THE POSSIBILITIES FOR PRIVATE ENFORCEMENT OF THE COMPETITION RULES IN THE NETHERLANDS

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1 THE POSSIBILITIES FOR PRIVATE ENFORCEMENT OF THE COMPETITION RULES IN THE NETHERLANDS A survey commissioned by the Dutch Ministry of Economic Affairs - EXECUTIVE SUMMARY - Amsterdam, 3 November 2005 Mr. M.F.J. Haak Mr. I.W. VerLoren van Themaat

2 EXECUTIVE SUMMARY Introduction 1) Practice shows that private enforcement of competition rules is a scarce phenomenon in the Netherlands and in the other EU-Member States. Countless obstacles stand in the way of an effective access to the civil court in competition law related matters. This was at least the conclusion of a study published by the European Commission in 2004 about the rules of law and the legal practice in the 25 EU-Member States with respect to private actions in case of infringement of competition rules (the "Ashurst report"). The European Commission has notified that it wishes to facilitate actions for damages because of infringement of the European competition rules. 2) In the light of these developments the Dutch Ministry of Economic Affairs asked Houthoff Buruma in August 2005 which obstacles are met by a party affected by a competition law infringement in the Netherlands if he wishes to claim damages in this respect. The Ministry also asked Houthoff Buruma to suggest possible solutions for removing or mitigating these obstacles. 3) With this report Houthoff Buruma intends to provide the Minister of Economic Affairs with a framework on the basis of which it can give shape the its policy for private enforcement. This report is therefore based on the wish of the European Commission and the Ministry of Economic Affairs to encourage private enforcement of competition law rules. Where possible, this report contains various options. Dutch practice (chapter 1) 4) Dutch practice confirms the conclusions of the Ashurst report. Although the number of judgments of civil courts in competition law related matters has increased in the past 30 years, the number of cases remains very low. At first there were hardly any cases at all, and since 1999 the number of cases has fluctuated between 30 and 40 cases a year. However, the number of times that damages have been awarded in the past 30 years can still be counted on one hand, partly because damages were only claimed a very few times. More in general it is remarkable that the judgments are very seldom related to hard core cartels or clear-cut examples of abuse of a dominant position. In most cases the infringement of the competition rules is only alleged with the purpose of producing future changes. The claim is therefore usually aimed - mostly in injunctive relief proceedings - at a prohibition or an order for specific conduct. As a defence the competition rules are usually relied on in order to have a contractual obligation annulled. 5) Possible reasons for the scarce number of actions for damages are problems related to evidence, the forms of compensation, the so-called passing-on defence, indirect actions, costs, collectivity and concern about the quality of the administration of justice.

3 Evidence (chapter 2) 6) With respect to the evidence, the Dutch civil court has in principle sufficient instruments to satisfy the victim of an infringement of competition rules in legal proceedings. If a claimant cannot prove all the facts, the court may deduce any unknown facts from the facts that are known. In this way the court may reach a presumption of infringement. In our present legal system the court is also entitled, moreover, to decide that the (alleged) infringer has to give reasons and, if possible, to provide documentation for contesting an infringement alleged by the claimant. A claimant with some background knowledge of the doings of the defendant can also ask for concrete evidence, insofar as he has a legitimate interest in this and if he is a party to the legal relationship for which the evidence is of relevance. The court may also exofficio ask for documents. 7) It is possible, however, that the aggrieved party who can only summarily substantiate that an infringement has occurred, is faced with difficulties when collecting evidence in the prestage of the proceedings. To assist an aggrieved party when collecting information and evidence, the following options may be taken into consideration: a. A possibility for the court on a statutory basis to appoint - by request or ex-officio - an investigator with concrete powers, including the right to hear or to have witnesses heard on oath, comparable to the investigator referred to in article 2:351 of the Dutch Civil Code; b. The entire or partial publication of the factual investigation report drawn up by the Competition Regulation Department of the NMa (Netherlands Competition Authority); c. A general statutory duty for (potential) parties to the proceedings to provide the other party with all the information that may reasonably be useful for the disclosure of evidence that is of relevance to the proceedings. A further investigation would have to be carried out into the English and the American pre trial discovery and the possibilities of incorporating this into in the Dutch system of legal procedure; d. An extension of the powers of the civil court on a statutory basis, so that the court is also entitled to ex-officio request specific documents in the pre-stage of the proceedings; e. A statutory restriction of the possibility of the civil court to differ from the judgment of a decision of a competition authority, in which an infringement has been assumed. The following alternatives may be taken into consideration:

4 i. A rebuttable legal presumption that an infringement established in a final decision of a competition authority has occurred; ii. A higher level of the obligation to provide reasons, enshrined in the law, if the civil court differs from the final decision of a competition authority. 8) We are of the opinion that the possibility of a decision of a competition authority against which an appeal can be made having binding effect on the civil court, is going too far. Our main objection is that an administrative decision cannot be put on a par with a judgment in a defended action from an independent court, although this has been possible in Germany since 1 July ) A typical problem for evidence and evidence to the contrary is the confidentiality of documents. An action is decided by the provision of specific evidence that contains corporate confidential information. Both the claimant and the defendant may be faced with the diabolic choice to either submit specific sensitive company information that is required for being assessed by the court in his favour, or to have the confidentiality prevail with the risk of losing the case. Civil procedural law does not offer a real solution to this dilemma. Damages (chapter 3) 10) In theory damages exist in many forms, such as compensation for loss suffered or for loss of profit, surrender of profits, statutory interest, compensation for immaterial damage and exemplary damages. 11) In the Netherlands the civil court may in principle choose a way of assessing the loss that is geared best to the specific situation. If the loss cannot be established accurately, it can be calculated or even estimated. We do no see any reason for giving a legal basis to specific economic models as possible or even obligatory methods for the calculation of loss. 12) The civil court may rely, as the occasion arises, on the claimant's statements regarding the loss. It may decide that the defendant be obliged to provide information and evidence for assessing the loss. This may be both incriminating and exculpatory information. If the defendant does not sufficiently act upon this order, the court may draw the conclusions it deems fit. In the light of the endeavours of the European Commission to stimulate private enforcement, it can be considered to hold out the prospect to the aggrieved party of higher damages than that are currently possible or usual. In this respect the following options can be considered:

5 a. The possibility on a statutory basis to allow higher damages than the real loss suffered (also known as exemplary damages). The following alternatives are possible; i. A hard and fast rule: an instruction for the court to determine the compensation at x times the loss suffered, from which it is not allowed to deviate (as currently done in the United States), or ii. iii. A hard and fast rule with the possibility for adjustments: an instruction for the court to determine the compensation at x times the loss suffered, with the possibility of judicial mitigation, or Discretionary powers of the court to allow x times the loss suffered, so that it can take into account the circumstances, such as the imputability, the nature of the infringement (hard core or no hard core), the duration and the scope thereof. b. An increase of the statutory interest in competition law related matters, the high commercial interest of article 6:119a of the Dutch Civil Code, for instance. This interest would then be calculated over the loss suffered. Both in the event of an increase of the statutory interest, and in the event of the exemplary damages, harmonisation at European level is urgently desired. In addition these options have to be seen in connection with other measures. In chapter 4, for example, the option is discussed that not only the direct purchaser but also the indirect purchaser (viz. the end user) has an action for damages. This also implies an increased liability of the infringer. The combination of both increased interest and exemplary damages seems to be (too) much of a good thing. Finally we suggest that these two options be limited to hard core cartel cases exclusively. c. To strengthen the objectives of leniency programmes, i.e. destabilising and breaking up cartels, a leniency granted by a competition authority to an informant might automatically affect his civil liability. It could be considered, for instance, to limit the leniency in the sense that the informant will only be obliged to compensate the loss if it cannot be recovered from the other cartel members. Passing-on and indirect actions (chapter 4) 13) A special question is to what extent an infringer can defend himself with the defence that his direct purchaser has not suffered any loss, because the latter has fully passed on the supra-competitive price to later links in the distribution chain. This is the passing-on defence. In the United States the court has rejected this defence. In Germany the passing-on defence has been excluded by law this year. The Dutch Supreme Court has not yet given its opinion on

6 this question. There is a good chance that the passing-on defence will not be allowed in the Netherlands either. The direct purchaser will in that event be able to fully claim back the overcharged price from the infringer, his supplier. 14) A related question is whether indirect purchasers, such as consumers and middlemen, can also claim damages from the infringer. After all, they cannot recover the loss from their supplier, because the supplier has not infringed the competition rules and cannot be blamed for passing on his own costs. 15) A claim from an indirect purchaser can fail for two reasons. Firstly it is required that the infringer must have violated a norm that is also intended to provide protection against such loss, better known as the relativity requirement. It seems more logical to presume that the purpose of competition law is to protect the consumer, than that it is also meant to protect middlemen. Secondly, the indirect purchaser must prove that the paid price would have been lower without the infringement (the causation between the loss and the infringement). Furnishing such evidence is usually very complex. 16) In the literature it is usually assumed that the disallowance of the passing-on defence entails that an indirect action is not possible. If so, the infringer would be obliged to compensate the loss several times: once to the direct purchaser, once to the end user and possibly even to every middleman (if the latter group were also protected by competition law). 17) In the Netherlands it has not yet been decided in case-law whether an indirect purchaser has a claim for damages against the infringer. The indirect action is necessary for the implementation of the objective of the Commission that it should - also - be possible for consumers to claim damages. It is true that the indirect action is prohibited at federal level in the United States, but it is allowed in some States. In Germany the possibility of the indirect action has recently been laid down in the law. We expect that an indirect consumer action must be considered to be possible under the current laws. 18) In this light we do not see any reason to suggest any options for possible additional legislation in connection with the passing-on defence or the indirect action. Costs (chapter 5) 19) Before proceedings can be instituted, a claimant has to invest in the costs for a lawyer and for possible party appointed experts. In competition law related matters, for example, usually an economic analysis has to be made and often an accountant will have to be engaged for advice on the extent of the loss. These advisory fees only qualify for compensation in the Netherlands to a limited extent, if the proceedings are won. The unsuccessful party will have to bear its own costs.

7 20) The order for costs includes a compensation for the fee of the lawyer in connection with the proceedings. This is a fixed fee determined according to the regulation of the 'Courtapproved scale of costs'. This rate is usually substantially lower than the real costs. If the lawyer has tried to reach an amicable settlement out-of-court, these costs will in general only be compensated - at a fixed rate - to a limited extent as well. 21) The costs of other party appointed experts and any internal costs in connection with the proceedings will be compensated insofar as (i) it is reasonable that such costs have been incurred and (ii) the amount of the costs are reasonable (the 'double test of reasonableness'). 22) Also the successful defendant will receive a similar (limited) compensation for the lawyer's fees in connection with the proceedings. Until recently it was assumed that the successful defendant was not entitled to claim compensation of (reasonable) costs of party appointed experts engaged by him. It seems, however, that the Supreme Court has recently opened the door for this possibility. 23) The consequence of this practice is twofold. In one respect this practice - in particular for parties with relatively limited loss - is an obstacle to seek redress in court. The costs of proceedings do not counterbalance the possible benefits. In another respect this practice reduces the risk of legal proceedings for the claimant and in this sense it might even be an incentive for private enforcement. The recent judgment of the Supreme Court might increase the risk of legal proceedings and may therefore imply an extra obstacle for private enforcement of competition laws. 24) The current laws leave room for a larger compensation of the costs of legal assistance as is usual at present and do not exclude a full compensation. It is not expected, however, that the judiciary will allow on its own accord a full compensation in competition law related matters. Insofar as the present legal practice is regarded as inadequate, the following options are conceivable in competition law related matters: a. The successful claimant receives a full compensation of the costs of legal assistance, provided that these costs are within reason; if the defendant wins the case he will only receive the fixed compensation in accordance with the Court-approved scale of costs. b. The compensation of the costs of external party appointed experts on the part of the defendant is reduced or excluded. c. In specific cases it is possible that the costs of party appointed experts of the claimant and the costs of possible judicial experts will be state-funded.

8 d. The aforementioned possibilities can be limited in three ways: i. to the most serious infringements of competition rules, the hard core cartel arrangements; ii. iii. to collective claims or joint actions with sufficient level of support and/or to consumer cases. If one of these possibilities is deemed desirable by the legislator, a statutory regulation is recommended. Collectivity (chapter 6) 25) Groups of aggrieved parties are usually faced with problems regarding the financing of an action as well as with procedural problems, because a collective action for damages is not yet possible under the present laws. This applies in particular to small-scale losses suffered by large groups of people. If the legislator sees cause to make changes to the present situation, the following statutory measures may be considered: a. A collective action for damages. This can be limited to (i) infringements of (hard core) competition rules and/or (ii) consumer cases. b. A large compensation for the costs of the action for the benefit of the initiator of the collective action for damages. The court may decide to take off this compensation from the payment to the aggrieved parties. c. The lifting of the prohibition on no cure no pay and quota pars litis for lawyers in the event of a collective loss action or a joint action with sufficient support. In consultation with the Netherlands Bar Association and the Minister of Justice, this might be laid down in a new regulation of the Netherlands Bar Association. Also this possibility can be limited to (i) infringements of (hard core) competition rules and/or (ii) consumer cases. d. An action in which organisations can claim in the public interest that the profits gained with the infringement be paid to the State. This possibility has recently been introduced in Germany. e. Financing a collective action for damages by the government.

9 Quality safeguard (chapter 7) 26) Finally, the fear of a potential claimant to be faced with a judge lacking expertise to deal with competition matters may be an obstacle for private enforcement. This fear is justified to the extent that the various civil courts in the Netherlands are not given sufficient opportunities for gaining experience because of the slight number of competition matters that are brought before the courts every year. 27) This problem, however, has been recognized by the judiciary. Since a few years specialisation and training programmes have been developed and specialised judges are exchanged between the various courts. There is no reason to have doubts in advance as to whether these measures will have the desired effect. 28) The Dutch judge, moreover, may ask the European Commission for information or advice about the interpretation of the European competition rules, or he may appoint more general experts. Also, if required because of the public interest or because of a coherent application of the European competition law, the NMa or the European Commission, on its own initiative, may make observations in an appeal case about the interpretation of these rules. The legislator could consider the following, further-reaching measures: a. Giving exclusive competence to a specific court for civil proceedings regarding an infringement of competition rules. Contra-indications are: i. competence disputes with other exclusively competent authorities; ii. competition law discussions are usually first raised by the defendant by way of a defence. b. Giving alternative (extra) competence to one court. General competence of the civil court to refer questions pertaining to competition law to the NMa seems less logical. Such an obligation denies the obligation of the civil court to take a decision itself about all that the parties have claimed and is therefore also at odds with the premise of the Commission that private enforcement should be encouraged. It is unlikely, moreover, that the decision of an administrative body with its own policy agenda would automatically replace the independent judgment of the court. Houthoff Buruma N.V. (2005)