Germany: Recourse claims against board members and managing directors due to violation of cartel law

In view of the usually high amounts involved, the issue is of great economic importance and, insofar as the protection of a D&O insurance policy should fail, may be of a dimension that threatens the existence of the persons concerned.

OLG Düsseldorf: No recourse due to the corporate fine

The Higher Regional Court (OLG) of Düsseldorf has now issued a landmark ruling on this (ruling of 27 July 2023, 6 U 1/22 (Kart)). The court confirmed that the management body in the present case is liable to the company for claims for damages by third parties, but it denied a right of recourse due to the corporate fine imposed under German antitrust law.

With regard to the corporate fine, the bases for determining the liability of directors and officers (Section 93 (1) AktG and Section 43 (2) GmbHG) are to be interpreted restrictively. After explaining the state of opinion and case law in a detailed and clearly structured manner, the Senate justified its consideration in essence with the "special features of the association fine, at least in interaction with the German antitrust law norms".

According to this, for the company to be fined (for the "association fine"), the linking act of a natural person is necessarily required. Only the unlawful and culpable action of the manager in question provides the basis for the corporate fine and, in German cartel law, additionally leads to an individual fine imposed on this person. If the legislator sanctions the company and the individual in parallel in this way, this speaks in favour of not "redirecting" the association fine back to the management person by way of civil liability.

The individual fine provided for the managing director/board member protects him from the fine recourse of his company

In support of this result, the court also referred to the widely differing framework for fines: companies can be fined up to 10% of the group turnover, whereas individuals can be fined up to a maximum of EUR 1 million, even in the most serious cases. The assessment of fines at company-level is also based on different aspects than assessments at the individual-level.

In addition, the Senate drew a distinction from so-called consultant cases. According to this, advisors such as tax advisors may, under certain circumstances, be liable to their clients under civil law for penalties or fines imposed on them. In these cases, however, the injured party is the sole addressee of the sanction (in the example, the client receives the fine, not the tax advisor at the same time). In the sanction system of German cartel law, on the other hand, two legal entities always come into consideration: the manager and his company (as "secondary victims").

Finally, the Senate pointed out the contradiction that would arise in the case of a successful recourse: The company could get rid of the fine burden through the D&O insurance of its management body (at least with sufficient coverage and also otherwise intervening insurance protection), while the direct, own insurance of fine risks of the company would be immoral and thus ineffective.

To put it more succinctly, the following applies: the fine provided for under German law, even on a personal level, ultimately protects the management body from having to answer for the usually disproportionately higher fine of its company via the diversions of civil liability. This also applies to the ancillary costs associated with the fine proceedings, such as the company's IT and legal costs in this regard. They "share the fate" of the fine, which cannot be passed on to the managing director/board member.

Recourse for cartel damages can be much more serious

However, none of this applies to claims for damages to which the company is exposed as a result of the cartel law violation. This claim for recourse against the management body is not subject to any comparable "bar", and therein lies the actual explosiveness of the ruling.

This is because claiming damages against companies involved in cartels has become massively more important in recent years. It is common for customers to claim damages from their suppliers involved in cartels, arguing that their purchase prices were inflated due to the cartel. Since the behaviour in violation of cartel law often lasts for years, enormous sums of claims can add up. Added to this is the interest. Disputes about cartel damages usually only become concrete when the investigations by the cartel authorities have been completed and any subsequent court proceedings have become final. In the meantime, the statute of limitations is suspended and the "interest clock is ticking" - it is not uncommon for more than a decade to pass since the original cartel law violation before a settlement is reached or any damages proceedings even begin (and the interest rate then continues to rise).

The recourse claims against the management body are therefore potentially high, however, claims for damages by third parties do not have to be passed on to the management body one-to-one. The management body can defend itself against the recourse claim of its company with the objection of benefit sharing: insofar as the company has gained advantages through the cartel (i.e. higher sales prices as a result of the cartel), the company must allow this to be offset. Insofar as claims for damages by third parties merely "skim off the advantage" that the company has gained from the cartel, from the company's perspective cartel-related disadvantages and advantages balance each other out. There is then no right of recourse against the management body.

However, it is not trivial to successfully assert this objection of benefit sharing. In any case, the Higher Regional Court of Düsseldorf expressly rejected the simplification of evidence in favour of the management body in its recent ruling. But even if this succeeds, it does not necessarily result in a zero-sum game. The disadvantages for the company associated with the cartel can also far exceed the advantages and thus ultimately lead to serious recourse claims against the management body.

Intent quickly given - error of prohibition difficult to establish

From a practical point of view, the recent ruling also highlights pitfalls that may arise, for example, in concluding a termination agreement with which the company and the departing management body declare mutual claims to be settled.

Large parts of the judgment relate to the culpable conduct of the management body concerned. The court affirmed that the conduct was intentional because the management body could not have been unaware that the conduct with which it was charged had the purpose or effect of restricting competition.

Finally, the management body could not successfully invoke a prohibition error. Here, the court clearly shows the high requirements resulting from the "cardinal duties" of a "prudent businessman". Anyone who does not have the necessary competence, according to the court, may not assume the office, and a strict standard applies to discharge. It is by no means sufficient for this if the person concerned is not concerned about the legality of his conduct. Rather, he must do everything possible and reasonable to avoid the cartel law violation. He is not culpable "if, in the absence of expertise, he seeks the advice of an independent, professionally qualified professional, duly informs him of all circumstances relevant to the assessment and, after his own plausibility check of the answer given to him, follows the advice".

Avoiding conduct that violates antitrust law is certainly a top priority. But what happens when the child has fallen into the well?

Leniency applications in a new light?

If a cartel formation comes to light, it may be important for an affected management body to successfully claim existing insurance cover and to conclude a resilient termination agreement in the event of a possible departure from the company.

More fundamentally, the question arises as to how to proceed with leniency applications. As is well known, leniency applications can exclude or reduce a fine for the company and the person concerned if the parties involved disclose themselves quickly enough to the Federal Cartel Office. However, from the point of view of the management body concerned, this goal of reducing fines could become less important. This is because at the level of fines, the affected management body is at most threatened with a personal fine within the limits set by law, while recourse by the company due to possible claims for damages by third parties can quickly assume an incalculable scope.

For more information, please contact Jörg Witting.

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