Judicial review of FDI enforcement is rare in the Netherlands. In one of the first matters brought before a Dutch court, the broad retro-active ‘call-in’ powers of the Dutch Minister of Economic Affairs and Climate (‘Minister’), as provided for in the Act on Security Screening of Investments, Mergers and Acquisitions (‘Vifo Act’ or ‘Act’), were scrutinised and the Minister’s enforcement actions were effectively curtailed. The ruling from the District Court of Rotterdam (‘Court’) on 25 April 2024 followed from a claimant active in micro-optic products seeking interim relief against an order by the Minister to submit an FDI filing for substantive review in relation to a transaction that took place before the Act entered into force.
Given that FDI review is generally considered somewhat of a ‘black box’ exercise, it is for that reason alone already very interesting and helpful but it also sheds light on the nascent FDI enforcement practice in the Netherlands. Although in itself a relatively small step, the ruling may hopefully lead to an increase of legal certainty.
What happened?
Only two weeks after the entry into force of the Vifo Act (on 15 June 2023), the Minister issued an order to the claimant to submit an FDI filing for review in relation to a transaction that was implemented on or around 2 April 2021. In short, the Minister made use of the Vifo Act’s possibility to retro-actively ‘call in’ transactions that took place (well) before the entry into force of the Vifo Act. The claimant objected but the Minister took a formal decision on 18 March 2024 declaring the objection unfounded. Subsequently, the Minister ordered the claimant (again) to submit an FDI filing by 29 March 2024. The claimant accordingly sought interim relief in summary proceedings (voorlopige voorziening) at the Court.
The Minister made use of his retroactive power to ‘call in’ this transaction because he declared that he had indications that the transaction may put national security at risk. Indeed, article 58(1) of the Vifo Act stipulates that if the Minister has reasonable grounds to believe that an ‘acquisition activity’ (verwervingsactiviteit) that took place before the entry into force of the Vifo Act on 1 June 2023, but after 8 September 2020, may give rise to a risk to national security he may ‘call in’ a notification from the relevant parties in order to assess the perceived risks to national security.
The claimant is a company with Dutch activities concerning micro-optic products such as lenses, lasers, optical coatings and optical systems based on chip technology. The claimant submitted that the ‘reasonable grounds suspicion’ of a risk to national security, which allows the Minister to retroactively ‘call in’ certain transactions, is necessarily only limited to those transactions that qualify as ‘acquisition activities’ in the first place. In short, if there is no ‘acquisition activity’, even in case of a suspicion of risks to national security based on reasonable grounds, the Minister cannot review that particular transaction.
The claimant argued that, before getting into whether or not there was the required reasonably suspected risk to national security, the Minister had no jurisdiction because the transaction did not amount to an ‘acquisition activity’ as defined in the Vifo Act. According to the claimant, there was no such ‘acquisition activity’, as there was no acquisition of control (as meant in the EU Merger Regulation) and neither was there an acquisition or increase of significant influence (which is a lower threshold under the Act that only applies to so-called ‘highly sensitive technology’ such as semiconductors, photonics, quantum and high-assurance products). During the administrative objection procedure, the Minister was apparently not sufficiently convinced of the claimant’s argumentation on this topic and took the position that without further clarity he would consider the transaction an ‘acquisition activity’ within the meaning of the Vifo Act. The claimant argued before the court that this would effectively shift the burden of proof away from the Minister. The Minister indicated that the assessment of whether a transaction concerned an ‘acquisition activity’ could also be done on the basis of a formal notification (as requested in this case). The Minister held that if it subsequently turned out that there was no ‘acquisition activity’ and thus not grounds to require a notification, the claimant could claim damages from the Minister.
In its interim ruling of 25 April 2024, the Court ruled that the ‘reasonable suspicion’ in article 58(1) of the Vifo Act, as required for a retroactive call-in and review, relates to the potential risks to national security and does not apply to the question whether the transaction concerns an ‘acquisition activity’. The Court subsequently found in favour of the claimant that the formal decision(s) of the Minister requiring the claimant to submit a notification for review did not meet the required level of care from the Minister in regards preparation and investigation, and that the latter effectively and wrongly placed the burden on the claimant to prove that its transaction does not amount to an ‘acquisition activity’. Indeed, the Court went on to rule that on the basis of the documents disclosed and explanations given in the court procedure, it was clear that no voting rights were transferred as part of the transaction in 2021 and that, accordingly, the Court could not see how that could lead to the required ‘acquisition activity’. In conclusion, the Court ruled that the Minister had no jurisdiction in ordering the claimant to submit an FDI filing under the Vifo Act.
Conclusion and next steps
The Court’s ruling appears to be the only logical interpretation, especially considering the need of businesses to have maximum legal certainty, in an increasingly complex environment of regulatory scrutiny, in particular in an FDI review context. Given the nascent FDI enforcement practice in the Netherlands, it is crucial to have appropriate scrutiny through court reviews and publicly available rulings and judgments as those are necessary elements to a balanced, professional, predictable and fit-for-purpose regulatory environment.
Immediate takeaways are to always take the Dutch FDI regime very seriously and to generally try to work with the Dutch FDI regulator. However, it is prudent to be mindful that the Dutch FDI regulator must also act within the strict boundaries of the new legal framework it operates in, and that it may also – perhaps in something akin to youthful enthusiasm – overstep its powers. A critical legal review of powers and rights in each regulatory interaction and each (preparatory) step is thus advised. Given that this is interim relief in summary proceedings, the Minister’s order for the claimant to submit an FDI filing will be suspended pending a further substantive procedure where the matter may be revisited. We would hope and expect that the same line is followed in that substantive procedure.
