Clifford Chance

The European Court of Justice has ruled that a group action must be considered admissible if the national law lacks an efficient way of pursuing the claims by other means.

In its decision of 28 January 2025, Case No. C-253/23, the European Court of Justice ("ECJ") held that individual creditors of competition law claims may group together their individual claims by means of assignments to a special purpose vehicle ("SPV") enforcing their claims ("group action"). This form of collective redress must be considered admissible if the national law does not provide for an efficient alternative to pursue the claims in court.

So far, German law only provides for a limited number of avenues for collective redress, e.g. in the field of consumer claims or capital markets-related damages claims. The recent decision of the ECJ paves the way for group actions which have always been controversial in Germany but are now expected to be recognised as a permissible means of collective redress.

The ECJ decision relates to claims of sawmills that sought compensation from a German federal state, alleging that they suffered damages as a result of inflated prices that were generated by a cartel. The sawmills assigned their individual claims to a SPV which was a licensed legal service provider (Rechtsdienstleister) according to the German Legal Services Act ("RDG") and which pursued the claims in its own name before the Regional Court Dortmund.

The Regional Court Dortmund questioned the validity of these assignments as they appeared to be in breach of the RDG. According to Section 3 No. 1 RDG, service providers may only provide independent extrajudicial legal services if they have the necessary license. This gave rise to the question as to whether licenses for debt collection (Inkassoerlaubnis), such as that held by the SPV in the case at hand, also extend to the collection of damage claims under competition law. Having regard to the high complexity of competition law cases, the court concluded that the SPV had generally exceeded its license. Consequently, the group action would have been inadmissible in principle.

However, the Regional Court had considerable doubts as to whether this outcome would be compliant with European law and referred this issue to the ECJ. The court noted that there were no appropriate alternatives to group actions that would allow individual creditors to pursue their comparatively small claims in an economic way and at an acceptable risk.

The ECJ ruled that a national provision preventing cartel victims from assigning their claims to service providers to pursue the claims in court may infringe Article 101 of the Treaty on the Functioning of the European Union and Article 47 Section 1 Charter of Fundamental Rights of the European Union. The national courts need to assess whether it would be "practically impossible or excessively difficult" for cartel victims to exercise their rights by way of individual action on a case-by-case basis. The national court should also examine whether the national law already provides for other legal mechanisms that allow the grouping together of individual claims.

The Regional Court must interpret the national law in favour of the group action if it concludes that effective legal protection would only be possible by means of collective redress, including the assignment of individual claims. So far, the corresponding final decision of the referring Regional Court is still pending. In view of the court's previous reasoning, it seems however very likely that it will uphold the assignment of the damage claims, hereby rendering the group action admissible.

The Regional Court already indicated that the claim assignment model was the only option to ensure effective legal protection. An action in competition law is highly complex and usually entails particularly costly and time-consuming proceedings. The cartel victims would likely refrain from enforcing their claims at all if they are prevented from having their claims brought by a legal service provider that acts on their accounts but in its own name and at its own expense. Accordingly, it seems likely that the Regional Court will allow the group action.

In any case, the decision of the ECJ has the potential to boost group actions in Germany, both in competition law and other fields of law. It demonstrates that as regards collective redress, the German procedural law was lagging behind many other jurisdictions. This will probably change as a consequence of the decision of the ECJ. The extended admissibility of group actions may facilitate the judicial enforcement of small claims. It could also spark new economic interests, leading litigation funders to promote and fund group actions. This may in turn increase the frequency of collective redress in Germany.

Clearly, there is still some uncertainty as to whether and under what conditions national courts will consider group actions admissible as the ECJ leaves it to the national courts to rule on the admissibility of the group action in the specific case. Nevertheless, the decision facilitates and promotes group actions. It has particularly shifted the argumentative burden from the legal service provider to the defendant. It is now for the defendant to show that there are sufficient and equally effective alternatives available which is why the group action shall be dismissed.

Further, the German legislator (and other European legislators) might decide to tackle the remaining uncertainties by regulating this issue from scratch. This opportunity could also be used to stipulate precise prerequisites for the admissibility of class actions in other fields of law.

In summary, the ECJ has now clarified in relation to damage claims under competition law that class actions must be considered admissible if certain requirements are met. Whether these prerequisites are fulfilled is to be assessed by the national courts that should have regard to the relevant circumstances of the specific case. Given that the ECJ inter alia based its reasoning on general principles under European law, it follows that the decision may potentially extend to other fields of law. In any case, the decision could lead to considerable increase in relevance and frequency of group actions in Germany.