In its decision1 ASG 2, the European Court of Justice (“ECJ”) has decided that national legislation preventing collective redress for cartel damages in so called stand-alone actions is precluded by EU law if national law provides no other effective means of bundling these claims and it is excessively difficult to bring an individual action. It is upon the national court to decide if this is the case.
The Regional Court of Dortmund made the request for a preliminary ruling to the ECJ in the proceedings between the legal service provider ASG 2 and the state of North Rhine-Westphalia (“State”). ASG 2 had brought a group action on the basis of damage claims assigned to it by 32 sawmills following an alleged competition infringement of Art. 101 (1) TFEU by the State which consisted in aligning the sales prices of roundwood. ASG 2 is a legal entity that was founded solely for the purpose of bundling and asserting these claims as a litigation vehicle for a contingency fee. A commitment decision had been adopted by the Federal Cartel Office (“FCO”) under Section 32b of the German Competition Act against the State prior to the proceedings. The State challenges the legal standing of ASG 2 as the assignee. It asserts that the assignments circumvent the applicable Act on Non-Judicial Legal Services (“RDG”)2 because the recovery of cartel damage claims is not within the scope of ASG 2’s license as a collection service provider and the assignments are thus invalid.
According to the referring court it is established case law of the Federal Court of Justice (“FCJ”) that actions of individuals may be bundled by way of the assignment of claims in cases of mass or scattered damages resulting from competition law infringements.3 However, lower instance courts frequently would not accept this assignment model.4 In particular, this would be true for stand-alone actions where there is no final and binding decision by a competition authority on the infringement. According to the referring court, there would be no other feasible remedy under German law in these cases. The referral was aimed at clarification by the ECJ as to whether an interpretation of the RDG that precludes the assignment model is compatible with the Damages Directive 2014/104, the principle of effectiveness of EU law and the fundamental right to effective judicial protection.
It has referred the following questions to the ECJ: (1) Does EU law preclude an interpretation of the RDG that prevents parties allegedly harmed by a competition law infringement from assigning their damage claims to a provider of legal services to assert them collectively if there is a final and binding decision of the competition authority on this infringement (follow-on action); (2) is such an interpretation precluded in stand-alone actions; and (3) if such an interpretation is prohibited in any of these actions, does the court have to disregard the national provisions that cannot be interpreted in conformity with EU law.
Since the subject matter of the initial proceedings was not a follow-on action – because a commitment decision by the competition authority has no binding legal effect – the ECJ rejected the first question as inadmissible. The decision is thus limited to stand-alone damage actions.
In response to the two remaining questions referred, the ECJ ruled that the national rules must be interpreted in conformity with EU law to not exclude an assignment of cartel damage claims to a legal service provider for the purpose of a bundled assertion in a stand-alone damage action, provided that (a) national law does not provide for another effective way of bundling claims that constitutes a suitable alternative to enforce them and (b) it is impossible or excessively difficult for the injured parties to bring an individual action for damages in view of all the circumstances of the individual case. This is because under EU law, a person harmed by a competition law infringement is entitled to full redress. The introduction of a collective redress mechanism and the conditions for the assignment of cartel damage claims constitute modalities of the assertion of damage claims, which, according to established ECJ case law, are not regulated by the Damages Directive but fall within the regulatory competence of the Member States. Nevertheless the Member States’ rules governing competition law related damage claims must, inter alia, comply with the principle of effectiveness and the fundamental right to effective legal protection.5
Whether the two conditions mentioned above are met is to be determined by the national court. However, the ECJ addressed that the complexity and high costs of proceedings in cases of competition law violations do not in themselves make individual actions excessively difficult. This is true even if bundling claims appears suitable to reduce these burdens and thus facilitate the enforcement of claims for damages by the injured parties, in particular in stand-alone actions. Rather, the national court must conclude, “following an assessment of all the legal and factual elements of the case […] that specific elements of national law preclude the bringing of those individual actions.”6 Should the referring court reach this conclusion in the case at issue, this finding would not, however, affect the application of the national provisions (of the RDG) that regulate the activities of the collection service provider (here ASG 2) in the interest of protecting the individual. Those provisions ensure, inter alia, the quality of these services, an appropriate level of remuneration of the service provider and the absence of a conflict of interest on the part of that provider.7
If an interpretation of the national provisions and practice (in this case the RDG) in conformity with the requirements of EU law is impossible, for example because the interpretation would be contra legem, the national court must disregard the national provision in question.8
The decision by the ECJ is likely to increase the chances of success of antitrust class actions based on the assignment model commonly used in Germany. This is because the previously existing risk that the assignments were considered incompatible with the requirements of the RDG and that the litigation vehicle therefore did not have legal standing – as manifested by the decisions of the lower instance courts in Germany – should be reduced in many cases. However, the ECJ’s decision is limited to Section 3 RDG, the violation of which can lead to the invalidity of the assignments in cases where the legal service provider lacks the special expertise to assert cartel damage claims. In contrast, Section 4 RDG, which entails invalidity, for instance, in the event of a risk of conflicts of interest between the assignor and the legal service provider, who in turn has to meet the demands of his litigation funders, was not part of the request for a preliminary ruling.
Before disregarding the provisions of the RDG for the assignment of claims – its interpretation in conformity with the EU law should be ruled out from the outset as contra legem – the German court must first conclude that, in the specific circumstances of the individual case, the individual enforcement of claims is at least significantly impeded. This requirement by the ECJ carries the risk that in the future different results will continue to be promoted, depending on the court deciding the case. The same applies to follow-on actions that are common in Germany and which nevertheless are not part ECJ’s ruling. It is likely that the Regional Court of Dortmund will now affirm the legal standing of ASG 2 in the roundwood case at issue.
Lukas Meyer, LL.M.
Dr. Dominique Wagener, LL.M.
This publication is intended to highlight issues. It is not intended to be comprehensive nor to provide legal advice. Any liability which might arise from the reliance on the information is excluded.
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