Model Declaratory Actions, EU Representative Actions and their (possible) role in antitrust damages

Unlike in the US, German law did not provide for a specific procedure for the collective enforcement of rights of damaged parties. Collective legal protection was generally unknown to German civil procedure law. So far, apart from certain claims regarding capital investments, only collective actions by consumer associations were allowed in Germany. These actions differ drastically from collective lawsuits under US law: Only certain associations and consumer advice centers may file claims, and they are limited to their area of expertise. Further, such actions are mostly only available with regard to claims for cease and desist. Only consumer associations were able to file claims for payment for consumers. In such, they act as representatives of the consumers, and the proceeding technically remains of an individual nature.

Collective enforcement of claims, however, does not only make sense in respect of judicial efficiency. Often, it is the only financially sound solution for the damaged parties. This is particularly true for antitrust damages: Without the option of collective claims, each harmed party would have to enforce its own, usually relatively low-value claims. The cost of litigation very often is out of proportion, particularly for consumers (“rational disinterest”). German civil procedure law is familiar with the instrument of joinder of parties, in which several damaged parties can collectively take legal action. However, this is not of much help in antitrust cases: The court can judge differently for each plaintiff. Despite possible cost sharing, a significant cost risk for each party remains. The court can also decide to separate proceedings. It’s David and Goliath.

Therefore, a procedural practice had been established in which damaged parties transfer their claims to a ‘litigation vehicle’ which enforces such claims for them. Occasionally, the vehicle is supported by a litigation funder. By the bundling the claims, a critical class mass can be achieved, thereby facilitating economically viable law enforcement involving qualified economic experts and counsel. Damaged parties, defendant and solicitors meet at eye-level. Yet this course of action has its price: Litigation vehicle and funder usually demand a significant share of the recovered sum.

Model Declaratory Action and EU Representative Action

Taking effect on 1 November 2018, the German Bundestag – unusually quickly – decided to introduce the Model Declaratory Action. It now offers a (limited) alternative to the transfer model described above. However, this is not a US- style class action suit, but rather a representative action. Immediately after its introduction, the Bundesverband der Verbraucherzentralen (vzbv), together with the ADAC (General German Automobile Association), filed an action for a declaratory judgement on the VW diesel scandal. At the beginning of January 2019, i.e. within two months, almost 400,000 consumers had joined it. This surprised even the vzbv. In contrast, the best-known ‘litigation vehicle’ has collected claims from only around 40,000 consumers over a much longer period of time. This shows that the Model Declaratory Action appears to be attractive to consumers.

In April 2018, the European Commission (EC) also proposed a directive for the introduction of a collective EU-Representative Action independent of the German Model Declaratory Claim. The proposal for a directive was adopted with amendments by the Legal Affairs Committee of the EU Parliament at the end of 2018. However, an introduction is not to be expected before the European elections.

No changes for companies harmed by a cartel

Model Declaratory Actions and EU Representative Actions would also be attractive for companies. However, the Model Declaratory Action is of little use to them: only consumers are allowed to join the litigation by means of filing their claims, which also suspends legal limitation periods. Only specific consumer associations authorized by the European Union are permitted to file a Declaratory Model Action. The last previous draft by the BMJV had included Chambers of Commerce and Industry and Chambers of Trade, but this proposal was eventually withdrawn. Companies affected by cartels can therefore only continue to follow the previous procedural and strategic procedural paths. This considerably limits the significance of the new legal form for antitrust damages law. There is only one point in which the Model Declaratory Claim can have a positive effect for companies: a court can suspend parallel proceedings between companies until a decision has been made on the Model Declaratory Action. However, the decision does not have any real binding effect for them.

The scope of application of the EU Representative Action is also limited to trader-consumer-relationships. In contrast to the Model Declaratory Action, antitrust claims would not be enforceable with it anyway: The proposal only refers to infringements of certain consumer-protecting directives and regulations. General antitrust law is not included. In the remaining scope of application, however, the EU proposal goes far beyond the Model Declaratory Action with respect to benefits for consumers: The Court shall not only render a declaratory judgement on legal issues and facts justifying claims, but provide for immediate remedies such as damage compensation, rescission, and reduction rights. Only if a collective remedy cannot be achieved, a declaratory judgement shall be issued.

In conclusion, the Model Declaratory Action as well as the proposed EU Representative Action would ease the path for the enforcement of individual claims for consumers. With a qualified association filing a Model Declaratory Action or an EU Representative Action, the consumer could – at least at first stage – benefit from this alternative avenue for the enforcement of claims.  If consumers suffer antitrust damage, a Model Declaratory Action can be filed in principle, whereas the EU-Representative Action would not be applicable.

Should Trade Associations be qualified?

Why does the Model Declaratory Action not (or, no longer) include the permission to file a claim for trade associations, or at least for Chambers of Industry and Commerce or Trade Chambers? The rationale behind their limitation to consumer associations is far from obvious. Companies can equally, and in fact particularly, be victims of cartels. This understanding was reflected in the previous draft legislation for the Declaration Model Action. Also, the previous recommendation of the European Commission and the resolutions of the European Parliament regarding common principles for injunctive and compensatory collective redress mechanisms did not call for a restriction to consumer protection – rather, the recommendations explicitly favored collective legal protection procedures also in other areas, such as competition.

But would companies really benefit from the extension of the scope of application to B2B-constellations and from the inclusion of trade and ad-hoc associations? Cartel damage claims are mainly enforced as follow-on cases. In such cases, the competent cartel authority already established the cartel infringement with binding effect (according to § 33b German Act against Restraints of Competition, GWB). Against this background, the German Federal Government seems to be of the opinion that a Declaratory Model Action for antitrust claims against a cartel is not necessary, because the civil courts are already bound by the declaration of the cartel authorities. However, this argument appears to be short-sighted: The binding effect can only go as far as the cartel authorities’ decision itself. The cartel authorities decide solely whether a violation has taken place. In civil proceedings further questions are of (significant) importance, such as the causality regarding the extent of the claim or the damage calculation. These questions are only marginally addressed in decisions of cartel authorities, if at all. In this regard, a Declaratory Model Action or EU Representative Action, pursued by relevant trade- or ad-hoc associations, could very well be of interest for companies harmed by a cartel. The last word in this legal policy discussion has not yet been spoken.

A detailed analysis of the questions can be found in the Neue Zeitschrift für Kartellrecht (NZKart), pp. 398 et seq.

(25 April 2018, updated 8 January 2019)