CN04 - Top German court permits lump-sum cartel damages clauses of up to 15 per cent

In a decision of 10 February 2021, published at the end of April 2021, the German Federal Court of Justice ("FCJ") ruled in a private damages claim action concerning the German track cartel that lump-sum cartel damages clauses of 5% (as in the case at hand) and, more generally, of up to 15% under certain conditions are permissible.

Key takeaways

• Lump-sum cartel damage clauses (which are often found in general terms and conditions ("T&Cs")) are permissible under German civil law if: (1) the amount of the lump-sum is appropriate, taking into account the average damages expected under normal circumstances; and (2) the defendant has the opportunity to prove that no or lesser damages occurred.
• The FCJ found a lump-sum of 5% (as agreed in the case at hand) and, in obiter, of up to 15% of the purchase price to be appropriate.
• A valid lump-sum cartel damages clause can result in reversal of the burden of proof, i.e. the defendant must demonstrate the existence of no or lesser damages. In cases where no lump-sum cartel damages clause has been agreed, the burden of proof remains essentially with the claimant.

Background

The FCJ's judgment clarifies a controversial debate on whether lump-sum cartel damages clauses – typically found in general T&Cs – are valid under German civil law.

The claimant in the action was a short-distance public transport company, and the defendant was a manufacturer and supplier of tracks.  The claimant acquired from the defendant tracks and tracks parts between 2002 and 2003. The purchase and supply agreement contained the following clause:

"If the Supplier is proven to have entered into an agreement on the occasion of the award which constitutes an inadmissible restriction of competition [...], it shall pay 5% of the awarded sum as lump-sum damages to the Buyer, unless damages in a different amount are proven."

The defendant was subsequently found to have participated, from at least 2001, in price fixing, quota and market sharing agreements as part of a track cartel in Germany. The claimant therefore requested damages based on the clause above. 

The FCJ's ruling

On balancing the claimant's and defendant's interests, the FCJ found that lump-sum cartel damages clauses are permissible and thus can be relied upon by the claimant provided that: 

• the amount of the lump-sum is appropriate, i.e. the amount does not exceed the level of damages typically expected under normal circumstances; and
• the defendant has the opportunity to prove that no or lesser damages occurred.

To determine whether the lump-sum was appropriate the FCJ relied on various studies on cartel overcharges, including the 2009 Oxera Study prepared for the European Commission, but also inter alia studies by Connor and Boyer/Kotchoni. On this basis, the FCJ concluded that, in absence of stronger evidence, a lump-sum of 5% (as agreed between the parties in the case at hand) and, in obiter, that up to 15% of the purchase price would be reasonable and appropriate.  

The FCJ also explained that the applicability of a lump-sum cartel damages clause is not limited to anti-competitive agreements relating directly to the specific award of a contract. Rather, a claimant can rely on such a clause even if the anti-competitive agreement was not specific to the contract award. 

In the case at hand, the FCJ concluded that the appeal court had not properly assessed the defendant's objections that a lower level of damages had occurred, and referred the case back to the lower court. 

Comment

After a series of (slightly) more defendant-friendly decisions emerging from the FCJ (see our February 2021 newsletter and our March/April 2020 newsletter), the above ruling is a landmark decision that is clearly claimant-friendly, not only for on-going cartel damages cases, but as guidance on how to draft permissible lump-sum clauses in purchase and supply agreements to facilitate claims in future cartel damages proceedings.

It remains to be seen whether manufacturers, however, will be prepared to accept such clauses against the background of the FCJ's ruling; especially when considering that in absence of a lump-sum cartel damages clause the FCJ has found that the burden of proof remains with the claimant. In this regard, the FCJ's ruling is unlikely to mean that as general acceptance that cartel damages are to be equated to 15% of the purchase price.