German Federal Court of Justice: no double prima facie evidence in cartel damages litigation

In a landmark ruling dated 11 December 2018 (KZR 26/17 – “rail cartel”), the German Federal Court of Justice decided that, in a quota-fixing and customer-assigning cartel, the prerequisites for prima facie evidence to establish whether the cartel has inflicted damage and whether it has affected individual orders are not fulfilled. This means that courts will now have a much more comprehensive duty to form their own opinions regarding the subject matter of antitrust violations, the market situation, the unique aspects of the products and negotiations at issue and the members of the cartel. Contrary to established practice and the assumptions upon which the Karlsruhe Higher Regional Court, as the previous court instance, based its judgment (10 March 2017 – 6 U 132/15 – Kart.), it is no longer sufficient to base a declaratory judgment or a judgment on the basis of the cause of action on a decision by a competition authority, e.g. the German Bundeskartellamt or the European Commission.

Lack of cartels’ typical chain of events and thus no prima facie evidence

In its ruling the panel of judges specialising in cartel law in the Federal Court of Justice expressly rejects prima facie evidence of cartel damage and influence when dealing with quota-fixing and customer-assigning cartels because a typical course of events for cartels cannot be established . A typical course of events is a  prerequisite for prima facie evidence. The Court of Justice states that although cartel agreements generally aim for the most comprehensive effects possible, the compliance with and successful implementation of the cartel’s agreements cannot in any event be assumed with the necessary probability. But this would be necessary so that higher prices would constitute a typical course of events. In particular, the court continues, it cannot be assumed that companies that pursue their own interests always maintain cartel discipline. Thus, the court concluded, the varying unique aspects of cartels, market conditions and the conduct of participating companies must be examined on a case-by-case basis.

Factual presumption of damage instead of prima facie evidence

A prerequisite for claiming compensation for damage is that the plaintiff has sustained a loss, i.e. the transactions in dispute could have been concluded at more favourable conditions if competition law had not been violated. However, prima facie evidence cannot be used for this. Instead, the (less strict) standard of evidence set forth in section 287(1) German Code of Civil Procedure applies. In this context, the trial judge must consider all arguments rather than restricting consideration to the issue of whether a specific defence can cast doubt on the situation that the prima facie evidence seems to indicate.

However, according to the Federal Court of Justice’s ruling, a factual presumption (“tatsächliche Vermutung”) indicates the existence of damage due to a cartel in the “rail cartel” case. In this case, the Federal Court of Justice repeated its previous case law, which stated that economic experience shows that establishing and implementing price, quota or customer cartels often leads to increased profit for the participating companies and that even according to economic principles, cartels often prove profitable. It continued by stating that, in the context of discretionary evaluation of evidence, such a factual presumption ordinarily has strong circumstantial significance. In addition, it stated that the effectiveness principle anchored in European law is also to be considered, which means that no excessive requirements may be placed on the plaintiff’s arguments and evidence. Nevertheless, the court stated that the result of this must not be that concrete arguments by cartel participants stating that a particular cartel has not had any negative effects on prices are ignored in the overall evaluation of evidence.

In this “rail cartel” case, the defendants’ arguments included the statement that the agreements had only been aimed at better production capacity utilisation, which, in the end, had even led to price reductions. The Karlsruhe Higher Regional Court will have to consider this argument now that the case has been remanded to it.

Plaintiff must prove cartel influence

In addition, the plaintiff must demonstrate and prove that it was affected by the cartel. Relaxation of rules of evidence do not apply. The court must apply the strict standard of section 286 of the German Code of Civil Procedure here.

However, because the cartel judges believe that quota-fixing cartels and customer-assigning agreements are ordinarily aimed at a particularly comprehensive effect, they stated that this experience could form the basis of a factual presumption that orders falling under the terms of the cartel agreements in terms of subject matter, time and territory are affected by such agreements and are thus influenced by the cartel. However, according to the court, this as well is only an indication that is to be taken into consideration by the adjudicating court in the context of an overall evaluation.

In explaining why it remanded the case at issue to the Karlsruhe Higher Regional Court, the Federal Court of Justice made it clear that one indication that could weaken this presumption might be practical difficulties on the part of the cartel participants in implementing the agreement or exchanging information.

Federal Court of Justice’s clear assignment to the courts of lower instance

The ruling clearly tasks the courts of lower instance with making their own decisions – if appropriate, after hearing evidence – and not merely routinely trusting prima facie evidence supported by a competition authority’s decision. This means that the plaintiff retains the burden of proof of a cartel’s damage and influence, although the court can, of course, continue to use factual presumptions as a reference for the benefit of the plaintiff in the context of a comprehensive evaluation.  

Nevertheless, defendants will now at least have more chance of success in refuting presumptions; in current practice, it is almost impossible to cast doubt on the double prima facie evidence almost unanimously presumed by regional courts and higher regional courts.

Thus, it is important for both sides in cartel damages litigation to demonstrate in a manner that the court can agree with – and, in case of doubt, prove – why a claim by an individual plaintiff against a specific cartel exists or actually does not. Our interdisciplinary team of experienced antitrust and competition law and litigation experts would be pleased to support you in this.

At the Noerr Competition Day on 8 February 2019 you can have a live discussion with us on the effects of the ruling on the enforcement of your company’s cartel damages claims.

Link to the complete wording of the ruling by the Federal Court of Justice (in German)