The Higher Regional Court in Düsseldorf yesterday dismissed an action for damages of €1.1 billion brought by GN Store Nord against the German Federal Cartel Office. The judgment sheds some light on the possibility for companies to claim damages in the context of an unlawful prohibition of a proposed merger.
The Higher Regional Court in Düsseldorf yesterday dismissed an action for damages of €1.1 billion brought by GN Store Nord against the German Federal Cartel Office (FCO). The judgment sheds some light on the possibility for companies to claim damages in the context of an unlawful prohibition of a proposed merger.
On 11 April 2007, the FCO prohibited the proposed acquisition of GN ReSound—part of GN Store Nord—by Phonak (now Sonova) (FCO decision No., B3–33101). The decision was ultimately annulled on substantive grounds by the Federal Supreme Court on 20 April 2010 (BGH KVR 1/09).
In the meantime, GN Store Nord had filed an application for interim measures (an exemption from the standstill obligation) with the Higher Regional Court in Düsseldorf. The Court rejected the application (OLG Düsseldorf, VI-Kart 8/07 (V)), arguing that an exemption from the standstill obligation could not be granted through interim measures. GN Store Nord would instead have to address its request to the FCO under the provisions of the German Act Against Restraints of Competition (ARC). The merger did not, therefore, take place.
Following the Federal Supreme Court’s subsequent annulment of the FCO’s prohibition decision, GN Store Nord filed a claim against the FCO of €1.1 billion in compensation. The figure was based on the lost profits from the proposed transaction less the remaining value of GN ReSound. The claim was dismissed by the Lower Regional Court in Cologne on 26 February 2013 (LG Köln, 5 O 86/12). GN Store Nord then launched an appeal in the Higher Regional Court in Düsseldorf.
Decision of the Higher Regional Court in Düsseldorf
The Higher Regional Court in Düsseldorf held that, even though the prohibition decision was unlawful, this did not lead to the claim being successful as this would presuppose that the FCO acted intentionally or negligently when prohibiting the merger. This could not be established; the FCO had based its decision on an extensive examination of the factual elements of the case, which did include a number of difficult factual and legal questions. The Higher Regional Court in Düsseldorf concluded that the FCO’s decision was wrong, but not blatantly wrong. In other words, the breach was not sufficiently serious to allow GN Store Nord’s appeal.
The Higher Regional Court in Düsseldorf (and, before it, the Regional Court in Cologne) were the first German courts to decide on the FCO’s liability for damages in the context of merger control proceedings. At the European level, the EU courts have already reaffirmed the principle that the European Commission may incur non-contractual liability to pay damages for errors of a sufficiently serious nature in the context of a merger review.
In MyTravel Group (T-212/03), the EU General Court on 9 September 2008 suggested that the Commission may be liable with respect to substantive errors in the assessment of mergers. In assessing whether or not a sufficiently serious breach has occurred, the General Court noted that account must be taken of the complexity of the merger situation and the margin of discretion available to the Commission. On 16 July 2009, the Court of Justice of the European Union (CJEU) in Schneider/Legrand (C-440/07 P) confirmed that, in cases where the Commission makes a procedural error in failing to have regard to rights of defence in the prohibition of a merger, it may be liable to pay non-contractual damages if the error constitutes a sufficiently serious breach of a rule of law conferring rights upon individuals. For the Commission to be liable for damages in this situation, the CJEU noted that a direct line of causation is required between the breach triggering liability and the losses suffered.
The judgment of the Higher Regional Court in Düsseldorf raises the question of whether or not it makes sense for the parties to a proposed transaction to appeal an FCO prohibition decision.
An exemption from the standstill obligation can only be granted following an application to the FCO under the provisions of the ARC, not through interim measures. The chances that the FCO will agree to an exemption from the standstill obligation in the context of a transaction that it previously prohibited are, however, rather limited. By the time the relevant court decides on the appeal against the prohibition decision, the economic reality will often no longer allow for the proposed transaction, even if the relevant court concludes that the FCO was wrong to prohibit it.
A judgment on the lawfulness of the prohibition decision may be used as a starting point for damage actions against the FCO, especially as German law explicitly provides for State liability. The chances of such a damage action being successful are, in practice, rather limited, particularly following this recent judgment by the Higher Regional Court in Düsseldorf.
It is important to note that GN Store Nord is currently considering appealing the judgment to the Federal Supreme Court. The issue of the FCO’s liability for damages in the context of merger control proceedings may, therefore, soon be discussed by the highest German court.