Board liability for antitrust fines?

In the underlying decision, the defendant was on the management board of the holding company of a stainless steel group (a German stock corporation) and a director of an operating subsidiary (a German limited liability company). Due to the subsidiary’s involvement in a price cartel, the German Federal Cartel Office (Bundeskartellamt) imposed fines on both the subsidiary and the defendant personally, pursuant to Section 81(1) no. 1 of the Act against Restraints of Competition (GWB) in conjunction with Article 101(1) of the Treaty on the Functioning of the European Union (TFEU).

The subsidiary and the holding company each sought compensation from the defendant under board liability for the fine and reimbursement of the investigation and legal defence costs incurred by the holding company in defending against the fine. In addition, the group companies sought a declaratory judgment establishing the defendant’s liability for all further damages arising from the cartel violation.

The lower courts denied internal recourse for the fine as well as for the investigation and legal defence costs. However, the applications for declaratory judgment regarding liability for future damages were granted in both instances. On appeal, the group companies pursued their claims for payment.

Under Section 93(2) of the German Stock Corporation Act (AktG) and Section 43(2) of the German Limited Liability Companies Act (GmbHG), members of the board who breach their duties are jointly and severally liable for any damage resulting from their actions. In the present case, it was undisputed that the defendant had participated in a price cartel and had thereby breached his duties. The BGH noted that the breach of duty is not precluded by the fact that the company gained an economic advantage from the breach.

The sole issue in the appeal proceedings was whether the antitrust fine imposed on the company constituted compensable damage within the meaning of board liability. In theory, the fine leads to a reduction in the company’s assets that can be causally attributed to the defendant’s breach of duty in establishing the cartel. This would therefore constitute a causal loss. However, this would mean that the sanctioned company could seek recourse from the responsible members of the governing body for its own fine and thus ultimately be compensated by shifting the penalty to the individuals involved, even though the company committed an attributable antitrust violation. Against this background, academic literature and case law are divided on whether recourse against board members for cartel fines must be excluded by a teleological reduction of Section 43(2) GmbHG and Section 93(2) AktG. Two levels must be distinguished: first, whether national law provides indications for a teleological reduction; and second, whether EU law requires a restriction of national board liability in the context of antitrust fines.

According to the prevailing opinion in academic literature and case law, the grounds for board liability under national law must be reduced teleologically; otherwise, the purpose of sanctioning of the fine would be undermined. The purpose of the sanction is to skim off financial gains obtained from the violation and to impose a financial disadvantage on the company. This sanctioning rationale would be counteracted if the company could pass the fine on to the board member and thereby indemnify itself. Moreover, board members might rely on D&O insurance taken out by the company – at least for defence costs or certain liabilities – so that the economic impact of the fine could be mitigated. Such “insured internal recourse” would lead to inconsistencies in the assessment of sanctions and significantly weaken the deterrent effect intended by the penalty.

Prominent legal voices, by contrast, reject restricting recourse against board members in cases involving cartel fines. They argue that neither Section 43(2) GmbHG nor Section 93(2) AktG provides for such a restriction, nor is a teleological reduction necessary in view of the purpose of the fine as a sanction. The sanction’s purpose is already fully achieved by imposing a fine on the company. The admissibility of internal recourse is governed solely by the relevant civil and company law provisions and is not superseded by sanction purposes. Allowing recourse preserves an important control mechanism over the behavior of board members by holding responsible executives accountable for their conduct. Even under this view, only the punitive component of the fine would be recoverable; any disgorgement (skimming) component reflecting illicit gains would not be recoverable via recourse, and financial advantages for the company must be netted when assessing damage.

For the first time, the BGH has ruled on the recoverability of antitrust fines and expressed considerable doubt as to whether the conditions for a teleological reduction are met when considering national law alone.

At the outset, the BGH clarified that neither the wording of the provisions on board liability nor the legislative materials contain any indications of a restrictive application in the case of recourse to imposed cartel fines. Nor does the meaning and purpose of the provisions require such a restriction, since claims for board liability serve precisely to compensate for damage resulting from breaches of duty. Rather, the threat of recourse against board members creates incentives for lawful corporate management and thus contributes to the prevention of antitrust violations.

So far there are no general civil or criminal law prohibitions in the highest court rulings preventing a third party from paying sanction on an individual. The BGH saw no sufficiently distinct obligations that could justify deviating from these general principles of sanction law. It also pointed out that the legislature has never opposed this line of Supreme Court case law and, despite numerous reforms in antitrust fine law, has not standardised any clarification or restriction of civil law recourse options. It therefore remains doubtful whether there is an unintended regulatory gap that could justify a teleological restriction of board liability, even if there are reasons to believe that a recourse option could impair the sanctioning purposes pursued by the fine. In the BGH’s view, national law alone is therefore unlikely to decisively rule out the possibility of internal recourse.

The BGH ultimately concluded that the exclusion of recourse against board members in the case of antitrust fines could also result from the primacy of European competition law and the resulting interpretation of national law. Therefore, the Senate did not have to make a final decision on whether national law already requires a teleological reduction. In the BGH’s view, EU law does not expressly regulate the (in)admissibility of recourse against board members for antitrust fines. However, the ECJ has emphasised in its case law that fines imposed by a national competition authority must be effective, proportionate, and dissuasive, and has clarified in this context that the effectiveness of an antitrust fine would be significantly reduced if it were tax‑deductible. Regarding this ECJ case law, the BGH stated that internal recourse – potentially covered by existing D&O insurance – could impair the effectiveness of a cartel fine required under EU law in a similar way to tax deductibility. The BGH therefore referred the question to the ECJ as to whether the possibility of internal recourse under board liability law undermines the required effectiveness, proportionality, and deterrent effect of antitrust fines in a manner contrary to EU law.

In the BGH’s view, investigation and legal defence costs are recoverable – irrespective of European antitrust law – because recourse for these costs does not impair the effectiveness of the fine. For the same reason, consequential damages resulting from claims by aggrieved customers are also recoverable. The punitive purpose of the fine is not affected with regard to these damages.

The BGH makes it clear that it considers recourse against board members to be permissible under national law in the case of antitrust fines. However, this position has no immediate practical significance for the time being. The BGH emphasised that there should be no split interpretation between national and EU antitrust fines. Recourse, even in a purely national context, is therefore only possible if it is also permissible under EU law. The decision on the scope of recourse against board members thus lies with the ECJ. It remains to be seen whether the ECJ will extend its strict case law on the prohibition of tax deductibility of antitrust fines and exclude internal recourse against board members.