On Monday 30 January 2016 the High Court issued its judgment in Arcadia & Ors v MasterCard 
EWHC 93 (Comm), finding in favour of MasterCard. This is the latest decision in a series of damages claims
against MasterCard and Visa, following findings by the European Commission in 2007 that MasterCard’s
cross-border European Economic Area (EEA) Multilateral Interchange Fees (MIFs) were in breach of what is
now Article 101 of the Treaty on the Functioning of the European Union (TFEU). Similar Commission
proceedings against Visa were concluded in 2010 by a decision accepting commitments. The subject
matter of the UK claims is, however, wider than the interchange fees that were in issue in the EU cases,
and the claims cover a largely distinct time period. Accordingly these are not pure ‘follow-on’ claims and,
except where there is a direct overlap in scope, the High Court is not bound by the Commission’s findings.
The case concerned substantially similar issues to those addressed by the Competition Appeal Tribunal
(CAT) on 14 July 2016 in Sainsbury’s Supermarkets Ltd v MasterCard Incorporated and Others  CAT
26. In that decision, the CAT found against MasterCard and awarded damages of £68.5 million to
Sainsbury’s. The decisions were on the same subject matter and made within a little over six months of
each other, yet arrived at diametrically opposing outcomes.
Both cases concerned claims for damages by groups of retailers (Arcadia and others before the High Court,
and Sainsbury’s and others before the CAT) on the basis that MIFs set by MasterCard were in breach of UK,
Irish and EU competition law (in particular Article 101 of the TFEU). MIFs are fees set by MasterCard that
are paid between acquirers and issuers in a debit or credit card transaction. The Claimants’ case
Conflicting counterfactuals: the
High Court disagrees with the CAT,
ruling that MasterCard’s multilateral
interchange fees are lawful
Key parties involved in MasterCard’s payment scheme:
Merchant: supplies goods and services to a consumer
Cardholder: presents card supplied by an issuer to a
merchant as payment for goods and services.
Acquirer: provides services to the merchant to allow it
to receive card payments. The acquirer obtains
payment from the issuer, and passes the payment on to
the merchant (less a merchant service charge).
Issuer: pays the acquirer for the goods and services
(less an interchange fee) and charges cardholders the
full value of the transaction.
MasterCard: charges the issuer and acquirer fees to
participate in the scheme. Under the Scheme Rules,
MasterCard sets the interchange fees (MIFs) which are
to apply in the absence of a bilateral agreement
between the acquirer and the issuer.
(consistent with the arguments of the Commission in its investigation) was that the MIF acts as a floor on
the price that merchants have to pay for accepting cards and that, by creating such a floor, MasterCard
unlawfully restricted competition on the market between acquirers and merchants, with the result that
merchants had to pay more than they would otherwise have done to accept MasterCard’s credit and debit
In order to determine whether the MIFs were anticompetitive and, if so, the correct approach to
quantifying damages, both courts agreed that they had to consider whether the MIFs restricted
competition in comparison to a counterfactual scenario where the MIFs did not exist (or existed in some
other less restrictive form). The different overall conclusions reached by the High Court and the CAT are a
direct consequence of the different conclusions that they reached as to the appropriate counterfactual
The High Court counterfactual
The High Court considered (and the parties agreed) that the only realistic counterfactual scenarios for the
purposes of its analysis were either (a) that MasterCard set a zero MIF or (b) that MasterCard set a positive
but lower MIF as the maximum putatively lawful MIF. It then fell to be determined whether, as MasterCard
contended, in those scenarios the MasterCard scheme would not be able to continue to exist because
issuers would switch away from MasterCard to a higher-paying Visa scheme (this was referred to as the
“death spiral” argument). MasterCard argued that this would be the case and that therefore the
MasterCard MIF as it actually applied could not be seen as imposing a greater restriction on competition as
compared to a situation where MasterCard would be forced to exit the market altogether.
In order to reach a view on these issues the High Court had to decide what competition MasterCard would,
in the counterfactual scenario, have faced from its main rival Visa in the inter-system market (i.e. the
market in which MasterCard and Visa compete to attract issuers and acquirers). A key question was
therefore the level that the Visa MIFs would be set in the counterfactual world: if they were set at
‘actual’ levels (i.e. the levels at which Visa had actually set its MIFs in the ‘real’ world), the court
accepted that a MasterCard scheme with zero MIFs or materially lower MIFs than Visa would not survive
because all of its issuers and acquirers would switch to the Visa scheme, which offered higher fees. If,
however, the Visa MIFs in the counterfactual world were set at a level that was identical to MasterCard’s
MIFs, then this “death spiral” effect would not arise.
The Claimants argued that the court should assume that the Visa MIFs were unlawful to the same extent as
MasterCard’s, because the schemes were materially identical. Therefore, the court should not assume that
the Visa MIFs would have been set at ‘actual’ levels in the counterfactual world. The court accepted that,
if the schemes were materially identical, then the Claimants’ approach would be correct. However, it
considered that the Claimants had not put forward sufficient evidence to establish on the facts that this
was the case. In the words of Popplewell J, “They shied away from asking me to make any findings about
the lawfulness of Visa’s MIFs… [T]hey could have adduced and relied on the necessary evidence in relation
to the Visa scheme and invited me to make findings about the lawful level of Visa MIFs by reference to
that evidence, at least so as to establish material identity.”1
1 Arcardia & Ors v MasterCard  EWHC 93 (Comm), .
The court therefore set the counterfactual Visa MIFs at their actual level, leading to the conclusion that,
absent a MIF, the MasterCard scheme would collapse because MasterCard’s issuers and acquirers would
switch to Visa. The court therefore found that the MIFs were not a restriction on competition and were
necessary for the operation of the MasterCard scheme. This in turn led to an analysis of the maximum
level at which MasterCard could set the MIF before it would become more than would be necessary to
keep the scheme in operation, such that it would be exempted under an Article 101(3) analysis. The
‘exemptible level’ for the MIFs was found to be, in almost all scenarios, higher than the MIFs charged by
MasterCard in the relevant period and, for this reason, the MIFs were generally found not to constitute an
unlawful restriction on competition.
Comparison to the CAT approach
The CAT in the Sainsbury’s decision had also considered that in the counterfactual world the Vi sa MIFs
should be set at their actual level, although for different reasons. However it then concluded that the
most likely counterfactual was that, faced with a zero MIF, MasterCard issuers would not switch to Visa
(despite the availability of higher fees) and would instead negotiate bilateral interchange fees with each
acquirer participating in the MasterCard scheme in the UK. In the CAT’s view this was (at least in part)
because large merchants would be willing to pay a positive MIF to accept MasterCard to avoid the market
becoming dominated by a Visa monopoly. With this counterfactual in mind, the CAT then determined,
based on the economic evidence before it, that the bilateral interchange fees that would be negotiated
would be 0.5% for credit cards and 0.27% for debit cards (significantly below the rates that had been
charged by MasterCard in the relevant period). For this reason, it considered the MasterCard MIFs to
represent an unlawful restriction on competition.
The High Court judgment considers the CAT approach to the counterfactual but ultimately rejects it. In
reaching this conclusion Popplewell J noted that this counterfactual scenario had been developed by the
Tribunal itself and had not been put forward by any of the parties in that case. As a result, and in contrast
to the High Court hearing, this approach “was not addressed by the factual witnesses, or put to them in
evidence, nor had it been addressed in the expert reports… It has been put to the experts by the Tribunal
in the course of their evidence, but without it having formed part of the case for which they had
prepared. Both experts rejected it.”2 The High Court provided a number of reasons for rejecting the CAT’s
counterfactual analysis, but its central argument was that, given the number of parties involved in the
MasterCard scheme, it considered that it was unrealistic to think (a) that merchants would individually
agree to pay higher fees in order to secure the continued operation of the MasterCard scheme; or (b) that
it would be practical to negotiate the large number of bilateral arrangements that would be required.
Although the court, as it noted, is not formally bound by the findings of the Commission in relation to the
major part of the claims under consideration, it is nonetheless surprising that, against the background of
an extensively litigated Commission decision finding that the EEA MIFs did restrict competition, the High
Court has reached a conclusion that the UK MIFs did not have the same effect.
2 Ibid, para 138.
The court notes that there is only a very small overlap in the time period covered by the damages claim
and that of the Commission decision, and that there are a number of factual differences in the market
structure and the operation of the MasterCard scheme during the two periods. However, the root of the
issue here appears to have been the Claimants inability – or unwillingness – to adduce sufficient evidence
of material similarity between Visa and MasterCard to convince Popplewell J to assume a lower Visa MIF in
the counterfactual scenario.
Even if the Claimants had been able to establish this point, the approach of the High Court to the
counterfactual would have still been different to that adopted by the CAT. This is perhaps less surprising
given the lack of support for the CAT approach from any of the parties to the High Court case. However,
the CAT was formed as a specialist judicial body to hear and decide cases involving competition or
economic regulatory issues; the High Court itself recommended that the Sainsbury’s case be transferred to
the CAT in early 2016. In the referral decision, Barling J reflected on the often complex and technical
nature of competition litigation, and the importance of multidisciplinary panels (including for example,
economists and industry experts) when attempting to understand and resolve these difficult issues.3 The
Sainsbury’s case was considered particularly appropriate for referral due to the inherent complexity of the
issues, and the considerable degree of economic evidence and argument that would be required.4
It is also not clear that, even if the Claimants had managed to establish that the schemes were materially
identical, this would have been determinative of the outcome given that the court concluded on the
alternative counterfactual (a positive but lower MIF) that the MIFs in issue were largely set below the
level at which they could be exempted under Article 101(3). Given its conclusions the court did not
ultimately have to reach a view on which of the two counterfactual analyses it preferred.
The courts are clearly facing difficulty in determining the issues in relation to MasterCard in isolation of
those in relation to Visa. The issues in this regard are explored to some extent in the High Court decision
although Popplewell J ultimately concludes that, whilst the court is reluctant to reach a conclusion that
may “give rise to a risk” of inconsistent findings, this is sometimes unavoidable and reflects the fact that
sometimes the evidence and/or the parties are not the same. He also notes that this outcome in this case
is not an accident of case management; none of the parties wished for the Visa and MasterCard cases to
be heard together.5
The case appears to have had an impact on the parallel litigation brought by the same retailers against
Visa; one week before concluding arguments were due to be heard, Visa has reached an out-of-court
settlement with most retailers. However, Sainsbury’s has not entered into a settlement with Visa. It
therefore remains possible that this case will lead to the development of yet another counterfactual.
3 Sainsbury’s Supermarkets Ltd v MasterCard Incorporated and Others  EWHC 3472 (Ch), para 15.
4 Ibid, para 19.
5 Supra note 1, paras 212 – 214.
Both the Arcadia and Sainsbury’s cases are expected to be appealed to the Court of Appeal (the outcome
of the appeal application in the Sainsbury’s case is currently pending). Given the divergence of outcomes
in cases involving the same conduct it seems appropriate for the Court of Appeal to exercise its powers to
consolidate the proceedings and hear the appeal cases together.
The outcome of these cases could also impact on the collective proceedings against MasterCard brought by
Walter Merricks on behalf of 46,200,000 individuals in July 2016. Those proceedings combine actions for
damages arising from the Commission’s infringement finding that MasterCard’s cross -border EEA MIFs were
in breach of Article 101.6 This is a ‘follow-on’ damages action and as such the Commission’s finding of
infringement will be binding, but in quantifying any award of damages the UK court is likely to need to
address similar issues concerning the charges that might have been levied in a counterfactual scenario.
6 Case COMP/34.579 MasterCard, COMP/36.518 EuroCommerce and COMP/38.580 Commercial Card, Commission Decision of 19
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