Pass On Defence Fails in Dutch Court

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A Dutch court has rejected a cartelist’s attempt to rely on the “pass on” defence and ordered that it should pay the full amount of damages claimed by the cartel victim.

TenneT, the electricity transmission system operator in the Netherlands, had sought damages of €14 million from Alstom in a follow on action arising out of the Commission Decision in respect of the gas insulated switchgear (“GIS”) cartel. In September 2014, the Dutch court ruled that Alstom must compensate TenneT for the overcharge TenneT paid in respect of the GIS it purchased from Alstom. However, the court’s final decision was delayed pending the court’s consideration of Alstom’s pass on arguments.

The pass on defence is one commonly invoked by defendant cartelists in these types of follow on damages cases. It rests on the principle that damages awarded to victims of a cartel should reflect the loss actually suffered and can prevent a purchaser from recovering any overcharge that it subsequently recovered from its own consumers. Alstom argued that TenneT passed on the overcharge it paid in increased prices to TenneT’s own customers, and that this should be taken into account by the Court when assessing the damages owed, in order to avoid overcompensating TenneT.

The Dutch court rejected this and awarded TenneT €14.1 million in damages – the full amount claimed. No deduction was made for the pass on defence and the court held that overcompensating the cartel victim was preferable to allowing a cartelist to preserve its “ill-gotten gains and enrichment”.

The Court’s consideration of the pass on defence was complicated by the facts in this case. TenneT recuperates the costs of its GIS purchases over many years through its electricity transportation tariffs. Some of TenneT’s increased costs from the cartel may have ultimately been felt by consumers through increased costs in electricity prices. However, the question of if, and to what extent, the increased costs of the cartel had been truly passed on was not straightforward.

In considering whether the pass on defence should apply to the damages claimed by TenneT, the court considered whether there was any prospect of these consumers bringing their own claim against Alstom and thought that such claims were “highly unlikely”. However by awarding TenneT the full amount sought, these same consumers would ultimately benefit by way of lower electricity costs in the future (as a result of the regulation of TenneT’s tariffs which will operate to ensure that future prices are lowered).

This decision is of particular interest at the present time as Europe awaits the transposition of the Damages Directive into national laws by December 2016. This new directive will partially codify the pass on defence across Europe and allow defendants the opportunity to argue the pass on defence in cartel damages cases. The Dutch court considered the directive but explained that since its main objective is to ensure that all customers in the supply chain are able to validly bring claims, it was not inconsistent to refuse to apply the pass on defence in this instance.

It will be interesting to see whether other national courts follow the Dutch court’s lead (both prior to and following the implementation of the Damages Directive) and adopt a pro-claimant narrow interpretation of the pass on defence.

The competition team at Berwin Leighton Paisner has experience in acting on follow on damages claims, including acting for the UK claimant, National Grid, in a similar claim in relation to its purchase of GIS (where similar pass on arguments were raised by the defendants). The case settled in June 2014 shortly before the trial was due to start. The team has won a string of awards for its work on this case including “Cartel Litigation of the Year” by the Global Competition Review in April 2015 and “Competition and Regulatory Team of the Year” by Legal Week in June 2014. The case was listed by The Lawyer as one of the ‘Top 20 cases of 2014’.

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