On 17 June 2020, the UK Supreme Court handed down judgment in a consolidated set of appeals in the multi-lateral interchange fees litigation. In Sainsbury’s v Visa and others and Sainsbury’s v Mastercard and others the Court considered a number of issues relevant to competition litigation. A key element of the judgment relates to the Supreme Court’s ruling on the issue of pass-on (and related observations on the same) in which it strongly affirmed the compensatory principle and recognised the utility of estimation in the context of pass-on quantification.
The pass-on issue: a broad axe
The pass-on issue that was the subject of appeal was a relatively narrow one: the degree of precision required in quantification of pass-on by the merchants of any overcharge. The question was whether the so-called “broad axe” principle can be applied to quantification of pass-on.
On this point, the Court emphasised the importance of ensuring that claimants were neither over nor under compensated for their loss (i.e. the compensatory principle). In addition, it also recognised the need for legal disputes to be dealt with at proportionate costs.
Following on from this, the Court considered the pragmatic view that the common law takes in calculation of damages (the “broad axe” principle) and saw no reason why the same approach should not be taken to the quantification of pass-on. In doing so the Court noted that whilst this approach would provide a shield to claims by a defendant, it would also provide a sword to potential claimants further down the supply chain.
Pass-on: burden of proof and evidential burden
In oral argument before the Court, the discussion of the pass-on issue had expanded to discuss pass-on more generally and, in particular, upon which party the burden of proof lies.
These more general points were also addressed in the Supreme Court’s judgment which will provide helpful guidance to practitioners and clients as to the future approach of the courts in England and Wales to pass-on.
The Court emphasised the importance of the compensatory principle in English law and the need for it to be applied in the context of competition law damages actions. The Court also focussed on the particular need in competition litigation to avoid double recovery in respect of the same overcharge by direct and subsequent indirect purchasers. Whilst the Court accepted the merchants’ argument that there is a legal burden on the defendants to plead and prove pass-on, it warned against overstating the significance of that legal burden.
The Court said that once pass-on had been raised by the defendants there would be a “a heavy evidential burden on the [claimants] to provide evidence as to how they have dealt with the recovery of their costs in their business”. The Court noted that the relevant information needed to consider pass-on would be in the hands of the claimants and they must “produce that evidence in order to forestall adverse inferences being taken against it by the court which seeks to apply the compensatory principle.”
Discharging the evidential burden placed on claimants by the Supreme Court will almost necessarily require considerable effort by claimants. The ruling may provide pause for thought for potential claimants, and perhaps, more significantly, for funders and others involved in encouraging claims.
Herbert Smith Freehills will provide a more detailed case update in due course.