For the first time in a while, the financial supervision chamber of the Rotterdam District Court has dealt with a market abuse case. The Authority for the Financial Markets (AFM) had imposed an administrative fine of EUR 2 million on SBM Offshore N.V. (SBM) for failing to timely disclose inside information. SBM appealed the fining decision and has now partly been proven right.

On appeal the court found that with respect to two of the four alleged violations the financial regulator applied an incorrect legal criterion in assessing whether the listed company had price sensitive information. The court has settled the matter itself by reducing the fine to EUR 1 million.

The matter dates back to SBM’s internal investigation into allegations of bribery and unlawful payments to international trade agents in 2012, in which context the company i.a. consented to an out-of-court settlement of USD 240 million with the Public Prosecutor’s Office.

Criteria for assessing if information is concrete are not to be mixed

Similar to previous market abuse matters (for example, in relation to Royal Imtech N.V.), the main question before the Rotterdam court was whether the information regarding possible unlawful trade practices in Brazil that SBM had on March 27, 2012 and May 27, 2014 was so “concrete” that it fell within the definition of inside information.

Pursuant to market abuse laws and regulations, issuers of financial instruments like SBM are to disclose inside information as soon as possible, insofar as it relates directly to the issuer concerned.

With reference to the Geltl/Daimler case of the European Court of Justice and CESR guidance on the Market Abuse Directive, the Rotterdam court distinguishes two criteria. To determine whether there is concrete information one can either depart from an existing situation that has occurred or from a future situation that may reasonably be expected to come into existence.

In assessing whether there is concrete information within the meaning of inside information, the AFM chose not to base its assessment on an existing situation or a situation that has taken place (for which, according to the guidance, there must be sufficient “hard” and objective evidence of that situation), but on a future situation or an event that may reasonably be assumed to occur.

The AFM takes the position that on March 27, 2012, and again on May 27, 2014, SBM had a reasonable expectation that bribery in Brazil would be identified in the future. In order to (have to) have that expectation, evidence is not required; a significant probability that this situation will occur is sufficient according to the AFM.

Evidence for the event to which the information relates is required

The Rotterdam court agrees with SBM and finds that the AFM used an incorrect legal criterion. In the opinion of the District Court, the facts and circumstances which the AFM used as a basis for two of the four alleged violations relate to an existing situation, namely the information known to SBM on March 27, 2012 and May 27, 2014 about possible bribery in Brazil.

According to the court, the AFM should have therefore proceeded on the basis of the existing situation – requiring firm and objective evidence – and not on the basis of a future situation in the form of the possibility that bribery (from the past) would be established in the future. In other words, if one criterion is used, the test of that criterion is to be used and vice versa. The two criteria and relevant tests are thus not be mixed, which also from a logical point of view seems to make sense.

The court repeals the AFM decision relating to the alleged violations on disclosure of unlawful trade pactices in Brazil and considers a total fine of EUR 1 million for the two remaining violations with regard to disclosure of SBM’s exclusion from a Petrobras tender appropriate and necessary.

Interestingly enough, the AFM could have imposed a fine of EUR 2 million on SBM for each violation separately. As it did not do so in this case but imposed one overall fine in the amount of the basic amount of EUR 2 million for four violations, this argument does not lead to a different conclusion on the adjustment of the fine, says the court.

District Court of Rotterdam, 21 June 2022, ECLI:NL:RBROT:2022:4948

Cartel damages litigation is an increasingly hot topic in Europe. For those who are not familiar with this topic a short explanation. Under normal market conditions, enterprises set their own market prices for their products. Under cartelized conditions, however there is some form of concerted practice (either explicit or tacit) which could lead to an agreement on prices for instance. If competitors agree on a price, this will normally lead to higher prices than under normal circumstances. Competition law prevents competitors this kind of behavior, setting high penalties (potentially in the billions of Euros for world-wide players) when trespassers on the EU competition laws are caught. However, these penalties, severe as they might appear, nevertheless pale into insignificance compared to civil damages claims. The gap between the normal market price and the artificial cartelized price is the so-called cartel damage. In addition, to give you an idea of the enormity of these kind of damages we give as an example the trucks case. Six truck companies were caught red handed by the European Commission in a cartel that lasted (at least) from 1997 to 2011. They were fined 3.8 billion euros. However, estimates are that the total of cartel damages amount to a staggering figure of 200 billion euros. These stakes are high enough to ensure massive court battles. The defendants have no other option than to put forward any possible or impossible argument to prevent the court from a decision that might cause their bankruptcy. For the claimants on the other side it is inevitable to go to court, since their losses have been so high.

Therefore, when stakes are as high as they are, there is no other option than to be very thorough in all the arguments and defenses that are brought to the court. Let alone to be meticulous in the first place as where to litigate.

Several legal topics have drawn special attention over the last few years. In this series of articles, we will shed light on the most hotly debated. Today we discuss the passing on defense. We made a comparative analysis between the Netherlands, France and the United Kingdom. The Netherlands and England (along with Germany) are considered mature jurisdictions in cartel damages litigation, while France (along Spain and Portugal for instance) are on the move to join this lawyer’s paradise.

Passing-on

“Passing-on” in competition cases is where overcharges caused by a cartel, which affect the customers of the cartelists (direct purchasers), are passed-on by these purchasers to buyers further down the supply chain (indirect purchasers). The pass-on argument as a defense may be invoked by a cartel member as a (partial) shield against a claim for damages and by an indirect purchaser as a sword to support the argument that it has suffered damages and/or to evidence cartel collusion.

Legal background

The passing on defence is valid under both EU and national laws.

The Damages Directive[1] (and implementation laws in the Member States) has set two important presumptions reversing the burden of proof:

– as far as direct purchasers are concerned, it is presumed that they have not passed the overcharge on to their own customers. Thus, it is up to the defendant in the antitrust action for damages to prove that the overcharge has indeed been passed on and that its direct purchasers have not suffered any (or less) damage (Article 13 Damages Directive);

– concerning the indirect purchasers, it is presumed that their supplier has passed on the overcharge. Therefore, the burden of proof is here again placed on the defendant in the action for antitrust damages (Article 14 Damages Directive).

Those in itself contradictory presumptions could potentially apply to all claims. The presumptions in itself apparently are designed to help the (potential) claimants in a case.  Everyone familiar with civil litigation knows that a sentiment of wrongdoing is not the same as proving you were wronged. Therefore, it is extremely important to have the burden of proof shifted to the wrongdoers.  In that regard, national courts have established a common understanding for the enforcement of the passing on defence it is for the defendants to prove passing on and the extent thereof as well as the absence of volume effects.  This outcome is consistent with the acquis communautaire on the burden of proving pass-on (i.e. in line with the EU principle of effectiveness) that has been codified in Article 13 Damages Directive. So how do courts apply these presumptions in practice in their case law? We believe that this would lead to the conclusion that the odds should favour the claimants. However, do courts indeed apply this presumption? We compared the United Kingdom, the Netherlands andFrance.

United Kingdom approach

In two recent landmark cases the UK Supreme Court (SC) and the UK High court rendered decisions on the UK evidential standard in connection to the passing on defense. The Courts emphasized that claimants should be neither undercompensated nor overcompensated and therefore the evidential burden in relation to mitigation of loss on defendants / cartel members should not be ‘unreasonably high’. This is an approach in which no apparent choice seems to be made in favor of the claimants or the defendants.

In June 2020, the SC overturned a decision of the Court of Appeal in which it had decided that it required defendants (cartel members) to prove the (virtually) exact amount of loss mitigated in order to reduce claimed damages.[2] The SC decided that the law does not require such high evidential standard and that the Court of Appeal had erred insofar that it required ‘unreasonable precision’ from the defendants in the proof of the amount of loss that the claimants had passed on to end customers. This decision was rendered in the context of a damages lawsuit brought by several supermarkets against Mastercard, Visa and several other large banks for the use of certain payment card schemes, in particular the multilateral interchange fees (MIFs)[3] applicable in the EEA, which the European Commission found to be anti-competitive in 2007.

Key considerations of the SC regarding the evidential burden of defendants:

• Claimants should not be under-compensated but neither overcompensated when suffering harm from a competition law breach.
• In the UK, pass-on is an element in the quantification of damages that is required by the compensatory principle and required to prevent double recovery through claims in respect of the same overcharge by a direct purchaser and by subsequent purchasers in a chain. Against this background, the SC considered that “justice is not achieved if a claimants receives less or more than its actual loss”. (217)
• A balance is required between the compensatory principle and the principle that disputes should be dealt with ‘at a proportionate cost’. In that light “the court and the parties may have to forego precision, even where it is possible, if the cost of achieving that precision is disproportionate, and rely on estimates”. (217).
• The SC considered that it sees no reason why in assessing compensatory damages there should be a requirement of greater precision in the quantification of the amount of an overcharge which has been passed on to end consumers because there is a legal burden on defendants in relation to mitigation of loss. (219).

The preceding approach does not offend the principle of effectiveness of EU Law, according to the SC:

“As we have said, the relevant requirement of EU law is the principle of effectiveness. The assessment of damages based on the compensatory principle does not offend the principle of effectiveness provided that the court does not require unreasonable precision from the claimant. On the contrary, the Damages Directive is based on the compensatory principle.” (220)

“ As the regime is based in the compensatory principle and envisages claims by direct and indirect purchasers in a chain of supply it is logical that the power to estimate the effects of passing-on applies equally when pass-on is used as a sword by a claimant or as a shield by a defendant.” (224)

On 25 February 2021, the UK High Court rendered a decision in which it validated the approach to pass-on of the SC decision of June 2020.[4] The UK High court referred to several key considerations of the SC in its decision, among which the compensatory principle and the fact that claimants should not be overcompensated for their damages as much as they should not be undercompensated. In addition, the decision implies that the pass-on approach can / should also be applied in complex and a-typical cases of passing on of overcharges, as the underlying case, which would pose a difficult and costly evidential burden on both parties.

This case stems from the foreign exchange cartel and a damages lawsuit filed by Allianz Global Investors and other claimants against several banking groups for their participation in the aforementioned cartel. The case involves investment funds who seek to generate a return for their investors and in so doing make use of the foreign exchange services provided by banks. Pass-on in this case is said to occur when an investor redeems or withdraws his investment from the fund. The High Court made clear that even though this is not a typical pass-on case involving the sale and purchase of goods in a supply chain, the compensatory principle equally applies. Defendants should not be subject to double recovery (12).

Claimants argued that the defendants’ pass-on defense should be stricken out because there was no real prospect of success, mainly because investors would have no cause of action against the banks. They also argued that it would have great impact on the future scope of claims, in terms of disclosure of documents and provision of evidence. The UK High Court did not agree that there would be no real prospect of success. The UK High Court said that the defense was appropriate and therefore it considered it necessary to “investigate precisely how the alleged wrongdoing of the Defendants impacted upon the investment fund (…) and how that affected the sum payable to the investor”, by disclosure and by factual and perhaps expert evidence. The pass-on defense could therefore be advanced to trial.

Our preliminary conclusion is that the UK courts do not favor one party over the other. It seems as if the courts feel that over-compensation is just as bad as under-compensation. In addition, in this argument there seems to be a deviation from the choice for the principle of effectiveness. So how do the Dutch approach this?

The Dutch approach

In Dutch case law the threshold for an effective passing-on defense has been set relatively high, contrary to the standard that has been set in the UK. The principle of effectiveness and the scope of the Cartel Damages Directive have served as normative and guiding principles for Dutch courts in this regard. The landmark judgements stem from a follow-on damages case between electricity transmission operator TenneT and electricity equipment corporation ABB.

On 8 July 2016, the Supreme Court ruled in the cartel damages case between ABB and TenneT that ABB was liable for the damage suffered by TenneT through the cartel on the market of gas-insulated switchgear.[5]

Amongst others, the Dutch Supreme Court considered in this case that even without retroactive effect for material law, the Damages Directive nevertheless has to be taken into account in order to sure the European l’effet utile and the principle of equality (4.3.1 and 4.3.4). In other words, it was clear that the Damages Directive was not applicable in this case but the Supreme Court did consider it. With reference to article 12 (3) of the Damages Directive, the Supreme Court decided that the evidential burden in connection to passing on is in principle on the cartel member. Furthermore, the Supreme Court confirmed that the court is authorized to estimate damages if it is not possible to determine the amount of damages precisely. So with reference to the not applicable Damages Directive the Supreme Court clearly decided in favor of the claimant.

The District Court of Gelderland delivered judgment on 29 March 2017 and ABB was ordered to pay € 23 million in compensation for the damage caused by the cartel.[6] ABB argued against the extent of the damage by invoking the passing-on defense. The District Court did not agree with this and found that the question whether this defence is reasonable, the principle of equality, the principle of effectiveness and the scope of the Damages Directive serve as normative and guiding principles (4.17). The court considered that “the object of the Damages Directive is not that the infringer should be given a hook to get out his liability of damages. The intention is that the compensation to be paid by the infringer should accrue to the direct and indirect customers in the chain to whom the additional costs were charged” (4.18). The court also ruled that the chance of end consumers bringing their own damages actions (and thus the risk of double compensation) was negligible. Once again and even clearer than the Supreme Court the court here argued in favor of the claimant, especially because they took into account the possibility of actual passing on, but that it was unlikely that further down the line any consumer would collect these scattered damages.

The so-called efficiency defense has been paid particular attention to in this context. Nowadays, almost every claimant advances this defence. Parties claim the harm suffered and alternatively claim compensation by invoking the efficiency defence. Briefly stated, the efficiency defence results in the court nevertheless awarding compensation to the claimant even if strictly speaking, the claimant is unable to prove the harm. This is of course a slippery slope from the point of view of legal certainty. However, it does seem to follow the European starting position, which is that the process should not be made too difficult for claimants and which forms the basis for the Damages Directive.It is a means of ensuring that private litigation is not made impossible from the very start.

The French approach

In France, in cases in which Pre-Damages Directive rules apply, the question of the burden of proof regarding the passing on defense is not entirely settled yet.

According to the Circular of 23 March 2017, the new Article L481-4 of the French Commercial Code (including burden of proving passing on) does not apply to damages claims resulting from an infringement, which took place before its entry into force, that is on 11 March 2017.

Prior to the adoption on 9 March 2017 of the rules implementing the Damages Directive in France, there was no specific legal provision on the issue of pass-on of overcharge in cartel damages cases. The general civil law provisions, namely Art, governed the issue. 1315 of Old French Civil Code (Art. 1353 of the New French Civil Code with the exact same wording).

In accordance with  a ruling of the Cour de cassation[7], several French civil and commercial courts of first instance have handed down judgments putting the burden on the claimant to prove the absence of passing on.^[8] While in two cases the Paris Court of Appeal considered that it was for the defendant to prove the passing on after the plaintiff had brought some indicia showing that there was no passing-on^[9], it recently quashed a ruling of the first instance court where it found that the plaintiff which had been granted damages had not provided any evidence that there had not been any passing on.[10] Most recently however, the Paris Administrative Court of Appeal^[11] and the French Court of Cassation^[12] held that, in accordance with EU law and principles, the burden of proof regarding the passing on of the illegal overcharge lies with the defendant. Besides the economic aspects (additional damages in form of loss of profit and the difficult proof of causality), there are therefore strong legal arguments to counter any potential passing-on defence. As the case law stands, it therefore seems highly recommendable to the plaintiffs that they bring as much evidence as possible about the absence of passing-on, allowing then the French Courts to shift the burden of proof on the defendant to establish passing-on.

Therefore, overall it appears that the French courts are slowly marching away from Albion to get closer to the Dutch approach regarding cases in which Pre-Damages Directive rules apply.

On the other hand, with regards to cases where post-Damages Directive rules apply, there is no doubt that the plaintiffs will fully benefit from the presumptions set by the Damages Directive.

Next time we discuss the bundling of claims!

bureau Brandeis, 4 June 2021

Marc Barennes, Tessel Bossen, Hans Bousie & Sarah Subremon

[1] Directive 2014/104/EU of the European Parliament and of the Council of 26 November 2014 on certain rules governing actions for damages under national law for infringements of the competition law provisions of the Member States and of the European Union Text with EEA relevance (OJ L 349, 5.12.2014, p. 1–19)

[2] UK Supreme Court 17 June 2020, case references UKSC 2018/0156 Sainsbury’s Supermarkets Ltd and others (Respondents) v MasterCard Incorporated and others (Appellants); UKSC 2018/015 Sainsbury’s Supermarkets Ltd (Respondent) v Visa Europe Services LLC and others (Appellants).

[3] MIFs are charged by a cardholder’s bank (issuer) to a merchant’s bank (the acquirer) for each transaction made to the merchant with a payment card. In practice, the acquiring banks passed these fees on to merchants by charging a merchant services charge (MSC), for which they were seeking damages. The banks however argued that the supermarkets had passed-on the overcharges by the MIFs/MSCs to their end consumers by raising retail prices.

[4] UK High Court 25 February 2021, Case no CL-2018000840.

[5] Supreme Court 8 July 2016, ECLI:NL:HR:2016:1483.

[6] District court of Gelderland 29 March 2017, ECLI:NL:RBGEL:2017:1724.

[7] Cour de cassation, 15 May 2012, Le Gouessant.

[8] Paris Commercial Court, 26 March 2018, Provera; Paris Commercial Court, 20 February 2020, Cora; Rennes High First Instance Court, 7 October 2019, FRSEA.

[9] Paris Court of Appeal, 20 September 2017, JCB; Paris Court of Appeal, 6 February 2019, Doux.

[10] Paris Court of Appeal, 14 April 2021, Johnson & Johnson.

[11] Paris Administrative Court of Appeal, 13 June 2019, SNCF Mobilités.

[12] French Court of Cassation, 12 February 2020, Collectes valorisation énergie déchets. This case does not relate to antitrust damages and may only be referred to by analogy.

This is the second bureau Brandeis quarterly report of 2020 on the developments in the area of cartel damage litigation. You may download our quarterly report here.

Would you like to receive the next edition of our quarterly report by email? Please subscribe to our mailing list by filling in this form or sending us an e-mail through this link.

This is the first bureau Brandeis quarterly report of 2020 on the developments in the area of cartel damage litigation. You may download our quarterly report here.

Would you like to receive the next edition of our quarterly report by email? Please subscribe to our mailing list by filling in this form or sending us an e-mail through this link.

The so-called interchange fees set by Visa and Mastercard that have to paid by retailers on all card purchases are illegal, the UK Supreme Court said on Wednesday.[1] This means that Visa and Mastercard will now definitely be faced with potential billion pound follow-on damages claims from merchants.

Whenever a customer uses a credit/debit card to make a purchase in a store, the merchant´s bank account must pay a transaction fee to the card-issuing bank of the customer.  These fees are called multilateral interchange fees (MIF). The UK Supreme Court said Wednesday that the MIFs charged within the Visa and Mastercard payment card schemes are illegal.

This decision has major implications for Visa and Mastercard, because numerous damages claims have already been initiated by merchants in the UK and now it is clear that all these procedures can proceed to a trial to decide compensation. According to the lead counsel of J Sainsbury, the potential damages could amount to a billion pounds.

In July 2018, the high court decided already that the interchange fees of the companies were restricting competition and breached UK and European competition rules.[2] This decision has (for the most part) been confirmed by the decision of the Supreme Court.

The Supreme Court confirmed i.a. that Visa and Mastercard had to meet a more onerous evidential standard than that normally applicable in civil litigation with regard to proving that the interchange fee model should be exempt from European competition rules. One of the conditions in order to qualify for an exemption is that the efficiencies and benefits for the consumers (here: the merchants) outweigh the disadvantages they have to bear as a result of the restriction of competition. The Supreme Court said that the adverse effects should be outweighed by the benefits for (in this case) the merchants in so far that they would be fully compensated for the disadvantages. Visa and Mastercard did not succeed in proving that the merchants benefitted of the interchange fee model to that extent.

The procedures stem from a decision of the European Commission of 2007.[3] In that decision, the Commission found that the interchange fees of Mastercard were illegally high for 15 years. The Commission did however not decide whether the interchange fee as such would be illegal. The decision of the UK Supreme Court clarifies that this is the case.

We reported on these proceedings and their background in multiple editions of our Cartel Damages Litigation Quarterly Report in Q (2018-QI, Q3 and 4, and 2017-Q2, Q3 and Q4).

[1] UK Supreme Court 17 June 2020, [2020] UKSC 24.

[2]  Court of Appeal 4 July 2018, 2018 EWCA Civ 1536.

[3]  European Commission decision of 19 December 2007, case COMP/34.579 (Mastercard).

This update highlights some recent decisions from the Dutch courts relating to banking relationships, regulatory obligations and transparency in the financial services sector. Contact us if you have any questions or find out more about bureau Brandeis’ Financial Services Litigation here.

No termination of banking relationship without concrete evidence of AML breach
In this case a bank had blocked a client’s bank accounts based on the Money Laundering and Terrorist Financing Prevention Act (Wet ter voorkoming van witwassen en financiering van terrorisme; Wwft) for not providing sufficient information on its suppliers and customers, whilst the account gave signs of involvement in fraud and money laundering. The bank’s client had moved from trading used car parts to selling small electronics and claimed continuation of the account agreement.

The preliminary relief judge of the Amsterdam Court ordered the bank to continue the relationship in the usual manner. According to the court, a bank cannot terminate its relationship with a client and block its accounts if its Anti-Money Laundering (AML) concerns are not sufficiently demonstrated in the specific case.

The court held that the standards of reasonableness and fairness imply that termination of a banking relationship can only be based on sufficiently compelling grounds in the given circumstances. This requires due consideration of all interests.

In this context, the court attached importance to the bank’s duty of care and the access of account holders to payment transactions. At the same time, it also considered important that account holders enable the bank to comply with its obligations towards regulators and to protect the reputation of the bank and the integrity of the financial system.

On the basis of AML legislation and the related obligation to investigate, a bank cannot require evidence excluding involvement of the client’s customers and suppliers in money laundering. The bank’s AML-obligation to investigate, regards the client and who is behind the client. It does not regard who is behind the client’s customers, said the court.

The full decision can be read here in Dutch: Rechtbank Amsterdam 30 april 2019, ECLI:NL:RBAMS:2019:3157.

Is requesting enforcement a successful way to elicit an administrative ruling?
Anyone can request a regulator to take enforcement measures against a market party in case of non-compliance with laws and regulations. Special about this case is that the enforcement request at hand was submitted by a market party in relation to conduct concerning its own product. This market party was the holder of a portfolio of credit agreements, for which a regulated entity acted as its portfolio manager.

The purpose of requesting enforcement against oneself, was to obtain a judgment from the court on certain policy amendments the AFM had requested from the manager. The AFM sent a letter to the manager in which it requested these amendments, whilst the amendments affected the market party.

The market party itself was not a licensed entity, but an affiliated undertaking of the portfolio manager which did hold an AFM license.

In the court proceedings, the AFM took the position that it does not have power to take enforcement action against the – unlicensed – market party. The court agreed with the AFM and considered that market conduct supervision of affiliated undertakings takes place through the central regulated legal entity. The latter is supposed to exercise control over the affiliated entities’ compliance with the rules and legislation.

In addition, the market party attempted to object and appeal against the AFM’s letter. The court confirmed however that no appeal lies against the AFM’s letter to the portfolio manager. The reason for this was that the letter was just a confirmation of what was discussed, and not a definitive administrative ruling on applicability of a legal provision.

The full decision can be read here in Dutch: Rechtbank Rotterdam 23 april 2019, ECLI:NL:RBROT:2019:3688.

Limited transparency and public access to information at financial regulators
Under the Government Information Public Access Act (Wet openbaarheid van bestuur), anyone can request a government body for information about an administrative matter. The Dutch Central Bank (De Nederlandsche Bank, ‘DNB’) and its regulatory counterpart the Netherlands Authority for the Financial Markter (Autoriteit Financiële Markten) however, are in principle excluded from the applicability of this Act.

The key question in this case was whether or not this exception for the financial regulators merely regards confidential information relating to supervision of individual financial institutions. This in view of the duty of secrecy as laid down in the Netherlands Financial Supervision Act with regard to confidential information obtained pursuant to supervisory powers.

According to the applicant in question, information on the financing of, in this case, DNB and the funding of financial supervision does not fall under the exception and should be made public.

The Council of State (Raad van State), the highest administrative court for these matters, found that the exception makes no distinction between types of documents. Therefore all documents following from and relating to supervision of financial institutions are excluded from requests to disclose such information.

Also in respect of the requested documents in this case, the Government Information Public Access Act does not apply to DNB. The fact that DNB did provide some information on the topic without being obliged to do so was not considered arbitrary.

The full decision can be read here in Dutch: Afdeling Bestuursrechtspraak van de Raad van State, 17 april 2019, ECLI:NL:RVS:2019:1236

First compulsory transfer of shares following transfer plan of DNB upheld
This case regards the first compulsory transfer of shares of banks or insurers to a new owner ordered by the Dutch Central Bank (De Nederlandsche Bank, ‘DNB’) and discusses the intensity of the court’s assessment thereof. This specific case regards the transfer of assets in a life insurance company that created quite some media attention.

Given developments potentially jeopardizing the assets and solvency of the life insurer, financial regulator DNB intervened and prepared a plan for transfer of the shares in the life insurer, which instrument DNB has to execute the compulsory transfer of an ailing bank or insurer. In the eyes of DNB, the insurer’s board and shareholders failed to take sufficient measures to strengthen the capital position of the life insurer. DNB ultimately requested the Amsterdam Court to approve its transfer plan and pronounce the transfer regulations.

The courts’ decision was only subject to appeal in cassation with the Supreme Court of the Netherlands.

It has confirmed that the court can approve a transfer plan if it summarily appears that there are dangerous developments regarding the assets, solvency, liquidity or technical facilities.

Although there has been a change in legal terminology to bring the relevant criterion of the Financial Supervision Act (Wet op het financieel toezicht, ‘Wft’) in line with the Bankruptcy Act (Faillissementswet, ‘Fw’), this did not change the extent of the review says the Supreme Court. The court still is to perform a cautious review of such situation.

In the Supreme Court’s view this is exactly what happened. The court examined the substantive arguments of both parties and did not perform a more cautious review than the law requires. As a result it’s decision is upheld. The full decision can be read here in Dutch: Hoge Raad 17 mei 2019 ECLI:NL:HR:2019:746

This update highlights some recent decisions from the Dutch courts relating to regulatory investigations and enforcement measures in the financial services sector which we think are worth sharing. Contact us if you have any questions or find out more about bureau Brandeis’ Financial Services Litigation here.

AFM fine annulled due to a violation of the principle of equality

In this case, the Netherlands Authority for the Financial Markets (Autoriteit Financiële Markten, “AFM”) concluded that an investment company (beleggingsonderneming) acted in breach of the Dutch Financial Supervision Act (Wet op het financieel Toezicht, “Wft”) and underlying regulations. In addition to imposing measures against the investment company, the AFM decided to impose measures against two statutory directors and one employee who was also (indirect) shareholder for having actual control (feitelijk leidinggeven) of the company’s prohibited conduct.

The AFM imposed a heavier measure on the employee (i.e. an administrative fine) than it did on the two statutory directors (i.e. an instructive letter, including a warning). After an unsuccessful objection, the employee appealed with the Rotterdam Court that decided that a different role for the persons involved can in principle justify unequal enforcement by the AFM, for example, in terms of the amount of a fine.

In this case, the difference in measures imposed by the AFM was not proportionate in relation to the difference in culpability and financial interest of the alleged offenders. The court considered that the AFM did not present sufficient relevant circumstances to justify imposing very different measures. It only claimed that the acts of the employee were more seriously culpable than those of the statutory directors, because of an alleged financial benefit for the employee. According to the court, this factor was insufficient to justify imposing very different measures, especially given that an administrative fine is more onerous because it is in principle published – which has a defamatory effect.

The fact that the employee might have had financial benefit of the violation could have resulted in a difference in fines, but not in the huge difference in measures that the AFM made. In conclusion, the court held the appeal well-founded and annulled the challenged decision of the AFM due to a breach of the principle of equality (gelijkheidsbeginsel).

The full decision can be read here in Dutch:

Rb. Rotterdam 13 juni 2018, ECLI:NL:RBROT:2018:6261.

Investigation by supervisor? Your employees won’t be cautioned

A bank located and licensed in Malta that is allowed to offer consumer credit in its home state, completed a notification procedure to also offer consumer credit from Malta to the Netherlands based on the so-called European passport for banks. The AFM however found that the bank was offering consumer credit from a branch office (bijkantoor) in the Netherlands, for which it had not followed the correct notification procedure.

The AFM therefore imposed an administrative fine of EUR 1,7 million on the bank for offering consumer credit without the required license. The bank argued in these interim relief proceedings that the AFM had no grounds thereto and that the intended publication of the fine should be suspended. The court however, saw no reason to suspend the AFM’s decision to impose a fine or suspend or alter the publication thereof.

Interesting about this decision is that a significant part of the evidence on the basis of which the AFM imposed a fine is derived from statements of an employee of the bank who was heard by the AFM during the investigation. The bank argued that the AFM could not use these statements as evidence, because the AFM did not read the employee its rights.

Based on recent decisions of the Dutch Council of State (Raad van State), the court decided that, in principle, there is no obligation to caution employees of a legal entity. The regulator only has to caution representatives (i.e. board members) and natural persons involved for having actual control (feitelijk leidinggevenden) who might be imposed a personal fine.

In this case, in addition to the employee’s statements, the AFM based its decision on information obtained from the bank’s Dutch website and the online DNB Register. According to the court, this evidence, when viewed in conjunction with each other, formed sufficient evidence for the AFM to impose an administrative fine on the Maltese bank.

The full decision can be read here in Dutch:

Rb. Rotterdam 20 december 2018, ECLI:NL:RBROT:2018:10909.

Notifying unusual transactions and monitoring client relationships

In two recent cases, the highest appeal court (College van Beroep voor het bedrijfsleven, “CBb”) reviewed administrative fines that were imposed by the Financial Supervision Office (Bureau Financieel Toezicht, “BFT”). These fines were imposed against an accounting firm (boekhouder-fiscalist maatschap) and a tax consultant (fiscalist) respectively for allegedly breaching their obligation to (i) notify the Netherlands Financial Intelligence Unit (FIU) about unusual transactions of their clients and (ii) continuously monitor client relationships.

The court considered that in addition to the relevant law, decrees and available AML guidelines, other factors can also be relevant to determine whether or not a transaction is to be considered unusual. In both cases, the court found that BFT failed to prove that the respective parties wrongfully did not notify the FIU about certain transactions. The respective parties either did not have actual knowledge of the alleged unusual transactions or had a decent explanation on why the transaction could not be considered as unusual.

BFT also accused both parties of failing to properly monitor their client relationships. BFT held it against the tax consultant that she could not immediately provide evidence about a transaction of one of her clients. According to the court, the tax consultant managed to provide a well-founded explanation for the transaction during the course of the investigation and the alleged failure to monitor client relationships was therefore not upheld.

BFT was however successful in proving that the accounting firm failed to successfully monitor its client relationship. So whilst it may have lacked knowledge about certain transactions and could not be fined for failing to notify the FIU about these transactions, the court decided that this lack of knowledge was due to a failure to perform proper client monitoring – which in itself is a violation of the Wwft.
Both judgments can be read here in Dutch:

CBb 5 februari 2019, ECLI:NL:CBB:2019:48. CBb 5 februari 2019, ECLI:NL:CBB:2019:58.

Unrestricted cooperation charge? Not required to provide will-dependent material

The Dutch Central Bank (De Nederlandsche Bank, “DNB”) investigated whether two related companies were providing payment services without the required license and repeatedly requested them to provide information for this investigation. The companies however claimed they had the right to remain silent. DNB informed them that they had a duty to cooperate (Section 5:20 Awb) and imposed a cooperation charges on each of them, subject to a penalty of EUR 15,000.

The companies only partly complied with the cooperation charges and DNB declared the penalties incurred. In addition, DNB established that the companies violated their duty to assist and imposed an administrative fine of EUR 75,000 on each of them.

On appeal against the cooperation charge, the highest appeal court (College van Beroep voor het bedrijfsleven) held that part of the information requested by DNB was material existing dependent on the will of the companies (wilsafhankelijk materiaal).  DNB therefore should have included a restriction in its cooperation charge, stating that it would not use such will-dependent material for the purpose of imposing a fine or prosecution proceedings.

Given the absence of such restriction, the court declared void the cooperation charge and ordered DNB to amend the decisions. DNB then included the restriction in the cooperation charge and reduced the administrative fines from EUR 75,000 to EUR 65,000.

The court rejected the subsequent appeal of the companies against these amended decisions, as it considered that the companies breached their duty to cooperate. They could – but did not – provide the material that was not will-dependent. The court therefore decided that DNB could rightfully impose the administrative fines. The reduction of the administrative fines was considered proportional. The full decision can be read here in Dutch: CBb 16 april 2019, ECLI:NL:CBB:2019:156.

This update highlights some recent decisions from the Dutch courts relating to the financial services sector which we think are worth sharing. Contact us if you have any questions or find out more about bureau Brandeis’ Financial Services Litigation here.

AFM fines both company and director and major shareholder. No double jeopardy.
Where a company breaches the Dutch Financial Supervision Act (Wet op het financieel toezicht, “Wft”), the financial regulators in the Netherlands can also impose a fine on a natural person involved for having actual control of (feitelijk leidinggeven aan) the prohibited conduct of such company.

The highest administrative court in the Netherlands confirms that this is also possible if such person happens to be both the director and major shareholder of the company. In these circumstances the regulator is to verify whether it is proportionate that the two fines effectively punish the same natural person twofold.

In this case, the Netherlands Authority for the Financial Markets (Autoriteit Financiële Markten, “AFM”) fines a company EUR 10,000 for offering investment services (verlenen van beleggingsdiensten) without a license. In addition, its director and major shareholder is fined EUR 200,000 for having actual control of the prohibited conduct.

The director and major shareholder challenges the proportionality of the fine. He also argues that the fine is to be reduced given his financial capacity. Both arguments however are unsuccessful. The two fines are considered proportionate because the fine for the company has already been reduced to EUR 10,000. The director also fails to prove that he has insufficient ability to pay his personal fine of EUR 200,000. Both fines are therefore upheld.

The full decision can be read here in Dutch: CBb, 7 augustus 2018, ECLI:NL:CBB:2018:413.

AFM is to include restrictions in cooperation charge as to use of requested information.
The AFM sends a regulatory information request (inlichtingenvordering) to a company outside the Netherlands in order to determine whether it is offering consumer credit or providing intermediary services on the Dutch market without the required license.

When the AFM does not receive a reaction to two separate requests, it imposes a cooperation charge subject to a penalty (last onder dwangsom). The alleged credit offeror does not provide any information in response to this cooperation charge. According to the AFM the company incurs the penalty payment as a result.

On appeal the company successfully argues that when the AFM is requesting information within control of the company (wilsafhankelijke informatie) by means of a cooperation charge, the AFM can only do so with the explicit restriction that any information within control of the company shall only be used for supervisory purpose and shall not be used for imposing any administrative fines or criminal charges.

Since the cooperation charge in question did not include a restriction on the use of the requested information, the Trade and Industry Appeals Tribunal (College van Beroep voor het bedrijfsleven, “CBb”) annuls it.

The full decision can be read here in Dutch: CBb, 4 september 2018, ECLI:NL:CBB:2018:444.

Custodian, depository and administrator not found liable for Ponzi-scheme damages.
A fund manager managing three off-shore funds appoints a securities trader as sub-investment manager with the power to invest all assets of the three funds. The fund manager also appoints a financial enterprise as its custodian, depository and administrator. In addition, it requires the custodian to appoint the sub-investment manager as sub-custodian.

The sub-investment manager turns out to be deploying a world wide Ponzi-scheme and goes bankrupt when this is discovered. As a consequence, the three funds also go bankrupt.

Investors in the three funds set up a claim foundation and commence legal proceedings against the financial enterprise that acted as custodian, depository and administrator, arguing that the financial enterprise (i) acted in breach of regulatory obligations regarding outsourcing and protection of investor funds, (ii) breached a duty of care towards the investors, (iii) committed a wrongful act (onrechtmatige daad) against the investors and (iv) issued misleading information.

The court disregards the assertions and rejects the investors’ claims. According to the court, there is no proof that the custodian knew or should have known that the sub-investment manager never actually invested the money from the funds and was essentially running a Ponzi-scheme. At the time, the financial enterprise also had no reason to suspect the fraud. Moreover the court considers that the custodian did not choose to appoint the fraudulent sub-custodian but was required to do so by the fund manager.

The full judgment can be read here in Dutch:
Rb. Amsterdam 22 maart 2017, ECLI:NL:RBAMS:2017:10601.

Both bank and customer have duty of care towards one another. Access to bank account.
While a company is under investigation of the public prosecutor due to suspicions of money laundering and drug trafficking, the police carry out a raid at its offices and seize its bank accounts. As a consequence, the bank terminates its relationship with the company. The company does not accept the termination and commences interim relief proceedings against the bank.

Between May 2017 and January 2018, parties go to court four times. The company states that in the given circumstances it cannot open a bank account with another bank. It therefore argues that its interest in access to a bank account must weigh heavier than the bank’s interest to terminate the relationship due to potential reputational and AML risks. The court finds that the bank was allowed to terminate the relationship because the company had not taken sufficient compliance measures. This has made it impossible for the bank to comply with requirements of the Dutch Anti Money Laundering Act (Wet ter voorkoming van witwassen en financiering van terrorisme, “Wwft”).

However, new facts come to light and the company starts new interim relief proceedings in order to re-open its bank accounts. And with success.

Given the changed circumstances (i.e. the public prosecutor dropped the investigation and the company took serious measures to strengthen its compliance and reduce AML-risks) the court now rules that the bank should allow access to the bank accounts again. In this latest decision the court emphasizes that both parties have a duty of care (zorgplicht) towards one another, and the fact that the company took serious measures to reduce AML risks shows that it has fulfilled this duty towards the bank.

The full judgment can be read here in Dutch:
Rb. Amsterdam 2 november 2018, ECLI:NL:RBAMS:2018:7931.

Decision to place payment service provider under administration can be published.
The Dutch Central Bank (De Nederlandsche Bank, “DNB”) decides to appoint an administrator (curator) at a payment service provider (betaaldienstverlener, “PSP”) for not complying with the Dutch Financial Supervision Act (Wft), the Dutch Anti Money Laundering Act (Wwft) and the Sanctions Act 1977 (Sanctiewet 1977). DNB also decides to publish this decision, since it is in principle obligated to publish administrative sanctions (bestuurlijke sancties) pursuant to section 1:97 Wft.

The PSP commences interim relief proceedings in an attempt to prevent publication. It argues, among other things, that (i) being placed under administration is not an administrative sanction that is to be published pursuant to section 1:97 Wft and (ii) PSD1, which is implemented in the Wft, does not provide a specific ground for publishing these types of sanctions (i.e. being placed under administration). The PSP’s arguments do not succeed.

Even though the appointment of an administrator in principle has an internal effect and does not necessarily have to be disclosed, the interim relief judge considers the appointment of an administrator at the PSP an administrative sanction within the meaning of section 1:97 Wft that can be made public.

The judge also holds that, although PSD1 does not provide a specific possibility for publishing these types of sanctions, publication is possible under the Wft. PSD1 gives Member States the liberty to enforce the directive in a manner they deem fit, as long as the enforcement measures are effective, proportionate and dissuasive. According to the interim relief judge, this is the case with publishing the decision to place the PSP under administration.

The full decision can be read here in Dutch:
Rb. Rotterdam 18 juli 2018, ECLI:NL:RBROT:2018:8284.

Bank may have certain duty of care vis-à-vis professional third-party investors.
It is settled case law of the Dutch Supreme Court (Hoge Raad, “HR”) that under circumstances banks have a special duty of care not only vis-à-vis its clients but given their social function also vis-à-vis non-expert third parties. The Amsterdam Court of Appeal now rules that banks, to some extent, also have a duty of care towards third parties that are acting in a professional capacity.

The Court of Appeal considers that, although professional parties are expected to be able to make their own investment decisions and ask for advice when needed, a bank may have a duty of care towards third parties acting in a professional capacity when it discovers irregularities on accounts held with the bank. When determining the scope of the bank’s duty of care, the fact that parties are acting in a professional capacity can be taken into account.

In this case, a client of the bank has embezzled money from investors using a main account at the bank. The investors have been invited to deposit money to sub accounts that would be invested via the main account.

The Court of Appeal considers that the irregularities on the accounts in question became known to the bank. It also considers that the bank identified representatives of the investors in person at a local bank office in Brussel when they opened the sub accounts and that it was aware of the investors’ co-signing rights on the sub accounts. The fact that the bank nevertheless has failed to inform the investors when it closed the main account and all sub accounts, is considered a breach of its duty of care towards these third party investors.

Although the bank successfully argued that it could not disclose that it was investigating potential fraud of its client, also given the general prohibition from disclosing (tipping-off) reports of suspicious transactions (ongebruikelijke transacties), it should have neutrally informed the investors that the sub accounts were closed, says the Court of Appeal.

The full judgment can be read here in Dutch:
Hof Den Haag 25 september 2018, ECLI:NL:GHDHA:2018:2417.

December 2018.

Simone Peek & Casper Rooijakkers

The combining of personal data by Google since the introduction of its new privacy policy on 1 March 2012 is in breach of the Dutch data protection act (Wet bescherming persoonsgegevens). That is the conclusion of an investigation by the Dutch Data Protection Authority (College bescherming persoonsgegevens).

According to the report, Google combines the personal data from internet users that are collected by all kinds of different Google services, without adequately informing the users on the personal data collected and the purposes thereof and without asking for their consent. “Google spins an invisible web of our personal data, without our consent. And that is forbidden by law“.

The Data Protection Authority has invited Google to attend a hearing, after which it will decide whether it will take enforcement measures.

Source: cbpweb.nl

Substantial compensation award against Ecuador upheld by Supreme Court

bureau Brandeis successfully defended Chevron Corporation (USA) and Texaco Petroleum Company (USA) in proceedings initiated by the Republic of Ecuador before the Dutch courts to overturn arbitral awards rendered under a Bilateral Investment Treaty between the United States of America and Ecuador.

On 26 September 2014, the Supreme Court upheld a substantial compensation award payable by Ecuador to Chevron and Texpet.

The proceedings concerned a conflict over a concession agreement between Ecuador and Texpet. In 1964 Ecuador granted Texpet a concession for oil extraction and exploitation in the Amazon territory, which expired on 6 June 1992. In the early 1990s Texpet lodged seven court cases in Ecuador, based on alleged breaches of the concession agreement by Ecuador.

In 1997 a Bilateral Investment Treaty entered into force between Ecuador and the United States, aimed at promoting economic cooperation between them. The treaty included provisions to protect investments by legal entities from one treaty state in the other treaty state. A legal entity from one treaty state that was not satisfied that it had been afforded proper protection in the other treaty state could invoke the arbitration clause to submit the dispute to an arbitral tribunal.

Chevron and Texpet initiated arbitration proceedings against Ecuador under the BIT, arguing that the Ecuadorian courts had failed to rule on its claims over a period of nearly ten years and that those claims must be deemed ‘investments’ within the meaning of the BIT. One of Ecuador’s arguments was that such claims could not be regarded as investments and that the arbiters were therefore not competent to rule on the dispute.

The arbiters accepted jurisdiction and, in arbitration proceeding conducted in The Hague, ordered Ecuador to pay a substantial sum in compensation. Ecuador then lodged proceedings in the Dutch courts, seeking to have the arbitral decision overturned. The district court dismissed Ecuador’s claim and the Court of Appeal upheld that judgment.

The Supreme Court dismissed the appeal in cassation, while Advocate General Jaap Spier had advised the Supreme Court to overturn the Court of Appeal’s decision. The Supreme Court ruled in particular that although the arbitration may have impinged on Ecuador’s national sovereignty to a certain extent, this was a consequence of the treaty (i.e. the BIT) that it had chosen to conclude with the US and the remarkably wide definition of the concept of investment contained in it, a definition that deviates from the term’s common usage. The Court of Appeal was free to decide that the legal claims lodged by Texpet that were pending when the BIT entered into force in 1997 must be regarded as ‘investments’ in the particular sense accorded to that term by the treaty states, even though this term is not usually taken to encompass such claims.

The full text of the decision (13/04679; in Dutch only) can be found at www.hogeraad.nl, ECLI:NL:HR:2014:2837.

For more information, please contact Jozua van der Beek or Louis Berger.

The court may not make it compulsory for Usenet providers to filter their message traffic. This follows from today’s judgment by the Amsterdam Court of Appeal in the case between News-Service Europe and BREIN.

The district court had previously found News-Service Europe guilty of copyright infringement. The court did not answer the question of whether News-Service Europe could successfully rely on the statutory rules that protect intermediaries such as ISPs. This ruling forced News-Service Europe to cease its activities.

In today’s judgment, the Court of Appeal reversed the judgment of the lower court. As an intermediary, News-Service Europe is not liable for possible copyright infringements by consumers. The earlier judgment of the lower court boiled down to a requirement to install a filter. The Court of Appeal has said that no such obligation may be imposed because it would mean that News-Service Europe would have to monitor its network continuously. This is contrary to settled case law of the European Court of Justice, according to the Court of Appeal. Patrick Schreurs, former CEO of NSE: “We are extremely pleased with this judgment. The Court of Appeal rightly found that a Usenet provider such as News-Service Europe cannot be expected to exercise preventative supervision of the notices posted by others.”

Interlocutory judgment
In this interlocutory judgment, the Court ruled that an intermediary such as News-Service Europe is, however, obliged to implement a so-called notice-and-takedown procedure. News-Service Europe has always said that it already had such a procedure in place. The next step is for the parties to explain to the Court of Appeal how the procedure should work and what other measures might be taken in this regard. “We look forward to this in full confidence”, said Wierd Bonthuis, NSE’s former CFO.

About Usenet providers
The role of a Usenet provider is comparable to that of an ISP (such as Ziggo or KPN). It is a neutral intermediary that offers access to a technological platform, the Usenet, where clients can share notices publicly in newsgroups. A usenet provider does not look at the contents of the traffic generated by users. News-Service.com does not carry out acts having any bearing on copyrights. It does not encourage users to share particular types of messages, nor does it select messages; it merely offers space where messages can be posted.

History
In 2009 Stichting BREIN commenced proceedings against News-Service.com because it was of the opinion that the neutral Usenet provider was independently reproducing copyright-protected works and making them available to the public. BREIN demanded that it cease these activities. The district court imposed a very far-reaching obligation to implement preventative filtering. What this boiled down to was that NSE would have to proactively filter all information posted by Usenet users to find possible copyright infringements. Because it was impossible for News-Service.com to comply with such a disproportionate order, it ceased operations in 2011.

About News Service Europe
Until 2011, News-Service.com was a successful Dutch company. It had offered access to Usenet since 1998. News-Service Europe B.V. was established in 2005. News-Service.com did not provide services directly to consumers, but to Usenet Resellers, ISPs and fellow Usenet Providers.

The judgment of the Amsterdam Court of Appeal is only available in Dutch for the moment, but a translation will be available soon. Earlier press releases are also available on the site of News-Service.com.

Today the Court of The Hague ruled in summary proceedings in the case initiated against the Dutch State by the Stichting Bescherming Burgerrechten (a civil rights foundation) and Lucas Kruijswijk regarding so called “stemfies”: photos of filled out ballot papers taken in the polling booth. The Court concluded that the stemfie is actually in violation with the secrecy of the vote. However, since there is no Dutch law explicitly prohibiting stemfies, the Court felt it had no other choice than to deny the claims.

According to the Court making photos of ballot papers in the polling booths: “refers to a highly important aspect of democracy. The interest of free elections, with an absolute secrecy of the ballot, is essential to effectuate democratic principles”. The State therefore has an “active duty to respect the secrecy of the ballot to its full extent.” According to the judgement, voters can feel pressured to show others what they voted for. Moreover, the Court rules that it is not imaginary that technological developments could bring even more risk to the secrecy of the ballot.

“Any advantages of the stemfie nor the aspect of freedom of speech, compensate for the serious objections to the stemfie. Every potential, not imaginary infringement of the secret ballot is extremely serious. Opposing or at least discouraging these infringements bears heavier weight, also in relation to the freedom of speech”.

However, the Court could not prohibit the making of photos of ballot papers in the polling booths because there is no law explicitly prohibiting these actions. Because of this, the statements of the Dutch minister could not be qualified as being unlawful. And “it is not to the courts to rule on whether it was wise of the minister to communicate that it is allowed to make photos of ballot papers in the polling booths”.

For now it seems that the making of photos of ballot papers in the polling booths will not be prohibited at the elections of May 22nd. However, after this judgement, it is clearly up to the legislator to make sure that the secrecy of the ballot will be guaranteed in future. We congratulate the Stichting and Lucas Kruijswijk on putting this important discussion on the political agenda.

See the full judgment here (Dutch only).

Douwe Linders

Last Thursday May 1^st, hearing took place in the summary proceedings initiated against the Dutch State by the Stichting Bescherming Burgerrechten (a civil rights foundation) and Lucas Kruijswijk. The Dutch minister of Internal Affairs had condoned the making of photos of ballot papers in the polling booths and even encouraged it on Twitter. This is in violation of several international human rights treaties that prescribe secrecy of the ballot in order to guarantee free elections.

Secrecy of the vote is a fundamental right. It aims to prevent voters from being coerced to vote on a certain candidate. Governments have an obligation to guarantee this secrecy. If voters are allowed to make a photo of their vote, this secrecy is derived of its purpose. Voters are at risk of being pressured to take a photo of their ballot paper and prove to their suppresser how they voted. The obligation to vote in secret helps to protect the suppressed.

Attorney Douwe Linders pleaded before the Court: With the European elections in sight (to be held May 22^nd) the minister needs to retract his statements and correctly inform the Dutch voters as soon as possible: photos of ballot papers are not allowed.

Pleadings are available here (Dutch only).

The Court will rule on Friday May 9^th.

Author: Martine Brons

The European Court of Justice (ECJ) rendered its judgment in the private copying fee case. The Court held that in the amount of the fee which is due for making private copies of a protected work, no account shall be taken of any unauthorised reproductions. The fact that no technical provision exists to oppose to the production of unauthorised private copies, cannot undermine this conclusion.

The Court rules that if the member states would be free to enact legislation under which it, inter alia, is authorised to reproduce for private use from an unauthorised source, this would clearly affect the proper function of the internal market.

Also, the objective of proper support for the dissemination of culture must not be achieved by sacrificing strict protection of rights or by tolerating illegal forms of distribution of counterfeited or pirated works.

Accordingly, the Court held that national legislation which makes no distinction between copies for private use made of lawful sources, and copies for private use made of counterfeited or pirated sources, cannot be tolerated.

In a response to the ruling, the Dutch government says that it is immediately prohibited to download copyrighted material from illegal sources, for example via torrentsites and newsgroups.

The ruling has implications for the general administrative measure, in which private copying levies are arranged on media such as smart phones, phones with MP-3 players, tablets and HDD recorders. Other major consequences are that rightholders will challenge illegal downloading of consumers. However, enforcement is very difficult and chances are that the creators, performers and consumers will be far worse off than under the levy system.

Author: Martine Brons.

The European Court of Justice is to decide tomorrow whether downloading of music and movies by consumers will be prohibited in The Netherlands. The issue is of such fundamental importance for the freedom of consumers on the internet, that bureau Brandeis was commissioned by the Dutch consumers’ association the Consumentenbond, to call on the ECJ: let the Netherlands maintain its present interpretation of the private copying exception and do not ban downloading by consumers.

Under Dutch law, downloading by consumers is allowed, either from lawful or from unlawful sources on the internet. For this freedom consumers pay a small levy on certain data carriers and devices, the thuiskopievergoeding. This levy is distributed to the rightholders. The system thereby serves two goals: consumers are safe from enforcement of copyright “behind their front door” and creators and performers of entertainment content receive a fair compensation for all copies made outside of their effective reach.

Advocate General Cruz Villalón advised the ECJ to rule that the Dutch private copying exception is not allowed and to ban downloading from unlawful sources. If the ECJ is to follow this advice, it would have major consequences. Rightholders will crack down on consumers downloading from unlawful sources in order to enforce their rights. This will mean deep packet inspection of data traffic and possibly exorbitant damage claims. Enforcement is however very difficult and chances are that the creators and performers will be far worse off than under the levy system. “The end result will be a lose-lose situation and a further diminishing of the public’s respect for copyright law.” according to Christiaan Alberdingk Thijm, founder of bureau Brandeis.

The Consumentenbond is the Dutch consumers’ association. It represents one out of 14 Dutch households, which makes it the consumer organization with the highest level of penetration in any nation. Together with the Consumentenbond, bureau Brandeis awaits the Courts decision in eager anticipation and will swiftly comment on its outcome on this website.

The letter to the European Court of Justice is available here.

Today, the Court of Justice of the European Union (CJEU) ruled that the so-called Data Retention Directive (2006/24/EC) is invalid. According to the Court, the Directive constitutes a serious interference with the right to private life and the right to protection of personal data and lacks proportionality and effective safeguards.

The Data Retention Directive prescribes that Internet providers should save traffic data of all users for a period of six months. This metadata may be used for the purpose of investigation, detection and prosecution of serious crime.

The broad scope of the Directive allows for the retention of a large amount of data, which eventually could lead to very precise information on a person’s private life. According to the Court:

“Those data, taken as a whole, may allow very precise conclusions to be drawn concerning the private lives of the persons whose data has beenretained, such as the habits of everyday life, permanent or temporary placesof residence, daily or other movements, the activities carried out, the social relationships of those persons and the social environments frequented by them.”

The CJEU finds that the Directive exceeds the limits of the principle of proportionality. First of all, the Directive applies to all individuals and all means of electronic communication and imposes no limitations or exceptions. Furthermore, the Directive does not established objectives or criteria to limit the powers of the national authorities. Thirdly, there is no limitation on duration of the data retention period to ensure that this period is limited to what is strictly necessary. Lastly, the Directive lacks effective safeguards to protect against the risk of abuse and against unlawful access and use of data.

This leads to the conclusion that the Directive is not sufficiently circumscribed to ensure that the interference with an individual’s right to private life and protection of personal data is limited to what is strictly necessary. Therefore, the CJEU renders the Directive invalid.

Read the press release here.

Author: Sam van Velze

The State of the Netherlands acted unlawful by enacting private copying legislation under which certain digital devices were not imposed with a levy. This is the outcome of a case the attorneys of bureau Brandeis have been litigating for longtime client NORMA since 2007. On March 7, 2014, the Supreme Court ruled that if the levies are imposed entirely on one or two categories of devices of decreasing importance and not on other devices of growing importance, the State has failed to implement a coherent system.

In 2007, the State introduced legislation by which all levies for private copying were frozen. The result was that only blank cd’s and dvd’s were imposed with a levy while private copying was shifting rapidly towards digital devices such as mp3-players and hard disk recorders.

The private copying levy is meant to compensate rights holders, such as actors and musicians, for the fact that consumers are allowed to copy their works without permission. For each device capable of storing music and film that is sold, a small levy should be paid by the producers and importers of those devices. The levies are distributed to the rights holders via their rights organizations, such as NORMA for actors and musicians.

Freezing the levies had a dramatic effect on the income of NORMA’s members. Each year the levy system was frozen, their income decreased further and further.

NORMA took the courageous step to start litigating against the State. It was not easy to convince the judiciary that the legislation enacted by the State was unlawful. But NORMA persisted and finally, on March 27, 2012 the Court of Appeals of The Hague ruled that not imposing levies on devices such as mp3-players and hard disc recorders was in violation of European law. The State swiftly introduced new legislation, imposing levies on a variety of devices.

The Supreme Court now confirmed the judgment of the Court of Appeals: “Where the State has chosen a system in which a levy is imposed on devices that are used for making private copies, it may not exclude one or more categories that are also used for making private copies and cause damage to the rights holders.”

The ruling of the Supreme Court opens the way to claim damages for the 6 years in which the levies have been frozen. Attorneys Christiaan Alberdingk Thijm and Douwe Linders of bureau Brandeis are representing NORMA in its efforts to recover part of the income its members have lost over the years due to the unlawful conduct of the State.

Douwe Linders

The Dutch government would contravene the right to privacy of Dutch citizens by introducing a centralised storage system for fingerprints, submitted to obtain a passport. This is the outcome of a case of Privacy First against the Dutch government. On 18 February 2014 the Court of Appeals ruled that central storage of fingerprints is “unfit for the intended purpose, being identity verification”.

With this landmark ruling the Court of Appeals overturns an earlier judgment of the District Court of The Hague. The District Court ruled that Privacy First did not have sufficient interest in its claims. In the interim the Dutch government decided not to introduce the central storage database.

Attorneys Vita Zwaan and Christiaan Alberdingk Thijm of bureau Brandeis represented Privacy First in this litigation.

Today, the European Court of Justice (ECJ) rendered its judgment in the long-awaited Svensson-case. In short, this case concerns the question whether the placing of a hyperlink by someone other than the copyright holder constitutes a “communication to the public” within the meaning of the Copyright Directive (2001/29).

In its decision, the ECJ holds that the mere provision of hyperlinks to copyright protected works does not constitute copyright infringement. Although this results in an act of “communication”, the work is not communicated to a “new public”, that is to say, at a public that was not taken into account by the copyright holders when they authorized the initial communication to the public. According to the Court, the same reasoning applies to embedded links, whereby the work referred to appears in such a way as to give the impression that it is appearing on the site on which that link is found.

Although publishing a link, in principle, does not amount to infringement, the ECJ makes it clear that there are circumstances where that would not be the case, namely if the link allows users to bypass restrictions designed to limit access to a protected work to, for example, a website’s subscriber. In that case, those users would be a new public which was not taken into account by the copyright holders.

“Where a clickable link makes it possible for users of the site on which that link appears to circumvent restrictions put in place by the site on which the protected work appears in order to restrict public access to that work to the latter site’s subscribers only, and the link accordingly constitutes an intervention without which those users would not be able to access the works transmitted, all those users must be deemed to be a new public.”

Read the judgment here.

Today, the Court of Appeals of The Hague rendered its judgment in the appeal of internet service providers XS4ALL and Ziggo against anti-piracy organization BREIN. In first instance, the District Court allowed Brein’s claims: an IP-block and DNS-block. Purpose of the block was to prevent the subscribers of the providers to access The Pirate Bay-website.

The Court of Appeals overturned the ruling, since the providers could show that the block had not been effective since the first ruling. In applying the case law from the European Court of Justice (ECJ), the Court of Appeal held that an access provider is not under an obligation to take measures that are disproportional and/or ineffective.

XS4ALL was represented by Christiaan Alberdingk Thijm and Caroline de Vries of bureau Brandeis.

Read the judgment In Dutch: Arrest Hof Den Haag 20140128 or read the English translations of the most relevant deliberations of the Court of Appeals.

The civil liberties committee of the European has demanded the termination of the collection of personal data by the NSA and other intelligence agencies. In a 51-page draft report it stresses that national agencies must “refrain from accepting data from third states which have been collected unlawfully”. The Netherlands needs to revise its law governing the activities of intelligence services to ensure that it is in line with the European convention on human rights. The inquiry committee “stresses that privacy is not a luxury right, but that it is the foundation stone of a free and democratic society”.

On January 9, 2014 Advocate General (AG) at the European Court of Justice (ECJ) Cruz Villalón released a much awaited Opinion (Dutch, English not yet available) in a case regarding the Dutch private copying system. Dutch law currently allows copying of protected works for personal use and has been interpreted such as to also allow copies made from illegal sources on the internet. The Dutch Supreme Court was not sure that this interpretation was in line with article 5(2)(b) of the European InfoSoc Directive and asked the ECJ for an explanatory judgment.

In his opinion, AG Cruz Villalón advises the ECJ to rule that copies from illegal sources should not be covered under the private copying exception in the InfoSoc Directive.

If the ECJ will follow its AG’s advice, downloading from illegal sources will no longer be legal in the Netherlands. This could have a huge impact, especially on the income of authors and artists. They will most likely no longer receive compensation from levies for private copying from illegal sources, while enforcement of their rights on the internet will prove extremely difficult.

Douwe Linders

On November 26, 2013  Advocate General Cruz Villalón issued his Opinion in the UPC Telekabel-case pending before the European Court of Justice.

The Advocate General takes the view that it is incompatible with EU law to prohibit an internet service provider generally and without ordering specific measures from allowing its customers to access a particular website that infringes copyright. A specific blocking measure relating to a specific website cannot, however, be ruled out completely. It is for the national courts to weigh the fundamental rights of the parties against each other and to strike a fair balance between those fundamental rights.

The European Commission has proposed new rules on the protection of undisclosed know-how and business information (trade secrets) against their unlawful acquisition, use and disclosure.

The draft directive introduces a common definition of trade secrets, as well as means through which victims of trade secret misappropriation can obtain redress. It will make it easier for national courts to deal with the misappropriation of confidential business information, to remove the trade secret infringing products from the market and make it easier for victims to receive damages for illegal actions.

Douwe Linders

The District Court of Amsterdam has for the first time applied a ruling of the Supreme Court regarding the seizure of digital evidence. In a judgment of 13 September 2013, the Supreme Court ruled that a debtor must cooperate with the bailiff in order to seize digital evidence that is located on external servers. The debtor must make this evidence accessible to the bailiff by providing him with usernames and passwords. If, for instance, the bailiff seizes a laptop and discovers that the debtor uses services such as Dropbox or Google Drive, the debtor must provide him access to these services. If he does not oblige, the court may decide that certain statements of the plaintiff will be assumed to be correct and may deny the defendant the opportunity to provide evidence to the contrary.

Douwe Linders