By Jonas Fechter, University of Münster / CELIS Deputy Assistant Director
Investment screening is infamous for the low number of judicial proceedings that have challenged the legality of the prohibition and mitigation measures imposed by governments. As a result, there is, as yet, no strong body of case law clarifying how investment screening laws are to be applied, which is adding to the legal uncertainty in this volatile area of the law. However, after the seminal (if not very clarifying) judgment of the European Court of Justice in the Xella Magyarország case[i], the German Administrative Court of Berlin, the competent court of first instance in investment screening procedures, delivered two judgments on investment screening cases in November. This was one of the first times that the Administrative Court has had to deal with the German investment screening mechanism, which has been amended multiple times over the past couple of years. These two judgments will have a significant effect on the investment screening discourse in Germany, and possibly in Europe, because they highlight that the Court is prepared to place great emphasis on due process in the administration of the law. While the Court did not expand on the substantive standards of investment screening, i.e. whether an investment is likely to affect security or public order, it doubled down on the procedural safeguards of the law. This article examines the judgment of the Court in the Heyer Medical case[ii], delivered on 15 November 2023. This ruling demonstrates that the Court is willing to reign in the application of the investment screening law by the German Ministry.[iii]
II. Facts of the case
The underlying case involved the German medical equipment company Heyer Medical, which specializes in the development and manufacture of ventilators. After going bankrupt in 2018, Heyer Medical was purchased by a third country company and integrated into that company’s business. Over the course of the Corona pandemic, Heyer Medicalsupplied ventilators to German hospitals that were in short supply. In April 2020, the Ministry of Economic Affairs and Climate Action, the competent Authority for investment screening under German law, became aware of the purchase of Heyer Medical by chance, when a member of the screening division read about the purchase in the press. Subsequently, the Ministry contacted the investor, who then applied for a so-called certificate of non-objection in July 2020. In August 2020, the Ministry initiated an official review of the investment under the Foreign Trade and Payments Ordinance and prohibited the deal in April 2022.
III. Legal challenges of the case
While the case would have offered a formidable opportunity to explore the likely to affect security or public order standard of the German and European investment screening law, the Court adjudicated only on the procedural aspects of the case instead. It did not explore the question of whether a ventilator manufacturer is essential to national security in light of the Corona pandemic. Instead, the Court focused on the procedural right to be heard (1.) and the applicable deadlines that limit the powers of the Ministry (2.).
While some of these aspects are contingent on German law, the case shows the willingness of the courts to double down on procedural issues, especially when the substantive standards of the law are likely to be, largely, up to the discretion of the executive branch of government.[iv] Procedural rights and safeguards are enshrined in secondary legislation (Art. 3 EU Screening Regulation) and protected under primary law (Art. 41 CFR). This is why the judgment of the Administrative Court is likely to influence the further development of the European investment screening law: because it is structured according to common principles.
- Right to be heard
The right to be heard is a fundamental principle of the due process of law. The Court struck down the Ministry’s decision to prohibit the transaction as, in its assessment, the Ministry did not give the investor an appropriate opportunity to comment on the facts relevant to the decision. The right to be heard in administrative procedures is enshrined in § 28(1) of the German Federal Administrative Procedure Act (Verwaltungsverfahrensgesetz – VwVfG). Similar guarantees are found in Art. 41(1) (a) CFR and reflect general principles of EU law.[v]
Somewhat surprisingly, the Court applied a very strict test to this procedural aspect, even though it tends to be enforced less vigorously in German law and is subject to multiple exceptions.[vi] On the facts of the case, the Ministry conducted a thorough administrative hearing in May 2021, during which it confronted the investor with the Ministry’s multiple concerns about the investment. At this point, the investor had the chance to comment fully on the case. However, the Ministry did not prohibit the investment immediately after the hearing. Instead, they continued to investigate the case and, in the process, addressed six further formal inquiries to the investor. Before passing their final decision in April 2022, the Ministry did not conduct an additional, comprehensive hearing, under the assumption that the hearing in May 2021 and subsequent communication with the investor would meet the standard required by § 28(1) VwVfG.
However, the Court, based on the case law of the Federal Administrative Court,[vii] determined that § 28(1) VwVfG required the Ministry to confront the addressee with its findings after the case had been fully investigated. The comprehensive hearing in May 2021, being followed by ongoing communication between the Ministry and the investor, did not meet this standard, as the hearing in May 2021 had been conducted too far in the past. The Ministry discovered more facts relevant to the case after the hearing, which the investor should have been confronted with in one single comprehensive hearing.
Notably, the Court passed this judgment although the investor did not claim a violation of the right when challenging the investment decision. This highlights that the Court has applied a very high standard in this case.
The second violation of procedure occurred because of the specific design of the German screening mechanism and, therefore, may not be an issue in other jurisdictions. However, this also proves the wider point that the courts are willing to enforce procedural law thoroughly. Under German law, third-country investments are not subject to prior government authorization. However, the Ministry has the power to intervene and prohibit the investment or mitigate any threats associated with it. This authority has to be exercised within certain deadlines as, once the deadline has passed, the powers are forfeited. Under the then-applicable law, the countdown to the deadline was initiated either when the Ministry become aware of the transaction or when the investor filed a formal notification with the Ministry, which may include an application for a certificate of non-objection. In the first instance, the intervention deadline was three months; in the second instance, two months. As set out above, the Ministry became aware of the specific transaction through one of its screening officers, who read about the deal in the press in April 2020. In July 2020, the investor then applied for a certificate of non-objection. There was an assumption that this formal notification would override the running deadline, that had been triggered when the Ministry first became aware of the deal. However, as the Court explained at great length the notification from the investor could not supersede the first deadline because deadlines, under German law, are generally not at the disposal of the parties. When the Ministry finally opened a formal investigation into the case in August 2020, the first deadline had already lapsed and the powers of the Ministry to intervene were thus forfeited.
The Heyer Medical judgement of the Administrative Court of Berlin is one of the first decisions by a German Court regarding investment screening. Somewhat surprisingly, the Court focused on the procedural aspects of the law, without saying a word on the substantive test of the investment screening. Nevertheless, together with another judgement handed down the week before,[viii] this decision underlines the importance that the administrative courts are attributing to the proper administration of the law and the due process guarantees enshrined in the Federal Administrative Procedure Act. This has the potential to inform the European discourse on investment screening, as European primary law and the EU Screening Regulation contain similar guarantees relating, in particular, to the right to be heard.
[i] CJEU 17.7.2923 – case C-106/22, ECLI:EU:C:2023:568, Xella Magyarország.
[ii] VG Berlin 15.11.2023 – case VG 4 K 253/22, Heyer Medical.
[iii] The judgment was delivered after the public hearing but has not yet been published. However, the Court did release a press statement in German the following day: https://www.berlin.de/gerichte/verwaltungsgericht/presse/pressemitteilungen/2023/pressemitteilung.1386057.php(accessed 27 November 2023).
[iv] VG Berlin 27.1.2022 – case 4 L 111/22, ECLI:DE:VGBE:2022:0127.4L111.22.00 para. 43 – GlobalWafers.
[v] CJEU 8.5.2014 – case C-604/12, ECLI:EU:C:2014:302 para. 49; Ruffert, in: Calliess/Ruffert (eds.), EUV/AEUV mit Europäischer Grundrechtecharter, München 2022, Art. 41 CFR para. 9. Furthermore, German and European law guarantee a similar right during court proceedings according to Art. 103(1) GG and Art. 47 CFR.
[vi] Wißmann, Verwaltungsrecht, 2023, pp. 169 et seqq.
[vii] BVerwG 14.3.2023 – case 8 A 2/22, ECLI:DE:BVerwG:2023:140323U8A2.22.0 para. 20, Rosneft.
[viii] VG Berlin 7.11.2023 – case VG 4 K 536/22, PCK Raffinerie Schwedt.