Senior executives may also be responsible for “ad hoc disclosures” to the markets: Braunschweig Higher Regional Court strengthens not only VW investors in test case

The question of the attribution of knowledge within a corporate group plays a major role in the law of ad hoc publicity for all listed companies. This has now also become evident in the “Porsche/VW” case and in the current investor trial on “Dieselgate.” The proceedings before Braunschweig Higher Regional Court (Case 3 Kap 1/16) relate to the question of whether VW informed the markets of the scandal involving millions of manipulated diesel cars in due time. The group published an “ad hoc disclosure” in the exhaust gas scandal (only) on September 22, 2015. From the point of view of the plaintiffs and many other investors, however, this was too late. This raises the fundamental legal question, to date undecided by the courts, as to when issuers can be presumed to have knowledge of insider information relating to them and to what extent this knowledge can also arise legally from the attribution of knowledge.

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After an almost four-month break, the “Dieselgate” investor trial was continued in Braunschweig on March 25, 2019. The 3^rd Civil Division of Braunschweig Higher Regional Court issued its preliminary assessment that even the knowledge of managers below the issuer’s board level could be decisive for the possible price-sensitive information of the markets. In the specific case at Volkswagen, this level also included the division heads, in particular the Heads of Engine Development and Product Safety. After all, senior executives and division managers have direct contact with the Board of Management. In addition, insider knowledge can regularly be expected in engine development, which could have an impact on Volkswagen AG’s business and therefore be relevant to the markets. According to the court’s preliminary legal assessment, not only the Board of Management is responsible for “ad hoc disclosures” to the markets, but this responsibility also extends to such senior executives. For this reason, it would also not be decisive when VW’s Board of Management was “officially” informed about the exhaust gas manipulations and the financial implications of these circumstances for the first time.

The court's preliminary assessment is quite plausible. The wording of Article 17 MAR contains no indication that only information known to the issuer is subject to ad hoc disclosure. This could argue for the fact that knowledge that would have been accessible to the management board in case of proper knowledge organization, i.e., including such knowledge of senior executives, is also to be attributed. In contrast to the provisions on the prohibition of insider dealing (Articles 8, 9 MAR), the ad hoc disclosure obligation under Article 17 MAR does not require the issuer to “possess the information” or to “dispose of the information.”

In addition, for directors’ dealings (Article 19 MAR), the view is taken that the disclosure obligation applies not only to directors’ dealings of members of the company’s management, administrative, and supervisory bodies, but also to senior executives. Against this backdrop, the preliminary assessment of Braunschweig Higher Regional Court also appears to be overarching and consistent with the MAR system beyond “Dieselgate” and could have consequences.

No decision has been issued yet, however, in the capital investor test case against Volkswagen that involves billions of euros. Another question is also relevant for the proceedings: Was the information at issue specifically to be classified as “price-relevant”? The ad hoc obligation requires the relevant information to have the potential to influence the share price. According to VW, however, there was no share price relevance. Braunschweig Higher Regional Court has so far left this question unanswered. The hearing is scheduled to continue in September 2019 at the latest. Subsequently, not only VW but also all other issuers will learn whether Braunschweig Higher Regional Court has issued the first concrete decision on the attribution of knowledge.