In a lawsuit brought by companies of the ThyssenKrupp Group against a former executive, Mr. Uwe Sehlbach, the Düsseldorf Higher Labour Court (“Landesarbeitsgericht Düsseldorf” or “LAG”) has dismissed a damages claim by those companies for the reimbursement of fines which the German Federal Cartel Office (“Bundeskartellamt”, “BkartA”) had imposed for participation in rail-track cartels. The LAG has stayed proceedings by ThyssenKrupp for recovery of other harm suffered, namely damages paid to a customer harmed by the cartel.  This is the first case in Germany in which companies have claimed for damages from a manager because he (allegedly) was responsible for these companies infringing competition law.

  1. Between 2001 and 2011, manufacturers of rails for use in train-tracks participated in a range of bid-rigging and market sharing agreements which harmed Deutsche Bahn AG, the incumbent German railway infrastructure operator, as well as private, municipal and works railway operators. In 2012 and 2013, the BKartA imposed fines totalling €124.5m in relation to supplies made to Deutsche Bahn AG and fines totalling €97.64m in relation to rails sold to other railway operators. The bulk of those fines, €103m and €88m respectively, were against companies in the ThyssenKrupp Group.  ThyssenKrupp and Deutsche Bahn AG agreed to settle damages owed to Deutsche Bahn AG out-of-court; according to rumours, ThyssenKrupp committed to pay more than €150m.

Bid-rigging is a criminal offence under German law and since a large part of the cartelised transactions were subject to public procurement rules and awarded by way of public tenders, the individuals involved in the cartels are facing criminal charges.

  1. The Defendant Mr. Sehlbach, was a manager and served various ThyssenKrupp entities in diverse executive positions between 1999 and 2011.  His responsibilities were mainly in human resources, finance, IT and controlling. The Plaintiffs and Defendant are in vivid disagreement as to whether the Defendant was actively involved in, or at least aware of, anti-competitive practices and whether he failed to supervise and control employees and fellow managers, and failed therefore to prevent or to stop anti-competitive behaviour. In 2009, Mr. Sehlbach concluded an employment agreement (“Arbeitsvertrag”) with the parent company of the entities he had managed until 2009. In 2011, he left ThyssenKrupp.  Thereafter, the Plaintiffs were able to bring the claims before the labour courts.

The Essen Labour Court (“Arbeitsgericht Essen”) dismissed the claims.[1]  On appeal, the LAG has now confirmed the dismissal of the claim for reimbursement of fines.[2] In view of further damages arising out of the anti-competitive agreements, the LAG stayed the proceedings pending the outcome of the criminal investigation and trial.

  1. The LAG held that a fine imposed by the BKartA against a company or other corporate entity may not be recovered from an individual. Fines against an individual may not exceed €1m, whereas fines against a company may reach up to 10% of the annual turnover of its group. The fine against the company is also intended to counteract advantages the company realised as a result of its anti-competitive behaviour. It argues that it would undermine legislative intent to fine individuals and companies differently if a company were able to recover its fine from an individual.

The Court considers this issue as fundamental and therefore granted the Plaintiffs, to the extent they were addressees of the fines, leave to file an appeal on points of law to the Federal Labour Court (“Bundesarbeitsgericht”, “BAG”).

  1. The Essen Labour Court had dismissed the other damage claims. It held that the Plaintiffs failed to show any active involvement by the Defendant in illicit behaviour and that the Defendant had not breached his obligations as a managing director: the Defendant and his fellow managing directors had shared tasks, so he could generally trust that his fellow directors had ensured that the Plaintiffs complied with the law. The Defendant had fulfilled his obligations to supervise these directors, and where he had known of any possible anti-competitive conduct, he had duly informed the compliance and in-house legal functions of the Group. Therefore, he was not to be blamed for failure to intervene when the lawyers and experts in those functions did not take action.

The LAG, upon appeal against the dismissal, has held that evidence has to be examined before it can decide on those other damages claims dismissed by the Essen Labour Court. It has therefore stayed the proceedings, which is allowed under the applicable rules of procedure.

Comment

The Sehlbach case is a novel attempt by a major group of companies to hold a manager liable for violations of competition law he committed on behalf of those companies.  As the German Federal Court of Justice (“Bundesgerichtshof”, “BGH”) held some years ago that a supervisory board of a corporation is generally obliged to pursue liability of board members and to claim damages, further cases such as this are likely to follow. Board members and other executives must therefore ensure that effective compliance systems are implemented and adhered to for obvious reasons.

The decision that fines imposed on a company may not be passed on to managing directors seems at odds with the fact that a managing director is obliged to ensure that the company he runs does not infringe the law. Thus, it is reasonable to assume that a fine imposed on the company because of infringements he committed is a consequence of a breach of his obligations, and ought to be part of the damages he owes to the company. Likewise, there is case law that an advisor who induces his client into illegal actions, e.g. tax evasion, may be liable for sanctions imposed on the client because of such actions.  It remains to be seen whether the position taken by the LAG will stand up to review by the BAG.