N 987 OF 2002

SUMMARY

In accordance with the usual practice of the Court, in cases of public interest, I set out a brief description of the issues and some of the principal reasons for judgment in this matter. I emphasise that this is a descriptive exercise only. The document in which I set out the reasons for judgment is lengthy and detailed and I will publish that document shortly.

Public interest in the challenge to the Reserve Bank of Australia’s regulations of credit card schemes stems from the fact that there are presently in the order of 10.7 million credit and charge cards on issue in Australia as a means of payment. In 2002, almost twenty-five per cent of all household spending was paid for by credit cards. There are differing figures as to likely reductions in interchange fees as a consequence of the Reserve Bank measures. It has been estimated by the Reserve Bank that interchange fees between banks in credit card transactions could be reduced by a figure in the order of several hundred millions of dollars per annum. Credit card debt in Australia is said to be in the order of $24 billion according to the Reserve Bank.

In simple terms a credit card is a means of payment in a transaction with a merchant for goods and services with which we are all familiar, whereby the issuer of the card offers a line of revolving credit to those who wish to use the facility in return for the payment of substantial interest rates. Such cards include Visa, MasterCard, and Bankcard. In general terms, a charge card is a means of payment which does not usually involve a revolving line of credit. Well-known examples of charge cards are American Express and Diners Club. Interchange fees are fees paid between acquirers or the financial institutions which pay the merchants, and issuers, the financial institutions which issue cards to holders. They are paid as part of the payment processing costs and are said to be directed to balancing out the relative costs of the systems as between issuers and acquirers.

In 1998, by a raft of legislation coming into effect in July that year, the Reserve Bank was empowered to impose an access regime and standards on participants in a “designated payment system”. The Reserve Bank has designated the Visa, MasterCard and Bankcard schemes as payment systems. After a period of investigation, consultation and consideration, ranging from August 1998 to 20 August 2002, the Reserve Bank made decisions to designate and then regulate several aspects of the three credit card schemes, Visa, MasterCard and Bankcard. These controls concern the way in which access is granted to participate in such schemes, the way in which fees between banks (interchange or wholesale fees) are set, and the way in which merchants or sellers of goods or services are restrained from passing on to their credit card customers fees arising from the use of credit cards.

The designation of Visa, MasterCard and Bankcard as payment schemes occurred on 11 April 2001. The Access Regime for participation in the payment system was decided upon on 20 August 2002 and the Standards concerning the interchange fee, together with the no surcharge rule which was imposed on merchants participating in the schemes, were determined. The challenges are to the decisions of the Reserve Bank, which were made by the Payments System Board of the Reserve Bank. The challenges are brought by Visa and MasterCard. There are no proceedings challenging the validity of the rules on the part of Bankcard.

The challenge by Visa and MasterCard is brought by way of an application for judicial review of the decisions made by the Reserve Bank. The hearing before the Court was not an appeal in which the role of the Court is to decide who is right about the merits of the regulations or the policy underlying them. That is, whether they are sound or unsound as a matter of economics or policy. The role of the Court is to determine whether the legislation has been properly interpreted and whether the required decision-making processes have been followed and relevant material taken into account with irrelevant material being ignored.

The first issues raised by Visa and MasterCard concern the question whether each of the Visa credit card system and the MasterCard credit card system could properly be described as a “payment system” within the meaning of the 1998 legislation. The power to designate under that legislation and therefore enable the Reserve Bank to regulate the credit card schemes depends on those schemes being a “payment system” as defined. The definition of that expression in the legislation is that a payment system means a funds transfer system that facilitates the circulation of money, and includes any instruments and procedures that relate to the system. Visa and MasterCard contend that their systems considered as a whole could not be said to be a funds transfer system because, in effect, funds are only transferred at the ultimate step in the process where value is finally transferred under the payment clearance and settlement system at the Reserve Bank level in the Australian payments system or alternatively, at the clearing and settlement stage leading up to that transfer of value. It is said that this clearing and settlement process is not the one that has been designated. The whole of the systems of the credit card organisations have been designated. The Visa and MasterCard systems as designated do not comprise a payment system as defined, with the consequence that the designation was totally invalid. If this argument is correct, then the regulatory system of the Reserve Bank must fail.

I do not accept these submissions because, in my view, the Visa and MasterCard interpretation of the defined expression “payment system” is too restrictive and fails to give effect to the language of extension used in the definition which is in broad terms and which refers to the expression “system”, “facilitate the transfer”, and “includes instruments and procedures which relate to”. This conclusion, in my view, is reinforced by the Parliamentary history of the legislation and other extrinsic material leading up to the formulation of the legislation. It is also consistent with usage amongst bankers when speaking generally as to what they understand to be a payment system.

A second series of submissions for Visa and MasterCard concerned the meaning of the expression “standard” and whether some of the controls the Reserve Bank has imposed could be properly described as a standard. Both Visa and MasterCard contend that the regulations did not prescribe “standards” and were therefore invalid. Having regard to the authorities that were cited to me, I am of the opinion that the provisions do prescribe standards.

There was also a submission that the Access Regime was in effect too extensive and regulated matters not going to access. For reasons detailed in my judgment, I do not accept this submission. An additional submission made was that in permitting the interchange fee to be fixed by reference to a figure set by an independent expert, the criteria for determining that fee were so uncertain as to invalidate the controls. Having regard to the evidence from expert accountants and to the cited authorities, I do not accept this submission.

It was also said that in determining the Interchange Standard, the power of the Reserve Bank had been unlawfully delegated to the independent expert. I do not accept that this is the case for the reasons set out in my judgment, principally because the task of the expert is not to fix a price, but to play a role, albeit an important one, in the review and calculation process.

The other major group of submissions going to invalidity concerned the decision-making process itself. The basic case was that the Reserve Bank had not carried out the necessary processes or obtained the necessary information or adopted the necessary methodology for it to lawfully make the decisions in question. Particular reliance was placed on the evidence of expert economists. In an attempt to substantiate this, a great deal of evidence was called from international experts, which, in my view, in the end result, failed to make good the propositions contended for by Visa and MasterCard, particularly having regard to the evident lack of any consistent view or consensus among economists on relevant issues as indicated in the evidence.

There was a great deal of material presented to the Court. There were close to seventeen hundred pages of transcript, over a thousand pages of written submissions and there were over ten thousand five hundred documents which had been discovered. Many of these documents consisted of several hundred pages. The parties were represented by thirteen Counsel. Eight expert witnesses were called to give evidence, including economists and accountants. There were a number of other non-expert witnesses.

Due to the use of advanced courtroom technology and the pragmatic, co-operative approach taken by legal advisers to reaching an early resolution of the matter, the hearing was reduced to the relatively short period of six weeks. Without this assistance from technology and cooperation of the litigants, the hearing could have extended over many months.

Having considered the material presented, I am not persuaded that the Reserve Bank has failed to engage in a proper decision-making process or that it failed to take into account relevant considerations or that it took into account any irrelevant considerations or that it misunderstood or misapplied the legislation or otherwise fell into error. The challenges to the decisions therefore fail.

In summary, I have reached the conclusion that the case presented for Visa and MasterCard has not been made out and that the applications must be dismissed. I reserve the question of costs although, on accepted principles, having regard to the outcome, costs would normally be awarded to the Reserve Bank. I direct the parties to bring in Short Minutes of Order with respect to costs at a date to be arranged with my associate. There was an application for extension of time for the applicants to bring the proceedings, under the Administrative Decisions (Judicial Review) Act 1977 (Cth). Having regard to the evidence before me on this aspect and the lack of opposition, I grant this extension. The Orders of the Court which I make at this point are that the applications for extension of time by Visa and MasterCard are granted and that their applications to this Court are dismissed.

I publish my reasons for judgment in these proceedings.

JUSTICE BRIAN J TAMBERLIN

19 September 2003

The full text of the Court’s judgment, reported as Visa International Service Association v Reserve Bank of Australia [2003] FCA 977, will shortly be available to the public on the Court’s website at www.fedcourt.gov.au.

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