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ECJ leaves it up to the Dutch Court to decide on unbundling legislation

24/10/2013

Today the European Court of Justice (ECJ) rendered its decision in respect of the request of the Dutch Supreme Court for a preliminary ruling on the interpretation of EU law in relation to the Dutch privatization and ownership unbundling legislation.

The questions submitted to the ECJ were the following:

  1. whether or not the Dutch 'prohibition of privatization' constitutes a regulation of ownership under Article 345 of the Treaty on the Functioning of the European Union ("TFEU");
  2. in case the first question is answered in the affirmative, whether as a consequence the rules of free movement of capital as set out in Article 63 of the TFEU are not applicable to the 'group prohibition' and the 'prohibition of activities'; and
  3. whether or not the objectives on which the unbundling legislation is based (i.e. transparency on the energy market and prevention of distortion of competition by preventing cross subsidies) may constitute a justification for the restriction of the free movement of capital.

In respect of the first question the ECJ has taken the position that the prohibition of privatization falls within the scope of article 345 TFEU. However, according to the ECJ the fundamental EU rules such as the free movement of capital are still applicable and the privatization prohibition constitutes a restriction on the free movement of capital.

In respect of the second question the ECJ also finds that the group prohibition and the prohibition of activities constitute restrictions on the free movement of capital. These restrictions on the free movement of capital may according to the ECJ be justified in the event of overriding objectives in the public interest.

Answering the third question, the ECJ rules that the objectives on which the Dutch unbundling legislation is based, i.e. transparency on the energy market and prevention of distortion of competition by preventing cross subsidies, do constitute overriding reasons in the public interest. However, the unbundling legislation must also be appropriate to achieve these overriding objectives in the public interest and must not go beyond what is necessary to attain those objectives. The ECJ leaves it up to the Dutch Supreme Court to determine whether this is the case.

After today's ruling of the ECJ it will therefore be for the Dutch Supreme Court to determine whether the Dutch privatization and ownership unbundling legislation are justified and appropriate and necessary in respect of their underlying objectives. In that way this ruling leaves it up to the discretion of the Dutch Supreme Court to make a final decision on the Dutch unbundling legislation. Until then it will be uncertain whether the Dutch energy companies that are currently integrated will have to eventually unbundle.

Ruling ECJ - 22 oktober 2013

Authors

Picture of Cecilia Weijden
Cecilia van der Weijden
Partner
Amsterdam