Availability Of The Passing-On Defence In Private Antitrust Litigation In Spain
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22nd March 2019
The system of private antitrust enforcement provides a set of rules to make sure that anyone who has suffered harm caused by an infringement of competition law can claim full compensation for that harm in court.
The Decisions of the European Commission1 to fine truck producers for their participation in a cartel has resulted in multiple damages claims brought by companies that purchased those trucks to provide road freight transportation services in Spain. When faced with a competition claim, defendants can invoke the "passing-on" defence if the claimant passed on to its customers all or part of the overcharge caused by the cartel. Indeed, if the claimant has passed on the harm to customers, it has also avoided loss. Therefore, according to ordinary compensatory principles for damages, that loss cannot be claimed. The burden of proving the passing-on lies with the defendant, which must be entitled to claim reasonable disclosure from the claimant.
In a very recent Order, the Commercial Court of Valencia2 has interpreted the passing-on defence in a restrictive manner in the context of a damages claim brought against truck producers in Spain. That interpretation, in turn, poses a number of immediate questions for the future of private antitrust litigation in Spain.
Order of the Commercial Court of Valencia
Llácer, a road freight transportation company based in Valencia, filed a damages claim against Volvo and Renault to seek compensation for the alleged overcharge applied in 108 trucks acquired from the defendants from 1997 to 2004 at what it claimed was an inflated price – owing to the cartel. Among other things, the defendants invoked the passing-on defence and requested the Court to disclose internal documents of the claimant to assess if the claimant had passed-on the harm to its customers by (i) reselling the trucks it had acquired from the defendants, or (ii) providing road freight transportation services using those trucks.
In response, the Court ordered the disclosure of documents of the claimant, but only in relation to the market of resale of trucks. The Court explained that the passing-on defence was not available with regard to the market of transportation services because it was not similar to the cartelised market (sale of trucks).
The Order explains, in particular, that the letter of the law governing the passing-on defence in Spain mentions the term "supply chain" which, in turn, must be interpreted as covering only vertical markets in a "supply chain" that are similar to that of the cartelised product (the truck). In contrast, that defence is not admissible for markets lacking that similarity (transportation services). In the words of the Court: "[i]n cases where the markets are not similar, the passing-on defence is not available and requests to disclose all means of proof cannot be accepted"3.
Supply chain and similarity
The Commission has certainly taken a wider approach than the Court to define the notion of "supply chain". In particular, the Vertical Guidelines of the Commission4 explain that the term "distribution chain" covers agreements where one undertaking simply resells a given good (a truck), but also agreements where "one undertaking produces a raw material which the other undertaking uses as an input".
Accordingly, if the claimant uses a truck supplied by the defendant as an "input" to provide transportation services, they are both placed in the same "supply chain". The similarity of the markets (or lack thereof) does not determine whether or not those undertakings in fact fall within the same "supply chain".
As a result, if the term "supply chain" is the guiding principle to invoke the passing-on defence in Spain, as explained in this Order, then the defendants should also be able to invoke the passing-on defence in relation to the market for transportation services. This is because, again, the sale of trucks (by the defendants) and the provision of transportation services (by the claimant) fall within the same "supply chain".
It follows that defendants must have the right to asses if the purchase price of the trucks (and the alleged overcharge owing to the cartel) has been used by the claimant to set, for instance, its cost structure to provide transportation services to the next level of customers. This would allow the defendants and the Court to assess and, ultimately, accept this defence if the harm has been actually passed on by the claimant to its customers at the next level of the "supply chain".
In other words, the notion of "supply chain" does not cover only markets where one party simply resells a given product or service. It also covers markets where one undertaking manufactures a good (the truck) which the other undertaking uses as an input to provide a given service (transport) which may include an overcharge as a result of the passing-on effect.
This interpretation of the notion of the passing-on defence has major implications for the system of private antitrust litigation in Spain.
In line with this Order, defendants are not allowed even to try to prove if the potential overcharge of the cartelised product (truck) has been passed on to customers of the claimant in downstream markets that bear no similarity with the cartelised product (transportation services). That interpretation, if confirmed, might lead to claimants enjoying an unfair benefit. Indeed, claimants may be over-rewarded by courts if they receive compensation for a harm which has been actually passed down to the next level of customers who purchase transportation services from the claimant.
Likewise, if the harm is actually passed on to the next level of customers, those customers would be unable to seek compensation in court. This is because, again, the compensation for the harm caused to those customers would have been unduly awarded to the claimant who had suffered no loss in the first place.
The precise scope of the passing-on defence will play a significant role in the development of private antitrust litigation in Spain. However, it cannot be denied simply because vertically affected markets in a "supply chain" lack the required similarity. This is not what the Commission understands by the term "supply chain" and, more to the point, it cannot be interpreted in this way to deprive defendants of their right to invoke the passing-on defence. Overall, this line of defence must be defined in the future in a holistic and steadfast manner for the benefit of both private and public antitrust enforcement.
The full Court Order can be found on the Consejo General Del Poder Judicial website.
Manuel Contreras is a lawyer in Herbert Smith Freehills LLP’s CRT Group and is based in Madrid. Views are his own.
1. Decisions of the European Commission of 19 July 2016 and 27 September 2017 in Case AT.39824 - Trucks.
2. Order of Section 3 of the Commercial Court of Valencia of 17 December 2018 in Case 309/2018 (Order).
3. See Order, Legal Ground 2, para. 18.
4. Guidelines on Vertical Restraints 2010/C 130/01.