(Pre-)final chapter on unbundling legislation by Dutch Supreme Court

After having postponed its decision twice, the Dutch Supreme Court published its decision in relation to the Dutch privatization and ownership unbundling legislation today. According to the unbundling legislation, all integrated Dutch energy companies must unbundle their operations into a network company and a production, trade and distribution company. DELTA, Eneco and Essent are of the opinion that the unbundling legislation, and specifically the group ban, is in conflict with the principle of free movement of capital (Article 63 TFEU), freedom of establishment (Article 49 TFEU) and the right to property (Article 1 ECHR Protocol).

The legal proceedings were initiated in 2007 by the three energy companies against the Dutch State. The Dutch Court of first instance dismissed the action of the energy companies in 2009 after which the Dutch Court of Appeal ruled in favour of the energy companies in 2010. Upon request of the Dutch Supreme Court, the European Court of Justice (ECJ) gave its preliminary ruling on the interpretation of EU law in relation to the Dutch privatisation and ownership unbundling legislation on 24 October 2013:

• The prohibition of privatisation falls within the scope of article 345 TFEU, while the fundamental EU rules, such as the free movement of capital, are still applicable and the privatisation prohibition constitute a restriction on the free movement of capital.
• The group prohibition and the prohibition of activities constitute restrictions and may be justified in the event of overriding objectives in the public interest.
• The objectives of the Dutch unbundling legislation (transparency on the energy market and prevention of distortion of competition by preventing cross subsidies) do constitute overriding reasons in the public interest. However, they must be appropriate to achieve these overriding objectives in the public interest and must not go beyond what is necessary to attain those objectives.

Contrary to what was decided by the Court of Appeal, the Dutch Supreme Court now decided that the unbundling legislation is not in conflict with EU Law. According to the Supreme Court, the legislature has aimed at a high level of security of supply of gas and electricity. By a complete separation of the network management and the production, trade and distribution, the legislature has tried to increase transparency of the energy market. These objectives are considered to be of public interest and therefore, the group ban and ban on additional activities, as laid down in the unbundling legislation, are considered not to be beyond what is necessary to attain those objectives. The Supreme Court states that the unbundling legislation is therefore not in conflict with the principle of free movement of capital and freedom of establishment.

Subsequently, the claims of Essent have been rejected by the Supreme Court. The cases for DELTA and Eneco are being referred back to the Court of Appeal with regard to the invocation of the ECHR. The Court of Appeal will have to rule on the invocation of article 1 ECHR Protocol now, because it did not deal with it the first time.

We will keep you informed on further developments regarding the Dutch unbundling legislation.