Cartel damages prima facie evidence test rejected by top German Court

On 11 December 2018, the German Federal Court of Justice ("FCJ"), the highest German civil court, overruled a judgment of the Higher Regional Court of Karlsruhe in a follow-on damages action regarding the rail track cartel case. The FCJ held that for quota and client-allocating cartels, the existence of a cartel is not prima facie evidence of harm to a claimant, nor that the cartel affected individual purchases. Instead a rebuttable presumption shall apply.

Background

In recent years, German civil courts established - on the basis of economic theories postulating that cartels typically lead to higher prices - case law that a victim of a "hardcore cartel" (i.e. price fixing, customer allocation, quota fixing) would have suffered at least some damage. Claimants simply needed to show:

• the existence of a "hardcore" cartel (as opposed to a non-"hardcore" cartel, e.g. pure information exchange), typically by submitting infringement decisions of antitrust authorities, and
• that it had made business transactions during the cartel period in the relevant market.

If the claimant could show the above, it could rely on the prima facie evidence rule that a cartel had affected its business transaction and that it thus had suffered a damage as a result. On this basis, German courts in the past were willing to decide in "basic" rulings that the cartelists are "in principle" liable for cartel damages where the exact quantum of damages had not yet been determined (which would be decided at a later stage in the proceeding).

Rejection of the prima facie evidence principle by the FCJ

The FCJ in its recent decision, however, rejected the application of the prima facie evidence principle.  This is because:

• the principle can only apply where the result which the prima facie evidence is seeking to prove is an outcome which is expected to naturally occur in the ordinary course of events (the "typicality" requirement); but
• the FCJ held that higher prices do not always flow form cartels to the extent required by the "typicality" requirement, in particular given the diversity and complexity of cartels, and that cartels are not always implemented successfully

Rather, according to the FCJ, whether damages will have resulted depends on various factors which may change from time to time, such as the number of market participants, the number of the cartelists, their ability to exchange the information required for the implementation of the cartel, the market coverage of the cartel, the (extent of the) cartel "discipline" and the ability of customers to switch suppliers. In the case in question, the FCJ also took into account that the claimant was not a regular customer of the defendant, whereas the customer allocation cartel concerned regular customers.

While in light of this the FCJ did not assume the "typicality" required for the prima facie evidence, the FCJ allowed an different (rebuttable) "factual presumption" - that a cartel leads to higher prices and recognised that this presumption is of high indicative significance for a court when considering evidence. For the question whether a "factual presumption" of a cartel-induced price increase can be applied in a given case, the FCJ requests courts to comprehensively evaluate all circumstances of the individual case in an overall assessment.

Conclusions and outlook

The decision of the FCJ and its practical impact are currently subject of intensive debate within the German competition law community since, by way of example, the following aspects are not entirely clear:

• While the FCJ in its judgment has limited the exclusion of the applicability of a prima facie evidence rule to quota and customer allocating cartels, it is a matter of debate whether its legal reasoning suggests that prima facie evidence generally should be applied with caution (for example in the case of price fixing cartels) or whether in cases where additional circumstances mean damages are more likely to be present in all cases that the prima facie evidence rule can apply.
• In the decided case, the FCJ concluded that a "factual presumption" that a cartel leads to higher prices should be applied. For courts, under German law, the "weight" of "factual presumption" when considering evidence is one level below the prima facie evidence rule and thus the "factual presumption" - in comparison to the prima facie evidence typically requires more substantiation to establish. However, in its judgment the FCJ also indicated that the "factual presumption" in cartel cases should have a high indicative significance (implying it should be higher than the usual standard of a factual presumption), it is a matter of debate as to what the practical distinction between prima facie evidence and "factual presumption" should actually be in such cartel cases.

As can be seen from the above, it remains unclear how German courts will apply the decision of the FCJ in practice. It is to be noted that the impact of the decision of the FCJ is limited to damages claims that arose before 27 December 2016 - as for example in the rail track and truck cartel - since with the implementation of the EU Damages Directive, the German legislator has introduced a legal presumption of damage for claims that arose thereafter.