Insights

On 28th January 2025 in Case C-253/23, “ASG 2 Ausgleichsgesellschaft für die Sägeindustrie Nordrhein-Westfalen GmbH v Land Nordrhein-Westfalen” the European Court of Justice (“ECJ”) clarified the compatibility of national law provisions limiting collective actions with the right of persons to be compensated for harm caused to them as a result of a competition law infringement. The ECJ confirmed that victims of competition law infringements may assign their right to claim damages, if this is the only way in which their right to seek damages can be effectively exercised.

Background to the Case

In March 2020, a group of sawmills established across Germany, Belgium and Luxembourg assigned their rights to claim compensation from harm caused to them as a result of anti-competitive behaviour against the Land Nordrhein-Westfalen (“Land”) to ASG 2 (“ASG”). The Land had allegedly participated in a price-fixing cartel for the price of unwrought coniferous timber which violates Article 101(1) of the Treaty on the Functioning of the European Union (“TFEU”). The German national competition authority carried out an investigation and imposed a commitment decision on the Land and the other undertakings involved.

As a result of the cartel, the sawmills felt that they had paid inflated prices for the unwrought coniferous timber that they had purchased from the Land and sought to institute a private enforcement action before the Regional Court of Dortmund (“Referring Court”). Instead of pursuing these actions individually, 32 of the sawmills assigned their right to compensation to ASG. ASG is classified as a provider of legal services under German law and it proceeded to institute one action on behalf of the sawmills, in its own name and at its own expense, with the hopes that it would eventually get paid its fees in the event that the case is successful (a practice which in legal terms is known as quota litis^[1]).

Land challenged the case before the Referring Court both on the merits as well as its admissibility. In essence, Land argued that German case-law prohibits the assignment of cartel damages cases for the purposes of instituting a class action lawsuit and this based on the interpretation of the German rules on the legality of the assignment to legal services (“RDG”). Thus, in Land’s view, ASG did not have any legal standing, and the action instituted was therefore, inadmissible.

Questions referred to the ECJ

The Referred Court observed that it is difficult for individuals to institute private damage claims alone, and that only actions instituted through collective procedural mechanisms were capable of effectively allowing these cases to be instituted. In light of this, the Referred Court asked the ECJ whether Article 101(1) TFEU read in conjunction with the principle of effectiveness, Directive 2014/104/EU of the European Parliament and of the Council of 26 November 2014 on certain rules governing actions for damages under national law for infringements of the competition law provisions of the Member States (“Damages Directive”) and Article 47 of the Charter of Fundamental Rights precludes an interpretation of national law (such as the German law in question) that has the effect of preventing victims harmed by alleged competition law infringements of assigning their rights to compensation to a provider of legal services so that the provider may assert their action on their behalf.

Private action in EU Competition Law

Prior to delving into the ECJ’s considerations, a short note on private enforcement in EU competition law is appropriate.

It is now settled case law that EU competition law can be enforced through both public enforcement such as action taken by a national competition authority or through private enforcement. Private enforcement of EU competition law helps guarantee the full effectiveness of Article 101(1) TFEU and acts as a deterrent to anticompetitive behaviour. Consequently, victims that have suffered harm as a result of anticompetitive behaviour are entitled to claim compensation, provided that there is a casual link between the harm caused and the infringement (Case 295/04-Case 298/04 Manfredi and Others).

Victims that wish to seek due compensation may either bring an action following a national competition authority’s decision finding an infringement or a court’s judgement finding same or else, may institute their own case, without the need of there being a prior infringement decision. Naturally, the latter route presents a more difficult avenue for victims, given that they must themselves prove that a competition law infringement took place, prior to seeking the award of damages.

The ECJ’s Considerations

The ECJ observed that the Damages Directive which was aimed at harmonising the rules on private enforcement action in Member States, envisages the possibility of class action lawsuits. Reference was made by the ECJ to Article 2(4) of the Damages Directive which defines an action for damages as an action under national law by which a claim for damages is either brought by an injured party, or by someone acting on behalf of one or more alleged injured parties. However, the ECJ also observed that the Damages Directive does not oblige Member States to provide for the possibility of group actions under their national law and nor does it lay down the rules which govern group actions or which conditions they should satisfy for the assignment of claims to be valid.

In view of the lack of EU rules governing this matter, Member States are left to their own devices to lay down detailed rules governing the exercise of the right to seek compensation for harm resulting from infringements of competition law, subject to the principles of effectiveness and equivalence. The principle of effectiveness limits Member States’ procedural autonomy and mandates that national rules relating to the exercise of a person’s rights as guaranteed under EU law must not make the exercise of that right practically impossible or excessively difficult. Effectively this means that the national domestic rules on actions governing the compensation for damages must not be set up in such a way that jeopardises the effectiveness of the application of Article 101 TFEU.

Keeping the principle of effectiveness in mind, the Referring Court observed that a collective group action is the only way in which victims of competition law infringements can effectively exercise their right to seek compensation, in view of the particularly complex, long and costly nature of bringing an individual claim which may discourage them to bring an action.

On this point, the ECJ held that whilst it recognises that the bringing of actions for damages resulting from a competition law infringement does in fact require, in principle, a complex factual and economic analysis, such complexity does not itself support the conclusion that this would render individual actions impossible or excessively difficult and therefore, rendering class actions as the only way in which the right to compensation is guaranteed. Rather, an analysis of the legal and factual circumstances of the case at hand would need to be undertaken to determine whether this is the case.

Whilst leaving the determination as to whether the RDG meets the principle of effectiveness or not in in the hands of the Referring Court, the ECJ held that a reading of Article 101(1) TFEU read in conjunction with the principle of effectiveness, the Damages Directive and Article 47 of the Charter of Fundamental Rights, precludes an interpretation of national rules which has the effect of preventing persons allegedly harmed by an infringement of competition law from assigning their claims for compensation to a provider of legal services who may bring on their behalf a group action provided that:

1. national law does not provide any other possible mechanism of grouping claims that would ensure the effectiveness of the exercise of their rights to compensation; and
2. the bringing of an individual action for damages is, taking into account all the circumstances of the case at hand impossible or excessively difficult resulting in the victims claiming damages to be deprived of their right to effective judicial protection.

Conclusion

The ECJ’s ruling undoubtedly serves to continue improving individuals’ rights in seeking the award of damages through private enforcement by instituting group actions, especially given that the bundling of claims may generate economics of scale and facilitate this process.

[1] The practice for lawyers to participate in the damages that may be awarded to a victim where the instituted case is successful is prohibited under Maltese law.

Ganado Advocates is responsible for contributing this law report but was not in any way involved as legal advisor for the parties in the judgment being covered in this law report. This article was first published in ‘The Malta Independent’ on 12/02/2025.