Sainsburys v Visa Supreme Court PDF

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case summary of recent Supreme Court decision Sainsburys v Visa...

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Sainsbury’s Supermarkets Ltd v Visa Europe Services LLC; Sainsbury’s Supermarkets and others v Mastercard Incorporated 2018 Decision unanimously upheld the CA’s decision in favour of the retailers on all grounds bar one (broad axe principle) – MC and Visa’s MIF arrangements were a restriction of competition

Part 3 of hearing (on behalf of MasterCard – appellant) Issue 2 – law of evidence re Article 101.3 Has already addressed Popplewell J and Phillips J, now addresses CA – issue of relationship between standard of proof required by EU law, esp re first condition of the four conditions in 101.3 – claim of restricted agreement creating efficiency must be founded on detailed robust and compelling analysis, and assumptions based on empirical data and not solely economic theory. In line with Justice Phillips – ‘cogent evidence to establish on the balance of probabilities’ p5224 in CA. CA said Phillips did not differ greatly from Popplewell but the SC disagrees CA had rejected the argument that any evidence should suffice, provided it meets the civil standard of proof – we reject this argument [85] CA causal link between restriction and relevant benefits must be supported by facts and evidence and not just economic theory CA – experts agreed that credit cards passing through would incentivise card use, but no eviidence – seemed to be based on economic theory. CA said not to be given weight if no impirical evidence on the point. Popplewell J at [312] said increased card usage and benefits enjoyed by merchants through charging the MIF was made good on the evidence before him – unclear what evidence he referred to – was it the standard that EU law requires? Another flaw in Popplewell J’s analysis is related to criticism to carry out balancing exercise required by 101.3 Moves on to discuss Regulation 1/2003  

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Bedrock of application of 101 and 102 Recital 5 – in order to ensure effective enforcement of the community competition rules, and at the same time respect fundamental defence rights, this should regulate the standard of proof under Article 81 and 82 – party alleging infringement should prove it to the requisite standard. The party citing a defence must also demonstrate that the conditions satisfying its applicability are satisfied – but doesn’t affect national rules on burden of proof so long as compatible with EU law – permits differences in certain areas. The argument that 101.3 requires consistency of application and therefore the standard of proof is the same is clearly incorrect Article 2 regulates burden of proof but is silent on the standard, because it is left to national law Recital 5 has been confirmed in C-74/14 Eturas and others – [29-32] – if a message is sent, does this furnish the recipients with knowledge (aware/ought to be aware of its content)? Question must relate to assessment of evidence and thus standard of proof – down to national law. CJEU agrees that the law is as set out in recital 5 – national law applies re standard of proof where absence of EU laws. Shows the CA was defective to assume application of standard of proof of 101.3 was a matter of EU

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law. In this case the court [35] also makes note that the national law on standard of proof should not render the application of EU competition rules impossible or excessively difficult, in particular must not jeopardise application of 101 Well established in English law that the standard of proof is on the balance of probabilities

Nature of evidence GSK – p633 – judgment is consistent with the principle of unfettered evaluation of evidence – the Commission must examine any evidence submitted by an undertaking seeking reliance on 101.3. doesn’t say that factual evidence is necessary to establish all/any aspect of 101.3 which is what the retailers argue. [248-9] of this case described the point of assessing efficiencies; [304] Commission must balance advantage of efficiency against disadvantage to competition – would have shown the advantage did not outweigh the disadvantage – Commission is required to do so and can’t refuse to do so. It was argued that the CA’s reliance on the Mastercard decision of 2007 is questionable as the Commissions then-approach to MIFs has developed materially in the past 13 years Lord Sales did point out in response to the evidence point that MasterCard, in not presenting any evidence despite having access to it, ran the risk that inferences could be drawn against it based on the facts that were presented. Mr Hoskins said that this point was presented by AAM before Popplewell J which he did not accept CA – relied on para 695 of MasterCard 2007 decision, which said the nature of a balancing exercise under Article 81.3 necessitates the ability to quantify the restrictive effects on one hand and efficiencies generated on another so as to balance them both. Commission’s consistent practice has been not to insist on empirical evidence for each aspect of 101.3, in relation to MIFs In the Visa 2014 decision re credit card MIFs – 26th Feb 2014 – Commission decided to terminate an investigation under 101 in return for Visa to commit to limit the level of certain credit card MIFs – not a final decision as to whether 101.3 was satisfied by the commitments or not. Recital 104 – Commission concerns the MIT (merchant indifference test) methodology to be an appropriate benchmark/proxy for applying 101.3, and not simply in commitment decisions. Transactional benefits of card payments compared with alternatives should be quantified in monetary terms, which is met by the MIT method. [107] relied on economic theory to say that MIFs which comply with the MIT should allow merchants and customers to benefit from increased card use, to the extent that the benefits are passed on, they ensure cardholders make efficient choices over payment choices. [108] by ensuring that merchants are indifferent, such a MIF creates a level playing field...prevents schemes exploiting reluctance of merchants to turn down card payments due to being afraid that their competitors would steal their customers. A MIF that is above the MIT level would not appear to create benefits for merchants and consumers. [109] the MIT level was calculated by comparing merchant cost of accepting cash payments with those by card – figures provided by four banks Visa MIF EC decision 29th April 2019 – commitment decision – when analysing MIF levels, regard should be had for the MIT – used as benchmark/proxy for assessing compliance with 101.3 so as to ensure that merchants benefit from card acceptance – general approach, previously reflected in the 2010 and 2014 Visa decisions; [74] – merchants and customers should both benefit...cardholders should be properly guided to properly choose most sufficient payment method

Legal principles regarding the quantification of damages CA at [323] – concept of ‘pass on’ well established in EU law – persons harmed by breach of EU law have right to compo in domestic courts under principles of equivalence and effectiveness. But such domestic laws may prevent unjust enrichment from overcompensation (reference to CJEU judgment in Courage v Crehan). Where an unlawful charge is not borne by direct purchaser but by THEIR customer, repayment to the direct purchaser amounts to paying them twice over – would this amount to unjust enrichment? Under EU law, each person who suffers loss has a right to damages – the difference between the higher price (higher because of the cartel) and the lower lawful price is usually referred to as the overcharge. Direct purchaser will have a claim, but only to the extent that it has borne the overcharge itself. Where a DP has passed on all/any overcharge to its customer via higher prices, those customers (indirect purchasers) have a separate claim – ‘chain of causation’. Otherwise DP is overcompensated for loss it hasn’t suffered and D could pay for same loss twice. Numerous cases referred to at 1hr 51 of hearing 3 of 8, may or may not be of relevance CA at [327] – EU principles are entirely consistent with domestic – common law principles of [328] British Westing House case – whenever a claimant has taken mitigating action, whether under legal obligation or not, and this has diminished the loss suffered, that must be taken into account when quantifying damages; [329] Lord Bridge in Hudson v Trapp – damages intended to be purely compensatory – if C has enjoyed benefits as a result of the wrongful act, to which he/she would not otherwise have been entitled, prima facie the value of benefits should be taken into account when quantifying damages; Lord Clarke in Fulton Shipping – sums received which have diminished the loss suffered are only considered if there is a sufficiently close causative link between the benefit and the wrong caused by D – CA said these rules underpin the ‘pass on’ Luson J in Devenish Nutrition v Sanofi Aventis – vitamins cartel – what remedies can be claimed? In addition to compo could it claim for loss of profits? Broad axe principle – underlying principle is restoration – should place victim in position they wouldn’t have been in had the wrong not occurred – common law has taken a pragmatic approach requiring certainty. There is no scope for the application of a principle where it is for D to establish a pass on of the unlawful overcharge to reduce the amount recoverable by C. CA dealt with both the issue of pass on, which is causation-based, and the amount C has no right to be overcompensated. Where D has established that C has diminished his loss in a legally relevant way, law should take account of that to avoid D having to overcompensate. Court should not insist D must prove C’s mitigation with precision. CA found it isn’t necessary for Cs to rely on the broad axe to the extent of the overcharge paid by them [319] – Popplewell J explained broad axe principle – court is forced to use broad brush approach in the absence of precision. Analysis of 101.1 and 101.3 will show extent of overcharge of the default MIF by looking at what was paid and what could have been exempted under 101.3. Before the SC, it was argued that because the C doesn’t need to rely on the broad axe, it doesn’t follow that D is precluded from doing so – this would be particularly unjust. Where C uses broad axe, and D therefore is, D should also be entitled to do so where C isn’t. The need to use the broad axe arises because of the need to give effect to the compensatory principle, to avoid overcompensation/double recovery – relevant reasons for allowing D to wield broad axe and is irrelevant whether C does so or not – doesn’t depend on who is making the argument

101.3 doesn’t require counterfactual analysis which is required for restriction of competition Para [286] of Popplewell J’s decision re fair share argument – MasterCard had suggested the case law leaves open the issue of whether a global approach can be taken, having regard to benefits enjoyed by cardholders and merchants against all detriments. MC said if it were necessary to decide the issue, there is no requirement to establish that the benefit of MIF to merchants exceeds disadvantage to merchants, it is sufficient that the benefits to all relevant consumers exceed the benefits to merchants [THIS IS THE CASE PRESENTED BY VISA IN THE SUPREME COURT]. This was said to be expressly stated in para 251 of the CJ judgment in MasterCard. If it were necessary to prove that the benefits to merchants exceeded the disadvatages to them, there would be no need to consider any other relevant market. MC didn’t ask Popplewell to address the point, but he said he would have rejected it. Point was raised, argument identified but judge not asked to decide upon it, and in any event it didn’t make a difference to that finding, but is more relevant here.

Dinah Rose QC – appearing for Visa (appellant) 101.3 is an essential and integral part of community competition policy. If there is not provision for exemption of agreements which satisfy 101.3 conditions, the community will prohibit agreements which carry benefits and efficiencies for the economy and consumers, and the prospect of innovation – highly undesirable and contrary to basis of competition policy and would result in economic damage. Essential consideration when assessing how the EU law principles apply in this context – principle of ‘effectiveness’ means it must not be impossible or excessively difficult to establish the 101.3 defence. There may be circumstances where an agreement does generate benefits, but they can’t be quantified either accurately, whatsoever, or by empirical evidence. The regime must be applied in accordance with principle of legal certainty. Because it is now down to individual undertakings to self-assess the applicability of 101.3, they will be basing their finding on economic realities rather than empirical data which suggests future predictions. Types of efficiencies such as innovation cannot be proven by empirical data. Visa says the MIF has made significant contribution to developing tech for contactless payment – because the MIF gave revenue to issuers on each transaction, which incentivises them to invest in new tech to encourage more card payments. Contactless has had benefits for consumers and the economy as a whole. E.g. has made it much more efficient on the London Underground – TFL have saved a lot by closing ticket offices and commuters have quicker flow in and out – but would still be impossible to quantify the savings across the entire economy with any sort of precision, and attribute it entirely to the MIF. Visa did produce empirical evidence before Phillips J on how the MIF incentivised innovation. A counterfactual question is, without the existence of the MIF, would contactless have developed, and would it have developed more slowly? Can’t be answered by empirical evidence – could compare with other jurisdictions who have different MIF, but will always be constructing evidence based on economic analysis Commission’s own guidance – [69] considers qualitiative efficiencies e.g. innovation stresses importance at [70] – [102] – consumer pass on can take the form of qualitiative efficiencies such as new and improved products – [103] necessarily requires value judgment – difficult to assign precise values to dynamic efficiencies – fundamental objective of assessment remains same – to ascertain overall impact of agreement on consumers – [104] importance of these types of innovation

Commission has taken this approach in commitments decisions – taken a proxy approach re MIFs – before the modernisation reg, the Comm decided that Visa’s MIFs at particular level were excempt from 101.1 as satisfied 101.3 – 2001 decision, [83-107] – recognised at [83] – given the difficulties of measuring the average marginal utility of a payment to each user, a proxy must be found – under VISA scheme, issuers incur costs which benefit merchants relating to the payment guarantee, and it is legitimate to assess exempt level of MIF by the valuation of those costs – adopts economic theory for a proxy to satisfy 101.3 because it recognises complexities of assessment – Dinah Rose argues this is entirely consistent with principles of effectiveness and legal certainty and inconsistent with CA approach which would make it excessively difficult to establish 101.3 defence. Jon Turner QC – on behalf of the respondent in the MasterCard case Argues that Visa introduced degree of confusion about the test Argues that it is a restriction by effect rather than object; At whatever level Visa and MC set a MIF, including zero, there won’t be any bilateral agreements at any different level between issuing banks and acquiring banks – the vice of MIFs isn’t that they exclude some competitive process between banks in reaching such agreements. He said that it isn’t the point that such a MIF disincentivises banks from setting bilateral agreements Follows on from Phillips J at [160] although correct that Comm consistently refers to the fact that the MIFs set a floor under the merchant charge, that was in context of finding there would be ‘actual competition’ by bilateral negoations in a counterfactual world where MIFs are absent – but these would not actually occur in a counterfactual approach. [195 CJEU judgment] – MIFs limited pressure which would have otherwise taken place in their absence i.e. bilateral negotiations – doesn’t support a conclusion that setting MIFs in itself is a restriction in competition because they set a floor at a higher level than would otherwise apply. [161] once accepted that there would be no bilateral agreements to interchange fees in the counterfactual, the inevitable conclusion is that a MIF doesn’t restrict competition. Concept of MIF being imposed, or being a floor, or inherently and adversely affecting parameter of competition are all attempts to show that a MIF is more destructive than a default with no MIF, but all fail to identify any real distinction let alone one that arises out of competition. Saw arena for possible competition as being bilateral agreements, and didn’t interpret CJEU judgments as referring to something else – pressure merchants could place on providers to bargain down price paid. Instead he interpreted CJEU as meaning that MIFs limited pressure, meaning bilateral negotiation, between banks – why?   

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This was a key point in this case Last sentence of [161] suggests that Sainsbury’s argument suggests that there is a difference between a MIF of zero, and no MIF Argument summarised at [130-1] – in the absence of a MIF the parties would be free to negotiation. If result was that no interchange fee was payable, that is the result of the competitive process, but the MIF is not a result of competition but the imposition of a fee by the scheme, which Visa is free to increase at will. No MIF/default counterfactual not the same as a zero MIF – involved different competitive process Phillips judgment at [6] – central issue is whether UK MIFs have the effect of RC in the relevant marke,t it being common ground following the CJEU decision in Carte Bancaires that the market which must be considered is the acquiring market

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Popplewell at [40] – same question as to where to look for the restriction of comp was debated in the AAM trial – he concluded relevant market is the acquiring market Cartes Bancaires at 119-120

Concerned with prices charged by acquiring banks to the merchants, rather than interbank charges Popplewell at [156] – MC MIFs did amount to restriction when compared with no MIF – imposed floor below which the charge to merchants couldn’t fall, as acquirers must pay at least that much to the issuers, and had to recoup from merchants, leading to higher prices charged to merchants than if MIF was lower or zero – restricts comp as it interferes with ability to compete for charges below such floor. No different to collective agreement to maintain inflated prices. If all banks agreed to charge a minimum percentage of sales to merchants/customers this would have naked object of restriction – here it is the same but instead of object it is the the effect that RC. Where you have collective agreement between sellers which fixes a part of the price paid by customers, and renders it immune from competitive pressure – does this amount to a restriction of competition? Not a mere factual or economic matter but one of legal principle. The scheme’s argument has always been that this doesn’t amount to a RC and the court can and should focus on the part of the price paid which is NOT covered by the price-fixing, a broad reading of Article 101.1 paragraph 1. EC decision MasterCard Recital 4.10– does constitute a restriction of competition in the acquiring market. Prices set by acquiring banks would be lower without it – MC MIF creates ‘artificial cost base’ (from collective agreement) common for all acquirers, the merchants charge will typically reflect the cost of the MIF. 4.48 – 4.57 Crehan – Lord Bingham...