Spain | The Madrid Provincial Court Upholds the passing-on defense

Madrid’s P.C upholds the passing-on defense and rules that the doctrine does not apply to damages arising from competition law infringements

Spain | The Madrid Provincial Court Upholds the passing-on defense
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June 9, 2022

In its Judgment 377/2022, of May 19, on the 10-year insurance cartel (the “Insurance Cartel”), the Madrid Provincial Court (the “Court”) has upheld the appeals filed by SCOR GLOBAL P&C IBÉRICA SUCURSAL and ASEFA SA SEGUROS Y REASEGUROS against the first instance judgment delivered by Madrid Commercial Court No. 2 (Judgment 210/2020, of June 9). The Court reversed the first instance judgment and dismissed the claim filed by REALIA BUSINESS S.A. (“REALIA”), which had brought a follow-on action based on the CNC’s decision of November 12, 2009, that declared the existence of the Insurance Cartel.

REALIA had taken out 10-year insurance policies with MAPFRE, which despite being fined under the CNC’s decision, ended up being released in the contentious-administrative proceedings. However, the Court considers that REALIA could have suffered an indirect damage arising from the anticompetitive conduct’s effects on the market.

Madrid’s Provincial Court stresses out the importance of proving this damage and highlights the inapplicability of the res ipsa loquitur doctrine, since not all cartels lead to an overcharge. According to the Court, this is confirmed by conclusions of reports like Oxera’s, evidencing that a significant share of cartels cause no harm. This is why the Court underlines the importance of examining every case individually.

After reviewing the expert reports, the Court rejected the report submitted by REALIA, which “cannot be considered for determining the existence and quantum of damages.” According to the Court, KPMG’s expert report filed by the co-defendant SCOR provides the “most comprehensive and reasonable” counterfactual scenario. Therefore, the Court upheld the result of this assessment, which provided a quantum of €159,253.91, in contrast with REALIA’s €2,651,570.82 claim. However, the Court found that REALIA did not suffer an effective damage because it was passed on in the price of its real estate development projects, thus upholding the passing-on defense put forward by the co-defendants.

The Court recalls that the passing-on defense is based on EU Law and on the domestic provisions precluding unjust enrichment. Therefore, contrary to the first instance judgment -which rejected this defense on grounds of temporal applicability- the Court considered applicable the said defense with no need for relying on article 78(3) of the Spanish Competition Act, which regulates this defense and was introduced by Royal Decree-Law 9/2017, of May 26, transposing the Damages Directive.

Based on the existing evidence, the Provincial Court concluded that “the overcharge paid by the claimant was passed on to the clients as a real estate development cost, so the damage arising from the unlawful conduct was not suffered by the real estate developer, rather it was passed on to those who purchased the homes”. After assessing the evidence submitted in the first instance proceedings, the Court found that when setting the home prices, all costs were considered and then recovered, including the cost of the 10-year insurance, which did not cause a decrease in REALIA’s sales or income, since during the cartel period “there was a real estate boom which led to an increase in home prices and real estate developers’ income.” So, the Court concluded that awarding damages to REALIA would constitute an “inadmissible” unjust enrichment.

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June 9, 2022