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The Competition Appeal Tribunal has handed down a significant judgment relating to pass-on in the Umbrella Interchange Fees litigation, in which merchant claimants are suing in respect of an overcharge on the fees they incur when they accept card payments. In a decision that largely favoured the merchants, the Tribunal held that the legal test for causation in relation to pass on required a "direct causative link" between the overcharge and the prices merchants charged to their customers, which for the most part the factual and expert economic evidence had not established.
Pass-on is an important part of many competition litigation cases, given that the effects of an infringement of competition law may be felt at different levels of the supply chain and give rise to difficult questions as to where the loss lies. As it was in this case, pass-on can be relevant both as a defence to a claim for damages, where a claimant has mitigated its loss by passing it on, and also as the basis for a claim that can be brought by the person/s to whom the loss was passed on.
The decision is notable for drawing a firm distinction between direct mechanisms for pass-on, where short-term price-setting decisions are directly influenced by the overcharge, and indirect mechanisms, which concern ordinary planning and budgeting processes through which a business may over the long term recover the overcharge. The Tribunal held that only the direct "channel" meets the legal test for causation to establish pass-on. This meant that a substantial amount of the expert evidence, which sought to show that the overcharge was recovered through indirect mechanisms, was directed at the wrong legal test. Moreover, the Tribunal's conclusions as to the correct legal test meant that it put very significant weight on the qualitative factual evidence, in which the merchants explained how they set prices, and less emphasis on economic theory and the experts' econometric analysis, much of which the Tribunal considered to be not sufficiently grounded in reality.
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