According to a recent ruling of the German Federal Court of Justice (Bundesgerichtshof, BGH) (judgement of 10 February 2021, file no. KZR 63/18), general terms and conditions that award the customer of a cartel participant lump-sum damages in the amount of 5 to 15 % are valid under certain conditions. This landmark ruling is not only relevant for ongoing cartel damages litigation. It also provides a blueprint for the permissible drafting of lump-sum cartel damages clauses in supply contracts and could thus make it much easier for cartel-affected companies to quantify damages in future civil proceedings.
Lump-sum cartel damages clauses promise easier and more efficient enforcement of cartel damage claims because they relieve customers of the burden of proving the cartel damage. The use of lump-sum cartel damages clauses is not limited to public procurement. Rather, the BGH’s statements can be applied to all supply and other contractual relationships in business transactions. Companies should therefore increasingly work towards incorporating (carefully worded) cartel damages clauses into their contracts in the future.
The quantification of damages in civil proceedings for customers who have suffered cartel damage is regularly time and cost intensive. The damage, derived from the difference between the hypothetical market price and the purchase price actually paid, can usually only be determined with the help of economic expert opinions. These difficulties do not arise if the injured party is contractually entitled to lump-sum damages.
Until the BGH issued its current ruling, however, the validity of lump-sum damages clauses was in question. In the rail cartel complex, many of the suing transport companies had included these clauses in their supply contracts and based their lawsuits on them - so far with moderate success, because most German lower-instance courts held these types of clauses to be invalid due to a violation of German law on general terms and conditions.
The BGH has now clarified in its ruling of 10 February 2021 (Ref. KZR 63/18 – only available in German) that lump-sum compensation clauses are valid if they meet certain requirements.
Lump-sum damages possible for serious cartel violations
The mainstay of the examination of general terms and conditions under German law is the question of whether the clause unreasonably disadvantages the contractual partner. This is the case if the user unfairly tries to enforce his own interests at the expense of the contracting party without sufficiently taking into account the latter's interests and granting him an appropriate trade-off.
According to the court, a clause does not unreasonably disadvantage the contracting party if it is intended to compensate for damages resulting from serious cartel violations. This is to be assumed in any case if the agreements have the purpose or effect of disrupting the pricing mechanism in the market. The BGH mentions (horizontal) agreements such as submission, price, quota, customer protection or territorial cartels as examples. However, other agreements are most likely also covered, provided they have an effect on the pricing mechanism in the market, e.g. the coordination of essential price components.
Lump-sums for damages of up to 15 % permissible
The review of the general terms and conditions also focused on the question of the amount above which a lump-sum for damages constitutes an unreasonable disadvantage. Conclusively, the BGH found that lump-sums of up to 15 % of the billing amount can be permissible.
According to the court, the starting point should always be the "average damage typical for the industry". But, if such empirical values could not be determined at the time of the conclusion of the contract (which is likely to be the case regularly), the user of the clause could alternatively refer to general, economical meta-analyses of cartel-related price surcharges. In this context, the BGH referred to a number of economic studies (including the well-known Oxera study), according to which cartels generally lead to price increases of around 15 % on average. The court considered these to be a sufficient basis for the quantification of the lump-sum damages.
Cartel agreement does not need to be targeted on a specific contract
In addition, the BGH clarified that lump-sum cartel damages clauses can be interpreted broadly and also cover such restraints of competition that do not specifically relate to the respective awarding of the contract or the conclusion of the contract. Especially in commercial transactions, a "reasonable and in particular honest contracting party" would have to assume that serious violations of competition law regularly have extensive effects on market prices. Consequently, a company can invoke a lump-sum cartel damages clause even if the cartel was not specifically aimed at the respective contract award or supply to the customer.
Possibility of proving no or lesser damage required
At the same time, the BGH clarified that the other party must always be given the opportunity to prove that no or only minor damage occurred. For this purpose, it is sufficient if the corresponding general terms and conditions clause did not explicitly exclude the proof of exculpation.
The contractual partner must be able to prove, for example, that certain contractually owed services were not affected by the cartel. The contracting party must also be allowed to prove that the customer suffered no or less damage because the damage was passed on to the next market level.
Valid cartel damages clause leads to reversal of the burden of proof
If the clause is valid, the customer can base his claim for damages on the contract clause in terms of merits and amount. Following the BGH, the use of the clause then leads to a reversal of the burden of proof, i.e. in case of doubt, the company involved in the cartel must show and prove that no damage or a lesser damage has occurred. According to the ruling, the same principles apply to the contractual partner's proof of no or lesser damage as in cases in which the affected customer bears the burden of proof for the damage (i.e. in cases without a lump-sum clause). Therefore, the contracting party involved in the cartel cannot rely on prima facie evidence in its favour. Rather, as part of an overall balancing process, the court must come to the conclusion that, absent the cartel, the hypothetical market price would have resulted in less than the liquidated damages or no damages at all.