Forbidden price agreements: are managing directors for antitrust levels are liable? BGH asks ECJ

Forbidden price agreements and fines in the millions: The Federal Court of Justice (BGH) has dealt with the liability of managing directors and board members for antitrust level money against their companies. In the end, the Cartel Senate turns to the European Court of Justice (ECJ) in Luxembourg – and asks whether a national regulation, according to which companies can take its managing directors or board members in recourse, contradicts European law. (Az. KZR 74/23)

Specifically, in Karlsruhe, it was about the complaint of two related stainless steel companies against a man who was also the managing director of Klagenden GmbH and CEO of plaintiffs AG. From 2002 to 2015 he participated in a price cartel with other companies in the steel industry. After several years of investigation, the Federal Cartel Office initially imposed fines against several participants in 2018.

355 million imposed against stainless steel cartel

“For years, companies have agreed important price components when selling stainless steel,” said Cartel Office President Andreas Mundt at the time. “The price competition between the company was significantly impaired by the coordinated, industry-unit calculation and application of scrap and alloy surcharges and through far-reaching exchange of competitive sensitive information.”

Cartels are agreements between companies that restrict the competition. According to the Federal Cartel Office, cartel agreements regularly lead to excessive prices with falling product quality. At the same time, the company’s innovative strength is slowed down by the elimination of the competition. The cartel office can impose fines against responsible persons and companies.

When the cartel office officially concluded the procedure against the stainless steel companies in July 2021, the competitive keepers had imposed a total of around 355 million euros against ten stainless steel companies, two industry associations and seventeen responsible persons.

The GmbH, which is now complaining to its former boss at the BGH, had to pay 4.1 million euros. Against the managing director personally, the office imposed a fine of 126,000 euros. The plaintiff AG was spared a fine due to the punishment against the GmbH.

Who is liable for antitrust losses?

In court, the companies require the defendant to reimburse the paid fine, replacement for a defense against the defense of the fine and attorney costs as well as compensation for all other damage that will follow from the antitrust violation in the future. They argue that the former company boss violated his obligations as managing director and board member by participating in the price agreements.

Basically, if managing directors or board members violate their duties, they are liable for the damage caused by the company. This is regulated in the Deutsche GmbH and Sharprine Act.

Among other things, the BGH dealt with whether there can be an exception to fines due to antitrust violations. So far, the question has been controversial in literature and jurisprudence.

In the present case, the Düsseldorf Higher Regional Court had decided that no recourse would be considered with a view to the penalty imposed and paid for. According to the court, the social regulations on the liability of the boss did not extend to damage that arises due to the antitrust of the antitrust. Otherwise this would thwart the purpose of the corporate fine – namely, to make the company’s assets sustainably.

Existential risks for company bosses

The Cartel Senate explained that the design of the fines falls into the competence of the respective EU member states. However, according to the ECJ case law, the states would have to ensure that national competitive authorities can impose effective fines in antitrust violations. This effectiveness could be impaired if a company with the recourse to managers could relieve itself of the burden of fines. “Therefore, the question also arises whether the handling of the company’s fine to the managing director in accordance with corporate law regulations affects the purpose of the antitrust fine,” said the BGH.

If the BGH in the end of the plaintive companies judges, this would have significant consequences for company bosses. “If the BGH affirms a recourse to recourse, managing directors and board members would be exposed to existential liability risks,” says lawyer Lorenz Jarass from the Noerr law firm. “The fines imposed on companies are often in the million, if not in the billion, and in many cases, at least in the amount, not the D&O insurance protection for managing directors and board members.”

The so-called Directors and Off-Officers or D&O insurance is liability insurance that protects managers from financial loss. It also plays a role in the present case. The OLG had emphasized that the sanction purpose of the fine is particularly at risk if the board and managing director are insured far beyond the amount of the fine beyond D&O insurance.