"Passing-on" defence available under Dutch law for competition law damages actions

• United Kingdom
• Netherlands

• Competition, EU and Trade - Competition e-briefings

15-08-2016

In brief

On 8 July 2016 the Dutch Supreme Court confirmed that as a matter of Dutch law, the “passing-on” defence is available for competition law damages actions. The Court therefore put an end to the diverging judgments and opinions regarding this question, clarifying the position before the implementation of the EU Damages Directive in the Netherlands. The judgment makes the “passing-on” defence also available in antitrust damages litigation preceding the entry into force of the Directive.

Background and Judgment

The dispute between TenneT (a Dutch transmission system operator) and ABB (a company active in power and automation technologies) is a so called follow-on procedure (i.e. following on from a regulator’s infringement decision), based on a European Commission infringement decision sanctioning ABB for its participation in a cartel in the gas insulated switchgear sector.

TenneT had sought a declaratory judgment before the District Court East Netherlands, confirming ABB’s liability for its cartel participation as established by the Commission (leaving the actual damages calculation for a separate action, “schadestaatprocedure”, which is the usual procedure in the Netherlands in such cases). ABB argued that since TenneT passed on the overcharge to its customers, it did not suffer a loss. In January 2013 the District Court confirmed the binding effect of the infringement decision, and rejected ABB’s passing-on defence. In its judgment the Court was guided by a set-off principle under Dutch law, namely “voordeelstoerekening”, whereby, in general terms, a defendant can set-off an advantage to the claimant against damages for breach being claimed by the claimant, provided that the advantage is reasonable and provided that there is a causal link between the advantage and the breach. The Court held that in this case ABB could not rely on this principle as to do so would be unfair and unreasonable given that ABB could then avoid liability.

ABB then lodged an appeal against the judgment at the Court of Appeal Arnhem-Leeuwarden. The Court of Appeal ruled that the ABB could invoke the passing-on defence. As a result, the damages suffered by TenneT would be reduced by the amount passed on to its customers by ABB. The Court of Appeal ruled that passing-on was directly relevant to assessing the amount of actual damages for a claimant.

TenneT appealed the judgment at the Dutch Supreme Court, arguing that the Dutch law advantage set-off principle of “voordeelstoerekening”, and the accompanying strict causation and reasonableness requirements, should be used in the application of the passing-on defence. The Supreme Court was therefore presented with the question whether a “passing-on” defence is a defence disputing the extent of the damages or a defence that collateral benefit, resulting from infringing behaviour, should be deducted from the total damages. The Court ruled that both approaches are correct, as long as the deduction is reasonable. Direct causation between the advantage and infringement (as was required under the “voordeelstoerekening” principle) is not required, also when interpreting the “voordeelstoerekening” principle in general.

The Supreme Court therefore settled the dispute by ruling that as a matter of Dutch law, the passing-on defence is available and that there is certain flexibility on how it is qualified.

Comment

The Supreme Court delivered its judgment approximately one month after the submission of the legislative proposal to enact the EU Damages Directive to the Tweede Kamer (the Dutch Lower House of Parliament). In addition to clarifying the thresholds ingrained in the “voordeelstoerekening” principle, the judgment’s significance lies in the Supreme Court’s anticipatory application of the EU Damages Directive, which will only come into force on 27 December 2016. Therefore, the judgment makes the “passing-on” defence also available in antitrust damages litigation preceding the entry into force of the Directive.