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The Dutch courts have regularly had to reflect on the Wet Markt en Overheid (Dutch Act on Government and Free Markets – the “Act”) this past year. The purpose of the Act is to prevent public authorities from disrupting the level playing field when they themselves undertake an economic activity. The main judgments passed in this field are addressed in this blog. The courts have clarified, for instance, the assessment framework for economic activities, the manner in which public authorities should recharge the costs and what requirements the exception from a public interest decision must meet. The judgments demonstrate that it can be worthwhile for private companies to sue competing public authorities.

The Act

The Dutch Act on Government and Free Markets prevents public authorities from competing unfairly with private market parties when offering economic activities (such as offering parking space or renting out trailer ramps). An example of such unfair competition is when public authorities offer a product or service below cost, provide their own public enterprises with favourable financing or use information that is not publicly available. Private companies then are unable to compete, because public authorities have an unbridgeable “head start” and are able to “fund” market activities using taxpayers’ money. The Act therefore prescribes four rules of conduct that the government and public authorities must observe:

- pass on, at least, the overall costs associated with the product or service (pass on of costs);
- own public enterprises may not be treated preferentially (ban on preferential treatment);
- reuse of public data, provided that those data are also available (on the same conditions) to market parties (obligatory data sharing); and
- segregation of the administrative and economic activities of the organisation that operates on the market (segregation of functions).

The Act does not apply if the government performs a public task or an activity in the public interest. The Act forms part of the Mededingingswet (Dutch Competition Act) and business owners may apply to the Netherlands Authority for Consumers & Markets (“ACM”). ACM may determine by decision that a violation has been committed and may impose an order subject to periodic penalty payments. Aggrieved companies may file a claim for damages in the event of such a violation. Q-park, for instance, recently held the municipality of Veenendaal liable for loss it had allegedly incurred because the municipality charged a low rate at its car parks.

No economic activity

In the Klic viewer case, the Dutch Trade and Industry Appeals Tribunal (“CBb”) clarified the question of what an economic activity entails. The reason was the Klic viewer application that was offered free of charge by the Land Registry to access information on underground cables and pipes. For the interpretation of the term "economic activity", the CBb joined the Compass-Datenbank and Eurocontrol cases of the European Court of Justice. It is apparent from those cases that the criterion is to what extent the activity is related to the exercising of public authority and whether it has a basis in law. It is not decisive whether the statutory rules expressly prescribe the activity. It was irrelevant whether other market parties offered similar activities. Another example are the salary administration services offered by the Sociale Verzekeringsbank as part of a personal care budget. Offering those services also constituted the exercising of a public task. But in the ferry flights case the court found that the transport of aircraft was an economic activity (precisely) because other companies also offered that activity.

Recharging of costs

Public authorities must pass on at least the overall costs when performing an economic activity. The CBb confirmed in the Jachthavens Hellevoetsluis case that the allocation of the costs of an asset must be based on the extent to which the asset is used for the economic activity. The case in question involved the renting out of berths for boats (in which 50% of the costs of the harbour infrastructure had to be allocated to the commercial harbour activities). The CBb thereby confirmed the decision made by ACM and the court, and subscribed to the Explanatory Memorandum to the Act and the Government and Free Markets Decree (in which the cost items are defined).

Public interest

Public authorities may adopt “public interest decisions”, in which case the Act does not apply. In practice, such decisions do not always meet the due care requirements under the General Administrative Law Act (see our earlier blog on this subject), as in the Jachthaven Zeewolde and Municipality of Hengelo cases. The CBb set out the following assessment framework in those cases:

1. Thorough preparation and substantiation. The public authority must thoroughly substantiate why market parties cannot provide certain (public) activities (market failure must be involved). In the Hengelo car parks case, for instance, it had been insufficiently substantiated why market parties could not meet the demand for parking spaces.
2. Necessity. The public authority must demonstrate that the public interest is served. The Municipality of Zeewolde, for instance, had insufficiently substantiated why the harbour could not be operated at the overall cost price and why it was necessary to offer the activity below cost. The municipality had also insufficiently investigated what prices should be charged to serve the public interest.
3. Reasonableness & proportionality. The public authority must make a public interest decision in a reasonable manner. The decision must actually achieve the proposed effect and must minimise or compensate for the loss incurred by the market party involved. The interests involved must therefore be weighed.

This assessment framework was recently applied in the Emmen car parks case. That judgment also demonstrates that courts must critically assess whether a public interest decision was reasonably and carefully made. This development is in line with the bill aimed at tightening the public interest exception by allowing business owners to participate. A public interest decision must, for instance, comply with the uniform public preparatory procedure under the General Administrative Law Act. This means that the public authority must publish the proposed public interest decision and must give interested parties the opportunity to respond.

It remains to be seen whether these measures will adequately ensure that public interest decisions in the future no longer undermine the practical effectiveness of the Act. The proposed change in the law and thorough assessment by the court in any event contribute to the gradual creation of a level playing field between business owners and public authorities. Until that time, private companies are well advised to carefully check whether competing public authorities are not breaking the law.

More information is available on the updated ACM information page on the Act and the Guide to the Dutch Act on Government and Free Markets.