By Hayley Pizzey

The Competition Appeal Tribunal (CAT) has ordered MasterCard Incorporated (MasterCard) and others to pay £68.6 million in damages to Sainsbury’s Supermarkets Ltd (Sainsbury’s). The CAT held that MasterCard restricted competition by setting UK Multilateral Interchange Fees (MIFs) between December 2006 and December 2015 (the ‘relevant period’). This judgment represents the largest damages award handed down by CAT, and the final damages award may reach £90 million once interest is added.

90% of the damages related to MIFs, processing fees charged to retailers by MasterCard for MasterCard credit and debit card transactions between the customer and retailer. The CAT considered that if MasterCard had not set MIFs, banks would have agreed lower bilateral interchange fees. The damages reflect the difference between MasterCard’s MIF rates and the lower bilateral fees which would have been paid, over the relevant period.

There are two novel issues that were examined in the judgment: (i) the pass on defence and the causal link; and (ii) the calculation of interest. Each of these is considered below.

The judgment is also the first time the CAT has awarded damages in an Article 101 TFEU[1] claim and the first ‘stand-alone’ competition judgment.

The pass-on defence and the causal link

The MasterCard scheme operates as a network. Prior to a transaction taking place MasterCard licenced an issuing bank to provide MasterCard payment cards to the issuing banks’ customers on terms agreed between the customer and the issuing bank. Acquiring banks were licensed to equip the merchant (i.e. Sainsbury’s) with the equipment required to receive MasterCard payments. Merchants accept MasterCard payments at points of sale for acceptance by the acquiring bank under a Merchant Services Agreement (‘MSA’) between the acquiring bank and merchant.

During a sale, the merchant contacts the acquiring bank with the customer details. The acquiring bank seeks approval from the issuing bank which authorises the transaction. The issuing bank then forwards the full transaction amount to the acquiring bank, less an interchange fee regulated either by MasterCard, or a bilateral agreement between the issuing bank and the acquiring bank. The acquiring bank then forwards the transaction amount to the merchant to cover the purchase cost, after deducting a charge for service, the Merchant Service Charge (‘MSC’). The MSC includes the MIF. There is no direct relationship in this network between the merchant and MasterCard. the merchant, in this case Sainsbury’s, is therefore an indirect purchaser of MasterCard.

One of the key factors in this case was whether Sainsbury’s passed on the MIF to its own customers (the so-called ‘pass-on defence’) and MasterCard claimed that the overcharged MIF was indeed passed on. Therefore Sainsbury’s had no claim. However, the CAT found that the overcharged MIF was 100% passed on by the acquiring banks to Sainsbury’s via the MSC but not passed on by Sainsbury’s to its own customers. This is notable not only because this was the first time a Court or Tribunal has ruled formally on the pass-on defence in this context but also because of how the CAT differentiated the legal definition of pass-on from the economic concept.

The CAT stated that first, in the legal definition, the pass-on defence is only concerned with identifiable increases in prices by a firm to its customers, as opposed to the wider definition considered by economists (e.g. to include costs savings). Secondly, the increase in price must be causally connected with the overcharge, and demonstrably so.

The CAT considered that a pass-on defence ought only to succeed where, on the balance of probabilities, the defendant has shown that another class of claimant exists, downstream of the claimant, to whom the overcharge has been passed on. Therefore unless MasterCard could demonstrate the existence of such a class, Sainsbury’s recovery of the overcharged MIF would not be reduced or defeated on the basis of the pass-on defence. MasterCard was unable to establish an identifiable increase in retail price, which would have affected Sainsbury’s customers as an identifiable downstream class. As a result MasterCard’s pass-on defence failed.

Calculation of interest

In 2007, the decision in Sempra Metals meant that interest losses are in principal recoverable. Interest claims have no special rules: a claimant may recover his actual interest losses, including a loss of compound interest, provided the claim is particularised and proved. Interest is a loss like any other.

The Courts have a wide discretion when considering interest and can, but are not obliged to, order statutory interest or they can order any other interest claimed.

In commercial cases both the Commercial Court and the Technology and Construction Court have used a commercial rate for interest on damages, usually set with reference to the London Interbank Offered Rate (‘Libor’) at, for example, Libor plus 3%.[2]  In Les Laboratoires Servier[3] Arnold J awarded interest at Libor plus 1%, reasoning that this rate reflected the likely reference rate for a company in the receiving party’s commercial position and noting that Libor had already been widely used for setting interest rates in commercial cases.[4] Libor plus 1% is thought to reflect the cost of borrowing among commercial parties[5] but an extension above 1% is considered a more realistic approximation of actual commercial borrowing rates.

In the instant case, Sainsbury’s successfully particularised and proved its case before the CAT and was awarded damages, however the method and mechanism of the interest awarded on those damages requires further attention.

First, the CAT held Sainsbury’s was entitled to recover an amount equivalent to the extent to which the UK MIF paid by Sainsbury’s in the relevant period exceeded the amount Sainsbury’s would have been charged absent the UK MIF, namely the lower amount bilaterally negotiated market price interchange fee. Secondly, compound interest was payable on top of the damages.

At a more granular level, the CAT rejected the “Libor plus” approach and awarded compound interest on 50% of Sainsbury’s assessed damages, to be compounded quarterly for the relevant period. The interest was formulated in the following way:

  • 20% of the overcharge at the rate Sainsbury’s would have earned on its cash balances; and
  • 30% of the overcharge at the rate that Sainsbury’s would have saved by taking out less new debt.


The CAT’s emphasis on the legal definition of pass-on is important to bear in mind when seeking to either invoke the pass-on defence or rebut such a defence. It is clear that is for defendants to prove that any alleged overcharge has been passed on. This position reflects that set out in the Damages Directive[6], which is to be implemented into English law by 27 December 2016 – although the status of this in the medium term could be uncertain in light of Brexit.

The CAT’s rejection of the commercial “Libor plus” model, the size of the damages award, and the likelihood of the final damages sum reaching £90 million after interest make this an interesting judgment which may influence how future cases of this nature are treated.

MasterCard may have lost in the CAT, but two factors may aid its defence in the class action proceedings currently looming – although this claim is much broader, spanning UK transactions between 1992 and 2008. First, the bare facts of Sainsbury’s failure to on-pass the charges, and secondly, the fact that competition was restricted by effect and not object. These factors may combine to change the colour of subsequent litigation.

[1]              Treaty on the Functioning of the European Union

[2]              PGF II SA v Royal and Sun Alliance Insurance PLC [2010] EWHC 1459 (TCC)

[3]              Les Laboratoires Servier v Apotex Inc [2011] EWHC 1318 (Pat)

[4]              Fiona Trust & Holding Corporation and others v Primalov and others [2011] EWHC 644 (Comm)

[5]              FMC Meat v Fairfield Cold Stores [1971] 2 Lloyd’s Rep 221

[6]              Directive 2014/104/EU of the European Parliament and of the Council of 26 November 2014 on certain rules governing actions for damages under national law for infringements of the competition law provisions of the Member States and of the European Union.