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The EU Court of Justice (CJEU) has weighed in on the German assignment model as a vehicle for collective enforcement of cartel damages claims. Under this controversial model, claims vehicles bundle several parties’ claims into one action by way of assignment. The CJEU has now held that, under certain conditions, national legislation preventing such group actions can violate EU law. However, the CJEU leaves the examination of those conditions to the national courts. So, there is more to come!
In the absence of US-style class actions in Germany, claimant law firms and litigation funders have developed the so-called assignment or debt collection model for the collective enforcement of claims. Under this model, a claims vehicle is established to initiate collective actions for various cases of mass damage. Following the assignment of claims by individual claimants, the claims vehicle files a lawsuit in its own name. In return, the assignors have traditionally received a remuneration dependant on the outcome of the litigation.
After initial controversies, the German Federal Court of Justice generally permitted this form of claims bundling. However, it remained open whether its ruling applies in complex B2B cases such as cartel damages claims, where the assignment model remained very popular despite the recent introduction of representative redress actions.
The CJEU, in its ruling arising out of a stand-alone competition litigation matter, respects that it is for each Member State to determine the rules governing private enforcement of competition law in the light of, in particular, the principle of effectiveness and the Cartel Damages Directive. However, the Court also highlights that the Cartel Damages Directive specifically acknowledges damages actions based on assignments. The Grand Chamber concludes that legislation prohibiting a group action for collection based on assignments may violate EU law. According to the judgment, that is the case (i) where national law does not provide any other collective means of grouping individual claims; and (ii) where it is impossible or excessively difficult to bring an individual action seeking to assert that right to compensation. Whether these criteria are met under German law, as asserted by the referring German court, is a matter for the national courts to assess.
Until the German courts conclusively determine whether the CJEU’s caveats are applicable, claimants and defendants alike will continue to face considerable legal uncertainty. This will probably not be resolved with the subsequent decision of the Regional Court of Dortmund, which will only provide a first instance ruling that remains subject to appeal. Furthermore, similar cases are currently pending in other German courts.
Regarding the first question whether German law provides any other collective means of grouping individual claims, German courts will have to check, in each individual case, whether any of the other existing means of collective redress apply. For instance, the defendants in the present case pointed out that factoring might be an alternative way of bundling claims. Moreover, the German legislator meanwhile introduced representative redress actions which are in principle available for cartel damages claims by consumers and small businesses. Whether this mechanism can in practice be (cost-)effectively used for complex cartel damages claims remains to be seen and it will be interesting to see how this will feature in further proceedings.
Second, depending on the peculiarities of the case, the courts will not always be able to determine that it is impossible or excessively difficult to bring an individual action. The Regional Court of Dortmund argued that, particularly in cases where there are small amounts in dispute, injured parties tend to refrain from asserting their damages claims if they can only pursue them with an individual action because these are typically extremely costly and time-consuming. As the defendants point out, it can be called into doubt whether such a rational disinterest exists in cases such as the present one which also includes very high amounts in dispute. As the CJEU rightly adds, the complexity of cartel damages actions and the associated procedural costs cannot in themselves lead to such a conclusion, but the national court must come to this decision by assessing all the legal and factual circumstances of the individual case.
Eventually, however, these questions might not even need to be decided if another preliminary question is finally addressed. As the defendants in the present case claimed, there are German rulings according to which the assignment model can be used in cartel damages cases. For example, the Higher Regional Court of Stuttgart supported this approach while other courts, such as the Higher Regional Court of Munich, have issued different verdicts. It is very well possible that the Federal Court of Justice will rule on this question first. If the Federal Court interprets the relevant rules broadly, in line with the Stuttgart court, the conditions set out by the CJEU will ultimately no longer be relevant.
Until the courts have finally clarified one or the other question, claimants and defendants will continue to face considerable uncertainty and risks. In view of the high amounts at stake in cartel damages cases and the ever-increasing appetite of litigation funders for these types of cases, the battles on the admissibility of the assignment model are likely to continue. This will particularly be the case in follow-on actions which the CJEU did not cover in its judgment. Nonetheless, the assignment model is expected to remain the most important instrument for private enforcement in Germany for the time being.