In 2014, the European Court of Justice
finally decided that Mastercard’s ‘interchange fees’ for cross-border[1] transactions
were too high and therefore flouts competition law practices which primarily
are in place to protect consumers. Subsequent to that ruling, Sainsbury (a UK
retail company) brought an action against Mastercard in the UK, before the
Competition Appeal Tribunal, and won, the damages Mastercard was asked to pay
to Sainsbury was enormous[2].

However, at the trial, Mastercard made some pertinent arguments, and the court
professed some dicta that soon led to the present class action led by Walter
Merricks on behalf of some 46 million UK consumers against Mastercard in
another suit. Mastercard was being sued in the class action for $18
Billion—definitely, the biggest ‘supposed’ class action that would have gone to
trial in UK’s history—for the damages suffered by consumers as a result of the
ruled Mastercard excessive interchange fees.

For a proper understanding, it might be
necessary to discuss some words/phrases, interchange fees, its practicalities,
and the Competition Appeal Tribunal especially.

For a proper understanding of interchange
fees, examine this scenario: A as a credit card company provides the technology
necessary for B’s customers to buy items with their credit/debit cards anywhere
in the world A’s services covers. One of B’s customer is C. Now, C wants to buy
an item from a retailer D, D also has its own bank E—that helps process
payments when a credit card is swiped in his store. The idea is that anytime C
swipes his credit card issued by B through A in D’s store, B charges a fee from
E for the transaction, the money charged by B goes to A of course. Sadly (for
D), for his efforts, E also charges a small amount for helping D’s
customer—C—use his credit card in D’s store. [Note the definition of the keys
in the scenario, A is Mastercard, B is the issuing Bank/Customer’s bank, C is
the Customer, D is a Retailer, E is the acquiring Bank/Retailer’s bank].

From the above, assuming the price of an
item is listed by D as $50, at the end of the day, when E pays A through B, and
when E removes his own small commission (often called an ‘add-on-rate’) from
the $50, D might be having $45, instead of $50. Now, to avoid all of this, what
D do is that since the value of the item in his store is actually $50, and D
wants exactly $50 from customers so as to keep his business going and make
profit, he charges customers $55 for an item that has the value of $50 (the $5
addition is the cost of the payment processing D has to pay/suffer for
customers using their credit cards in D’s store). This is why when customers go
to some stores and say they want to use their credit card to pay for an item,
the store keeper says it charges an extra $3 or $5 or thereabout for credit
cards—this cost is to defray the expenses of the card payment processing. Some
stores will say they only accept credit cards for items that cost $10 or more,
this is because, say an item cost $5, and for the transaction the two banks
involved in the payment processing—issuer and acquirer—are already charging
together like $3, there is no way the retailer can make profit off such
transaction, because he would be left with $2 for a $5 item. Of course, the
sophistication of interchange fees cannot be properly dealt with in an article
as this, but a small clarification on how it works is only necessary.

Now, consider the second store mentioned in
the last paragraph—who only charges customers $3 or $5 any time a customer says
he wants to use a credit/debit card. What this means is that the retailer
maintains the actual value of the item, in our previous discussion—say at
$50—but only inflates it when a customer opts to use a credit card, at which
point, the customer has to pay an extra $3 or $5. The rationale behind this is
that the retailer here maintains the actual price of the item (at $50) so that
a customer paying cash wouldn’t have to pay an inflated price of $55—which
contains a card payment processing fee for customers paying with credit/debit
card. Now, these type of retailers are small scale retailers and are quite a
few, they are the usual bodegas on most corners, they have the time to separate
customers using credit cards from those making payment with cash. Large
retailers like Sainsbury, Walmart, Tesco, Safeway, QuikTrip, however, do not
have that luxury of time of separating customers, they just inflate the price
of their items to (in our example) $55—so the item is $55—it doesn’t matter if
you as a customer is paying cash or using your credit/debit card, everyone is
paying $55 for a $50 item.
To be clear, the lawsuit against Mastercard
in the present case is a by-product of the holding by the ECJ in 2014 that
Mastercard charges a higher charge rate from issuing banks (B in our example
above). The ECJ concluded that Mastercard’s attitude was anti-competitive,
since customers would definitely have to use credit cards at stores, and
Mastercard has been in business for a while, most banks would opt for its
renowned services without considering the cost, since retailers would be the
one paying Mastercard, and would have to sort the cost with their customers anyway.
Before highlighting the nub of the present class action, it should be noted
that as mentioned earlier, following the 2014 ECJ ruling, Sainsbury—a retail
company in the UK—sued Mastercard for similar unlawful high card (interchange)
fees in the UK, and won. That ruling, in fact, was what gave confidence to the
present class action—it is rooted in the idea that if a retailer (Sainsbury)
could win, then the customers who ‘suffered’ from the unlawful charges could
also win and claim damages.

In the present case, the class action
Merrick—through the chosen notorious law firm—Quinn Emmanuel Urquhart &
Sullivan LLP known for similar actions including the Sainsbury’s case—sued for
the damage and loss caused to customers in the UK between 1992 and 2008[4]. It must
be noted that this lawsuit is by the customers and not retailers as
Sainsbury—who won. The nub of the lawsuit is that in our above example,
assuming Mastercard (A) ought to be charging C (through B) say 1% from every
C’s (customer’s) purchase, and as ruled by the EC and ECJ (in the Sainsbury’s
case), instead of the 1%, let’s assume Mastercard (A) is charging 3% from such
purchase. The customers in the present class action are asking for the
difference between the 1% and 3%, which is 2% on all of their transactions made
with their Mastercard debit/credit cards between 1992 and 2008. They aggregate
the damages to be around $18 Billion. 
The case is brought before the Competition
Appeal Tribunal. The Tribunal was created by the UK’s Enterprise Act, 2002, and
was given new special powers especially as regards class actions in competition
law related cases via the Consumer Rights Act, 2015—which also amends the
Competition Act, 1998. As the name suggests, the Tribunal handles competition
law related issues, and for the new class actions capable of being brought by a
large percentage or group of people/consumers, the Consumer Rights Act in its
Schedule 8 made some salient provisions[5]. Just
like in the US[6], in
section 47B(4) of the Competition Act[7], or as
discussed under the new CRA[8], “collective
proceedings may be continued only if the Tribunal makes a collective
proceedings order”. So, Mr. Walter Merrick as the lead representative of the 47
million consumers being represented has to get a collective proceedings order
before proceeding against Mastercard in their lawsuit. It was at the hearing
for the grant of the order that the court sees no reason and refuse to grant
the prerequisite order.

Definitely, the Tribunal and the collective
proceeding order as in the US is a mechanism put in place to disallow class
actions that are not meritorious (as the present case against Mastercard) from
proceeding to proper trial. So, before limited court resources are wasted on a
class action often involving a lot of litigants, the court administration devise
a means of ‘weeding out’ non-meritorious cases by making class
action representatives get an order to proceed to trial from the court/Tribunal
first. At the hearing for the grant of the said order or otherwise, the
Tribunal relied on two main reasons to refuse the grant of the prerequisite
order. One, the Tribunal highlighted its concern on the difficulties embedded
in providing evidence(s) that Mastercard fees (charged by it through the
issuing banks) were actually passed on to or charged from the customers who are
suing Mastercard in the envisaged class action. Secondly, it is the Tribunal’s
view that it would be hard to ascertain or calculate the individual losses of
each customer considering the complexities of the transactions, and deductions
always made in payment processing.

On the first rationale for refusal,
Mastercard argued that the retailers are the culprit—charging inflated prices
on items (in stores) so as to defray the payment processing cost and not
them—and because of that, Mastercard argued it shouldn’t be liable. This
argument is sound, unfortunately, the plaintiffs were too grounded in a
seemingly opposite argument made by the same Defendant—Mastercard—in a prior
Sainsbury suit. In the Sainsbury suit, Mastercard’s argument was that Sainsbury
has no ground to sue them because the cost (excessive interchange fee) they
complained of and want to retake from them were actually passed off by the
retailer to the consumers, so in essence, the consumers are the ones who
suffered, and not the retailer. The Tribunal, of course, rejected this
argument, and in holding Mastercard’s excessive interchange fee as the causal
factor opined that “Sainsbury would have passed on to consumers what it could,
made whatever cost-savings it could and—to the extent that its draft Budget
returned a profit that was different to market expectations—adjusted its
spending…so as to return the expected profit”, It continued, “if Sainsbury did
not seek to recover the inevitable costs of its business from its customer, it would
rapidly lose more than it made, and become ex-business”. The Tribunal clearly
held Mastercard as the instigator of the inflated price of items sold by
retailers as Sainsbury in this case.

It was because of the above ruling that the
plaintiffs thought if Mastercard is being held as the instigator in Sainsbury,
then the consumers should consequently be able to recover for their losses as
instigated as well especially since Mastercard itself has admitted and argued
that the customers are the ones who suffered from their excessive interchange
fee. The plaintiff refused to understand there is a difference between a
retailer’s claim and a consumer claim, in a consumer claim, it is a whole
different set of facts that need to be proved. The plaintiffs also forgot that
in almost prominent legal systems[9],
‘precedents’ are different from ‘connection’ between cases, and also that two
cases might be connected, it does not necessarily mean a ruling in one would
serve as a precedent or continuation in the second one. In fact, this is the
basis upon which the ‘distinguishing’ discussion in applying precedents at
court trials comes in—as there are no two similar cases, and cases can be

It is no wonder that Mastercard’s argument
in the Sainsbury’s case appears to be a two-edged sword which can be used and
used in the almost opposite as well—this is the brilliance in Mastercard’s
argument. Mastercard is now saying in the present case that although it
suggested that the consumer who actually suffered are the ones that ought to be
suing them in the prior Sainsbury case—an argument which was refused—still, the
cost was added by the retailers and not Mastercard. These two arguments do not
flow, especially if considered in the same case where a ruling has been made
that Mastercard instigates the inflated cost of items by retailers, but it
buttresses the age-long legal principle that admission/arguments in a case
cannot be transferred to another case—each case is different and must be proved
differently, in fact, the Plaintiff must prove his case beyond the
preponderance of evidence in the present case without necessarily relying on
what transpired in another case, even if they are connected.

The ongoing also signaled the incompetence
and greed of the plaintiffs in this case. From the legal perspective, since the
current plaintiff representatives are similar in both Sainsbury and this class
action, they could have looked for a way to join the class action to the
Sainsbury case where Mastercard was found as the instigator of the consumer
peril, it would have been easy to claim damages on the customers behalf in that
case as the case would have flowed. But the plaintiffs wanted a new class
action suit where they would be able to sue for $18 Billion, and that greed,
lack of insight and incompetence has affected their case.

On the side, the Tribunal wasn’t sure the
said excessive Mastercard interchange charges complained of were actually
charged by retailers on their customers—i.e. the retailers might have inflated
the prices of some item and not of some other items, there is no way the
Tribunal could have known that all the charges (which are alleged to be excessive)
were actually charged to all the 46 million customers in the class action. So,
what the Tribunal is saying is that, at best, Mastercard is an instigator, but
we are not sure if the excessive interchange fees it charges were collected via
an increased price of items from the 46 million customers in this class action.
As mentioned above, the separation of the retailer and consumer claims
destroyed the present consumer claim, it would have been hard for Mastercard to
say there was no evidence that the excessive fees were passed to the customer
in the same suit where the Tribunal had already held Mastercard as the
instigator of the inflated price on items sold by the retailers.

The second ground for refusal is that the
Tribunal was wary about the difficulties embedded in calculating individual
losses for the 46 million customers. On this ground, it may appear that the
Tribunal was wrong as contested by Walter Merricks. The consideration of
whether (total) damages could be calculated (although should not be excessively
speculative in an ideal civil trial) appears not to be relevant in determining
whether a pre-trial collective order should be granted or otherwise, as that
should be a trial issue after the defendant has been found liable. Section 47B
contains most of the requirements for the grant of a pretrial collective
proceeding trial order, there is nothing like the possibility of ascertaining
damages payable by the defendant before the grant of the order. In fact, more
convincingly, section47C(2) states that “the Tribunal may make an award
of damages in collective proceedings without undertaking an assessment of the
amount of damages recoverable in respect of the claim of each represented

The problem with the ongoing argument is
that it is not flawless when closely examined. The Tribunal was right for
refusing to grant the order on this ground as well, this is how. It must be
understood that primarily, the essence of the pretrial order is to disallow
trials that are non-meritorious and won’t stand so as to save the Tribunal’s
limited resources. It is in the spirit of this duty that the Tribunal reasoned
that a trial that if it embarks on will lead to undeterminable damages is a
waste of time. Also, section 47C(2) closely read only applies to an instance
where the proceeding itself which the order contemplates has concluded, and
where the court has determined that the defendant is liable. In the present
case, from the order pretrial, the Tribunal has already seen grounds to find
that Mastercard is not and will not be liable, hence its decision to block the
order. On the side is the argument that the use of “may” in section 47C(2)
suggests the Tribunal has discretion, which can be (prudently) exercised.

Also, how can the Tribunal effectively
calculate the damages payable by Mastercard when we have already established
that the retailers inflate their prices to cover Mastercard charges and these
prices applied to both customers using their credit/debit card and those paying
cash too? What about the extra money made by the retailers from customers who
paid with cash on a similar item or service which contains the alleged
excessive interchange Mastercard charges?, how will the Tribunal differentiate
between the customers paying with card and cash? The exercise posed by this
last question is definitely an almost impossible task that gives room for high
speculation on the number of customers who paid with cash only, those who paid
combining cash and card, and those who paid with their cards only—since the envisaged
trial is meant to seek restitution for only customers who holds and uses a
debit/credit card carried by Mastercard.

The complexities of interchange fee must be
understood by competition law regulators in the light of effective card services,
need for continued innovation in payment system, and the current necessitated
increase in security of digital payment incited by this modern era. How do
competition law and its regulator expect those who serve as the intermediary as
Mastercard, VISA provide the necessary effective services if customers are
complaining about interchange fees and suddenly exclude all of the benefits of
the digital payment system they enjoy?. The line must be drawn between
competition law and practicing business in a fair manner—a manner Mastercard is
known for—considering the fact that similar cases in the US had been thrown out
by US courts, and even in the UK, the High Court still ruled in January 2017
that Mastercard had charged interchange fees at a lawful level, and has not
been anticompetitive in similar cases brought by retailers. Competition law
must be careful so it doesn’t stifle innovation, and good companies with fair
business praxis out of the market, as competition law tenets could then have a
cobra-effect since it is the consumers for which it was initially created for
that will suffer from the imminent negative consequence(s).

Scheming through the new Consumer Rights
Act, 2015, it could be reasoned that by virtue of section 47B(13) which
provides that “the right to make a claim in collective proceedings does not
affect the right to bring any other proceedings in respect of the claim”, that
consumers/plaintiffs in the class action can still bring an action before the
normal High court in the UK. This reasoning will also be wrong, as this
provision contemplates an instance where the action has not been brought at
all—i.e. where the right to bring an action has not being exercised. What is
pertinent is that, whatever the interpretation one gives section 47B(13), that
section wouldn’t have contemplated an instance where the plaintiffs can bring
simultaneous actions, or different but similar actions with similar facts in
different courts because the ruling of the court of first instance is
unfavorable, such interpretations would be absurd and would constitute abuse of
court process. If there is one thing the court frowns at the most, it is the
abuse of court process, as same can attract cost by the defaulter to the court
and the non-defaulting party. On the side, even if it is possible to still
instigate the same action at the High Court in the UK, the intention of the
Enterprise Act and CRA would have been relegated or almost obviated since these
laws have created a special Tribunal for competition law related issues as
this. It would be unbecoming of a High Court that entertains normal civil
claims to entertain a competition law case, especially when there is a
statutory Tribunal created for such special cases. 

The only remedy for the class action order
which has been blocked thus seems to be an appeal to the Court of Appeal in the
UK, but the appeal also needs the leave of the Tribunal—see section 49(2)(b) of
the 1998 Competition Act—which the Tribunal can and will most likely deny in
its discretion. Although upon denial, the plaintiffs can proceed to the Court
of Appeal for its leave based on first application to the Tribunal and refusal.
Even then, the possibility of the Court of Appeal granting the leave is bleak.

[1] Mastercard
being a US company, but doing business in Europe
[2] The
CAT awarded Sainsbury’s damages as follows :
– £102,7 million for credit card
overcharges, reduced by £33 million due to excess interchange received by
Sainsbury’s Bank
– £760,000 for debit card overcharges
– Compound interest costs on 50% of the
overcharge amount – 20% on cash balances and 30% on the cost of borrowing [See:]
[3] Most
class actions require a representative who will represent their interest in
court since all the class members can’t come to or address the court. The representative
is often approved by the court as it must find him/her capable to defend the
class member’s interest.
[4] 2007/2008
being the period when the European Commission ruled Mastercard’s (interchange)
fees were anti-competitive
[5] See
especially section 5 of Schedule 8—which amends section 47 of the 1998
Competition Act, by creating a new section 47B
[6] The
new CRA class action operation is modeled after what obtains in the US, it also
shares the opt-in (which is automatic under the UK law in so far as a consumer
is considered eligible) and opt-out of class member feature as it presently
obtains in the US.
[7] 1998
[8] Consumer
Rights Act, 2015
[9] Continental
European Legal System and common law.
Gbenga Odugbemi
Ed’s Note – This article was first