In quick succession on 7 and 15 November 2023, the Administrative Court of Berlin (Verwaltungsgericht Berlin, the “VG Berlin”) has ruled on procedural matters in foreign direct investment review proceedings of the Federal Ministry for Economic Affairs and Climate Action (the “BMWK”) in two hearings. Because court rulings on these non-public administrative proceedings – which are non-public because they concern national security and public order – have been very rare to date, the court’s clarifications will contribute to legal certainty for companies involved in the proceedings and the BMWK.

Key takeaways

• In its rulings, the VG Berlin overturned two BMWK decisions on purely formal grounds without having to deal with material law questions (such as the standards of assessment of the BMWK’s or individual case groups of sensitive activities).
• In the future, the BMWK will need to adhere to the formalistic procedure to be able to effectively enforce its decisions in the event of security concerns regarding foreign investments.

From a practical perspective, it would be regrettable if the open, direct and easily accessible communication channels with the BMWK, which have been appreciated by all parties involved in the proceedings to date, would have to give way to a much more formalistic administrative practice. The BMWK’s open communication has significantly reduced the average duration of investment review procedures and made it easier for companies and legal practitioners to work with the (still developing) German investment review regime.

The decisions of the VG Berlin

In the following, we have considered the VG Berlin’s press releases and our impressions from the hearing. The grounds for the judgments have not yet been published.

VG 4 K 536/22: Termination of investment review proceedings due to possible civil law defects in the planned acquisition

In June 2021, the Austrian company Alcmene GmbH, whose parent company is based in Guernsey, notified the (then) BMWi (Federal Ministry for Economic Affairs and Energy) of its intention to acquire 37.5% of the voting rights (and shares) in PCK Raffinerie GmbH from Shell Deutschland GmbH. Before the acquisition was completed, Rosneft Deutschland GmbH, which has been a co-shareholder in the refinery, exercised its right of first refusal with regard to the shares sold. Alcmene then declared the investment review proceedings before the BMWK to be irrelevant. However, Rosneft was unable to acquire the shares itself following the Russian invasion of Ukraine, and Alcmene re-notified its proposed acquisition to the BMWK in June 2022. Shell then invoked the now-expired corporate “long-stop date” agreed with Alcmene and terminated Alcmene’s acquisition. The BMWK subsequently terminated the investment review proceedings in October 2022, stating that there was no longer an acquisition to investigate. Alcmene applied to the VG Berlin for a declaration that the acquisition of voting rights was deemed to have been approved because the BMWK missed the applicable deadline. Separate arbitration proceedings to determine whether the termination of the contract between Shell and Alcmene is effective under civil law are pending.

The VG Berlin found:

• No legal basis for termination. The BMWK’s termination was unlawful because there was no legal basis for such an administrative act. There is no basis for terminating the review procedure at the expense of the notifying party of a notifiable acquisition project by simply discontinuing the procedure in either the Foreign Trade and Payments Ordinance (AWV) nor in the Administrative Procedure Act. The VG Berlin thus applied the administrative law principle that administrative proceedings initiated at the request of a party may only be discontinued (other than by formal administrative act) with the consent of that party to the transaction at hand.
• No extensive assessment of civil law by the BMWK. The acquisition was deemed to have been approved because the BMWK’s two-month opening period for an in-depth review had already expired in mid-August 2022, following Alcmene’s re-notification in June 2022. Further, it is not within the BMWK’s remit to assess whether an acquisition was effective under civil law as long as the project has not obviously failed; the fact that the implementation of the acquisition was still uncertain due to the pending civil arbitration proceedings regarding the long-stop date was irrelevant.

VG 4 K 253/22: Prohibition of an acquisition despite expired opening period

In 2019, Aeonmed Group, a Chinese group, acquired the medical device manufacturer Heyer Medical AG and subsequently applied to the (then) BMWi for a certificate of non-objection at the beginning of July 2020. The BMWK had already become aware of the acquisition through an online article in April 2020 but opened an investment review procedure in August 2020 following Aeonmed’s application. Ultimately, the BMWK prohibited the acquisition in April 2022.

The VG Berlin found:

• Prohibition was unlawful because no relevant hearing had occurred. A proper hearing on numerous facts established during the proceedings had not taken place (an error that has also not been remedied in the VG Berlin’s proceedings).
• There was no waiver of the running opening period by applying for a certificate of non-objection. The investment review proceedings were opened too late. Under German law, as soon as the BMWK “obtains knowledge” of the concluded agreement it has a period of two months (three months under the law applicable at the time) to open an in-depth review (the ‘opening period’). The BMWK is not required to have a high level of information to become aware of an agreement, therefore its knowledge of the online article in April 2020 was deemed sufficient to trigger the opening period. Therefore, the opening period had already expired by mid-July 2020 and the BMWK no longer had jurisdiction to initiate proceedings thereafter (and by extension, to issue a prohibition decision). Further, the July 2020 application for a certificate of non-objection did not have the legal effect to restart the beginning of the opening period.

Outlook

As regards the first judgment, the VG Berlin has granted leave to appeal to the Berlin-Brandenburg Higher Administrative Court and a “leapfrog appeal” to the Federal Administrative Court. Against the second judgment, an application for leave to appeal can be lodged with the Berlin-Brandenburg Higher Administrative Court. It remains to be seen whether the BMWK will appeal or lodge an appeal on points of law.

Even though the court was unable to comment on substantive issues, the rulings are a step towards greater legal certainty in the developing legal field of investment control. In practice, it has also been shown in other cases (e.g., public acquisitions) that the starting of the opening period upon the BMWK obtaining knowledge informally (vs. upon formal notification) can lead to complications. We will monitor whether and how the court decisions will be implemented as part of the ongoing legislative efforts to reform investment control law. Hopefully, the BMWK will keep open the currently accessible and direct communication channels with respect to investment review proceedings.