On 29 May 2020 the German Supreme Court (‘Bundesgerichtshof’) published two judgments (KZR 23/17 y KZR 25/17) in which it provides detailed guidance on the legal principles and the standard of proof to be applied for the substantiation of damages in follow-on damage actions in the light of EU law principles. These judgments are of wide interest for courts across the EU as Germany’s highest civil court sets out the practical implications of the recent case law of the CJEU in cases Skanska (C-724/17) and Otis (C-435/18) for the establishment of causality and damages.
The judgments concern two damage actions brought by public transport companies against members of the German rail-tracks cartel. According to the findings of the German Competition Authority (‘Bundeskartellamt’) producers of rail-tracks had infringed the EU (Art. 101 TFEU) and the German (Art. 33 ARC) cartel prohibition between 2001 and 2011 by agreeing on prices, quotas and allocating customers. The two public transport companies had purchased rail-tracks during the relevant period from the cartel members. Based on the fining decision by the Bundeskartellamt the companies brought separate damage actions against one of the cartel members in which they requested that the defendant should be held liable in principle for any damage caused by the cartel. The first and the second instance court decided in favour of the claimants, mainly on the basis of the then established case law, confirming a prima facie evidence that cartels in general result in a damage. The Bundesgerichtshof in line with its earlier judgment in the rail-track cartel case (judgment of 11 December 2018 – KZR 26/17) held that claimants cannot rely on such prima facie evidence and therefore sent the cases back to the appeal court which now has to consider again the question of liability of the cartel member for any damage caused, without relying on the prima facie evidence. However, the Bundesgerichtshof used the reasoning in the judgments to provide the lower courts with clear guidance on the principles and standards to apply in their decision on the substance of the damage actions.
EU law determines entitlement to damages, liability for damages and the causal link between infringement and damage
At the outset of its general conclusions the Bundesgerichtshof stipulates under reference to the recent CJEU judgments Skansa y Otis that in case of an infringement of Art. 101 TFEU EU law determines (i) the persons entitled to bring a damage action, (ii) the persons and/or legal entities liable for the damage, and (iii) the concept of causal link between the conduct prohibited under Article 101 TFEU and the alleged damage. The Bundesgerichtshof confirms the wide scope of the right to obtain damages under EU law as well as its aim to prevent future infringements: “In order to enhance the enforceability of the Union’s competition rules and to deter undertakings from entering into agreements or practices which – often secretly – restrict competition, any person may claim compensation for the damage suffered as long as there is a causal link between the conduct prohibited under Art. 101 TFEU and the harm suffered”. Therefore, not only market participants active on the directly affected market or on neighboring markets (typically direct or indirect purchasers or suppliers of the cartel members or of cartel outsiders) are entitled to claim for damages. Rather, the group of persons entitled to claim damages also extends to other third parties whose assets have been adversely affected by the cartel agreement.
Standard for the establishment of liability and causality – no need to show cartel effect on individual transactions
The Bundesgerichtshof then sets out the standard for the establishment of liability in principle (i.e. prior to the quantification of the damage). According to the Bundesgerichtshof the courts “merely have to examine whether the defendant is guilty of an anti-competitive conduct which – through the conclusion of sales transactions or otherwise – is capable of directly or indirectly justifying that the claimant suffered a damage.” In the case at hand this standard was met “without further ado” as the claimant had purchased goods that were subject of the cartel agreements from the defendant.
The Bundesgerichtshof further clarified that for the establishment of the causal link, it was not required to determine whether the cartel agreement actually had an effect on the individual procurement transaction in question. The Bundesgerichtshof specifically held that it was not necessary to show such ‘cartel affectedness’ of each individual transaction in order to establish liability and that this was a question of the quantification of the damage. According to the Bundesgerichtshof, “If it turns out that the claimant has suffered a loss attributable to the cartel agreement, it is also clear that the prohibited agreement had a detrimental effect on the transaction, in particular on the price paid.” Pursuant to the Bundesgerichtshof this is in line with the requirements of EU law as established in Otis according to which not only participants on directly affected or neighbouring markets, but also only indirectly affected third parties which did not enter into direct or indirect transactions with the infringers, can claim compensation for the damage caused by a cartel.
Standard for the quantification of the damage
The Bundesgerichtshof also provides detailed guidance on the standards to be applied in relation to the quantification of the damage caused by a cartel.
a) National procedural law (lex fori) to be applied in light of EU law principles of effectiveness and equivalence
Under reference to the case law of the CJEU (C‑557/12 Kone) the Bundesgerichtshof held that while the right to compensation for damages in case of an infringement of Art. 101 TFEU, including the concept of causality, is governed by Union law, the modalities, including the civil procedural law requirements regarding the judicial determination of the relevant facts, are governed by national civil procedural law (lex fori). However, in the application of the national procedural rules the national courts are bound by the principles of equivalence and effectiveness to ensure the effective application of the EU competition rules and the resulting right for compensation.
b) Standard of proof in view of hypothetical nature of the ‘but-for’ price and the power to estimate
The Bundesgerichtshof then specified that due to the necessarily hypothetical nature of the ‘but-for-price (i.e. the price in the absence of the anticompetitive conduct) the finding that the price level in a market affected by a cartel agreement is higher than the hypothetical price level in the absence of the agreement can only be made on the basis of circumstantial evidence. Therefore, judges can only arrive at conclusions on the hypothetical market price by taking into account the circumstances which indicate how market events would probably have developed without the cartel agreement. The competent judge must make the necessary findings in a free assessment of all the facts and circumstances available and by relying on its authority to estimate damages. According to the Bundesgerichtshof a clearly predominant probability that a damage has occurred is sufficient. In this context the Bundesgerichtshof also specified that circumstances which contradict the assumption that a cartel causes damages, such as a possible lack of cartel discipline, are only to be taken into account if they find sufficient support in the facts presented by the parties or in the binding findings of the decision of the competition authority.
c) Presumption of harm in cartel cases
Although the Bundesgerichtshof held that there is no prima facie evidence that cartels result in damages, it confirmed that there is a factual presumption in this respect: “For the benefit of the customer of an undertaking participating in a cartel agreement there is an actual presumption based on the high probability of such an event that the prices achieved within the framework of the cartel are on average higher than those which would have been established without the restrictive agreement.” This presumption gains in importance the longer and more persistently a cartel has been practiced. Overall, the weight of the experience depends decisively on the concrete form of the cartel and on which further circumstances can be ascertained that speak either for or against a price effect. In the case of a quota and customer allocation cartel, as in the case at hand, there is strong evidence that the cartel influenced the price level.
d) Establishment of market-wide price effects sufficient
The Bundesgerichtshof also clarified that it is not necessary to establish a price effect for each and every single transaction, but that the establishment of market-wide price effects is sufficient: “If the judge is convinced that on the market concerned not only individual sales transactions were concluded at higher prices than without the cartel agreement, but that the cartel agreement had a general effect on the prices enforceable by the participating companies, no further findings on the “cartel affectedness” of a specific transaction are necessary.”
e) Cartel inefficiencies are part of the damage analysis
An additional aspect the appeal courts will have to look into in the context of the quantification of damages are potential cartel inefficiencies. The defendant had argued that the cartel agreement had the sole purpose of improving the capacity utilisation of the cartel members. The Bundesgerichtshof clearly disagreed: “On the contrary, this argument may indicate inefficiencies which could be maintained as a result of the cartel agreement, whereas without the cartel agreement the suppliers could have been forced to make price concessions in order to better utilise their own capacities.”
f) Lingering effects have to be considered
Finally, the Bundesgerichtshof confirmed previous case law according to which potential lingering effects of the cartel it will have to be taken into account: “It has to be considered, whether there are indications of an influence of other market factors, that the prices in the post-cartel period continued to be adversely affected due to the market structures affected by the long duration of the cartel.”
The recently published judgments of the Bundesgerichtshof on follow-on damage actions in the rail-track cartel provide important guidance on the applicable law as well as the standards of proof regarding the establishment of causality and damages in cases of infringements of Art. 101 TFEU. While written for German courts, the considerations of the Bundesgerichtshof are an important source of inspiration also for courts from other EU member states on how to determine causality and harm in damage claims resulting from infringements of Art. 101 and 102 TFEU in particular in the light of the recent Skanska y Otis judgments of the CJEU. It would not be a surprise if the approach by the Bundesgerichtshof specifically to these questions would set a pan-European standard similar to its approach to pass-on in the ORWI judgment (KZR 75/10).
By Till Schreiber and Martin Seegers