016
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