The Netherlands is one of the most popular venues alongside the UK and Germany for bringing private damages actions in follow on actions relating to cartel infringements. These actions allow purchasers which have been charged inflated prices by cartel members to recover their loss.
However an issue arises in these cases as to whether the direct purchaser has actually suffered loss or whether they have passed that loss down the distribution chain to indirect purchasers. Could the cartelists claim that loss was passed on as a valid defence to any damages claim?
The availability of the passing on defence by defendants in such litigation has been an undecided question in many jurisdictions. This important landmark case in the Netherlands confirms that the passing on defence is available to defendants in such actions. The Court argued that this was necessary to ensure that indirect purchasers had a legitimate course of action in cases where the overcharge had been passed on and to prevent double recovery by Claimants against the Defendants. This was in line with the EU Damages Directive which has been passed but not yet implemented in Member States law.
The Arnhem-Leeuwarden Court of Appeal in September 2014 confirmed that in the Netherlands, companies who have carried out anti-competitive conduct and are being sued by customers can invoke the passing-on defence. This defence is invoked by companies who have been found guilty of anti-competitive behaviour against companies in distribution chains. The cartel member or wrongdoer alleges that whilst they did alter prices leading to an overcharge, that overcharge was never felt by the direct purchaser as they passed the overcharge on respectively to their customers or the end user. This defence therefore prevents perpetrators being sued twice for the same harm and prevents alleged victims claiming compensation for harm that they did not suffer.
The case in hand involved the gas insulated switchgear cartel in which Swiss company ABB were implicated. The Dutch grid operator TenneT, a direct customer of ABB, brought proceedings against ABB, seeking compensation as the result of the cartel. Although TenneT initially were successful in their claim in the Dutch courts, ABB appealed the case to the Court of Appeal. The Court of Appeal held in September that the passing on defence could be invoked and that TenneT in this instance had failed the establish that the harm suffered by the cartel was not passed onto TenneT’s customers in the form of higher prices.
The Court of Appeal in allowing this defence is following European Court of Justice case law and indeed the soon to be implemented EU Damages Directive which enshrines the passing on defence for all Member States.
However, from a public policy perspective and an objective in encouraging competition litigation to hold perpetrators to account, the adoption of the passing on defence is a setback on the European road to widespread private enforcement of competition rights. Although the perpetrator being penalised twice and parties being overcompensated is an issue, the EU is still moving in a passive policy direction by worrying about the over-penalisation of perpetrators and the wrongful compensation of others more than perpetrators being punished and stripped off their profits by encouraging litigation. This contrasts sharply with the more robust public policy arguments championed in the leading US case of Hannover Shoe which disallowed the passing on defence in Federal antitrust cases.
The passing on defence can move the cause of action along the chain to end users such as consumers who are often least aware and worst placed to start actions against companies for competition law infringements such as fixed prices.
The ABB/TenneT judgment can be found here.