The Consumer Rights Act 2015 has introduced changes to the UK’s competition damages regime, which has made the UK an attractive jurisdiction in which to bring actions for breaches of competition law.

Such competition damages actions are relatively new in the UK, and can be heard by either the High Court or the specialist Competition Appeals Tribunal (CAT). As the High Court is not bound by the decisions of the CAT in competition damages cases there is a risk that inconsistent judgments may have a chilling effect on competition damages actions being brought in the UK.

The differences between the judgment of the CAT in Sainsbury’s v MasterCard1 (Sainsbury’s Judgment) and the judgment of the High Court in Arcadia v MasterCard2 (Arcadia Judgment) are illustrative: the two judgments give a very different legal interpretation of similar circumstances.

However, the MasterCard proceedings, and related VISA proceedings, are atypically complex, and the fact that inconsistent judgments have been handed down should not dissuade potential claimants from considering bringing a claim in the UK for any damages they may have sustained as a result of an infringement of competition law, which should be considered as an investment opportunity.

The facts

Both MasterCard and VISA operate four-party payment systems for transactions by debit and credit cards. Such payment systems are ‘four-party’ as they involve:

  1. A cardholder
  2. A merchant
  3. The cardholder’s bank (Issuing Bank)
  4. The merchant’s bank (Acquiring Bank).

When a cardholder pays a merchant for goods, the cardholder’s issuing bank deducts an interchange fee from the money it pays to the merchant’s acquiring bank for processing the transaction.

The MasterCard and VISA scheme rules applying to the UK have set a default interchange fee that will apply unless an issuing bank and an acquiring bank have negotiated a separate interchange fee between themselves. This default interchange fee is known as a Multilateral Interchange Fee (MIF)3. A higher MIF is generally set for credit transactions than the one which is set for debit transactions.

These MIFs may be passed-on by the acquiring banks to merchants as part of the merchant service charge. In the Arcadia Judgment it was concluded by the court that the MasterCard MIFs constituted a floor, below which the merchant service charge could not fall.

In both the Sainsbury’s and Arcadia cases the claimants contended that MasterCard’s MIFs breached Article 101 of the Treaty on the Functioning of the European Union/Chapter I of the UK’s Competition Act 1998. Both provisions prohibit agreements which have an anti-competitive object or effect unless they meet all of the following criteria (Article 101(3) criteria), which are that the relevant agreement:

  • Contributes to improving the production or distribution of goods or to promoting technical or economic progress.
  • Allows consumers a fair share of the resulting benefit.
  • Does not impose restrictions which are not indispensable to attaining the above objectives.
  • Does not afford the parties to the agreement the possibility of eliminating competition in respect of a substantial part of the products in question.

In both judgments it was concluded that there was a relevant agreement between MasterCard and its licensees, (the Issuing Banks and Acquiring Banks participating in the MasterCard scheme).

In both judgments it was accepted that the MIFs did not have an anti-competitive object. Agreements that are determined to have an anti-competitive object are almost always prohibited4, there is no need to prove that they actually have an effect on competition on the relevant market. Agreements which fix prices or allocate customers or territories between competitors are generally held to have an anti-competitive object. The MIFs were not a price-fixing agreement, as they operated as a default provision in the absence of individual issuing banks and acquiring banks negotiating an interchange fee between themselves.

The counterfactual

To analyse whether a particular agreement has the effect of restricting competition it must be assessed against circumstances that might have been likely to exist had the agreement not been in place. This is known as a counterfactual analysis. If the agreement creates conditions that are more restrictive of competition than the conditions that would exist in the counterfactual, then the agreement will have an anti-competitive effect.

Deciding upon an appropriate counterfactual will not always be easy, and the two judgments came to different conclusions. In the Sainsbury’s Judgment it was held that the appropriate counterfactual would be that no MIF would be set, and that issuing and acquiring banks would bilaterally agree interchange fees. The CAT concluded that if interchange fees were bilaterally negotiated the interchange fees would be, on average, 0.5% of the value of credit card transactions and 0.27% of the value of debit card transactions. The MasterCard MIFs had been set above these levels, and therefore Sainsbury’s was entitled to damages.

In the Arcadia Judgment this approach was rejected by the court as unfeasible for a number of reasons, including its opinion that an impractically large number of bilateral agreements would need to be negotiated. The court instead stated that the only potentially realistic counterfactuals were:

  • A scenario with no MIF and a prohibition on issuing banks imposing an interchange fee following a transaction.
  • A lower MIF as the maximum putatively lawful MIF.

In relation to the first counterfactual, the court stated that the MasterCard MIFs would have had the effect of restricting competition on the acquiring market (the market between acquiring banks and merchants) had it not been for the fact that under this counterfactual the MasterCard scheme would have collapsed, as issuing banks would have switched to issuing VISA cards.

In relation to the second counterfactual, the court stated that, although it considered that the MIFs as set were in fact lawful under the Article 101(3) Criteria, any MasterCard MIF that was set at a level that was more than 0.2% per transaction lower than the VISA MIF would also lead to collapse of the MasterCard scheme, as issuing banks would again have switched to issuing VISA cards.

In relation to both of these counterfactuals, the lawfulness of VISA’s MIFs was assumed by the court, and therefore it was assumed for the purpose of the counterfactual that VISA would continue to maintain their MIFs at current levels. In relation to both counterfactuals the key issue was whether a MasterCard scheme with no or lower MIFs would be able to compete with a VISA scheme which lawfully maintained their MIFs at present levels.


This will become problematic, as there are currently a large number of claims against VISA pending (at the time of writing no judgment has been issued in any claim brought against VISA). If it is determined that in these claims that VISA’s MIFs were set at an unlawful level then the Arcadia Judgment’s conclusion on counterfactuals will be open to challenge - if VISA could only lawfully not set a MIF or set a lower MIF, then the MasterCard scheme would not collapse if it also did not set a MIF or set a lower MIF.

The Sainsbury’s Judgment and the Arcadia Judgment also reached different conclusions on whether the Article 101(3) Criteria applied. In the Sainsbury’s Judgment it was determined that the Article 101(3) Criteria did not apply to the MIFs set by MasterCard during the relevant period, and therefore the agreement, which had the effect of restricting competition, could not be exempted by the application of these criteria. In particular, the CAT found that the MIF inhibited economic progress, rather than promoted economic progress, as it frustrated bilaterally negotiated interchange fees and as a result created upward pressure on merchant service charges.

In the Arcadia Judgment it was determined that the MIFs were set by MasterCard at levels which would be permitted under the Article 101(3) Criteria. In doing so the court quantified what relevant benefits merchants derived from the MasterCard MIF and determined that MIFs set below this level would be exemptible under the Article 101(3) Criteria. The court determined that MasterCard credit MIFs set at or below 1.11% of transaction value and MasterCard debit MIFs set at or below 0.38% of transaction value would be exemptible. MasterCard’s UK MIFs were set below this level for the duration of the claim period.

Permission to appeal was refused in Sainsbury’s v MasterCard. It would appear likely that the unsuccessful claimants will attempt to appeal Arcadia v MasterCard. Upcoming judgments in cases brought against VISA are also likely to impact on the reasoning underpinning the counterfactual part of the judgment in Arcadia v MasterCard.

It seems somewhat inevitable that certain issues will have to be determined by the Court of Appeal, and possibly the Supreme Court, in order to ensure some degree of consistency is applied to the competition damages proceedings brought against MasterCard and VISA.

Stand alone and follow-on claims

Whilst the existence of inconsistent judgments would typically dissuade potential claimants from bringing claims it should be stressed that the MasterCard and VISA actions are not typical of competition damages claims.

A claim for damages for a breach of competition law may be brought on a ‘stand-alone’ or ‘follow-on’ basis. A follow-on claim may be brought where there is a decision of the Competition and Markets Authority (CMA) or the European Commission that an infringement of competition law has taken place. In a follow-on claim, the courts or the CAT will be bound by this regulatory decision, and therefore will generally only consider whether the infringement caused the claimant loss. On the other hand, in a stand-alone action a claimant must also prove that an infringement has taken place.

As claimants against MasterCard and VISA cannot rely on a relevant regulatory decision establishing that MasterCard and VISA’s UK MIFs were unlawful, claims have to be brought on a stand-alone basis. This has required claimants to evidence the existence of an infringement of competition law to a satisfactory standard.

In addition, the fact that claimants have had to prove that the MIFs as set had the effect of restricting competition – as the argument that setting MIFs has the object of restricting competition has not met with success – and the fact that a large number of different claims have been brought by different parties, has resulted in uniquely complex litigation.

Claims brought on a follow-on basis should not provoke the same degree of complexity. Companies which have suffered damage as a result of an infringement of competition law that is the subject of a decision of the CMA or the European Commission should still explore bringing a follow-on claim to recoup the cost of any overcharge they may have incurred.