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Failure to appeal a judgment by one of the debtors with joint and several liability has clear-cut consequences in external relationships with other parties but uncertainty prevails in internal relationships between the debtors themselves

Failure to appeal a judgment by one of the debtors with joint and several liability has clear-cut consequences in external relationships with other parties but uncertainty prevails in internal relationships between the debtors themselves

Failure to appeal a judgment by one of the debtors with joint and several liability has clear-cut consequences in external relationships with other parties but uncertainty prevails in internal relationships between the debtors themselves

25.04.2016 NL law

On 18 December 2015 the Supreme Court decided (ECLI:NL:HR:2015:3637) that if debtors with joint and several liability are ordered to pay damages to a party in the first instance, the joint and several debtor that does not appeal the original decision cannot profit from a successful appeal brought by the other debtors with joint and several liability against that decision.

In this case, the District Court of Amsterdam ruled that the partners A,B and C of a law firm (in the form of a partnership) were jointly and severally liable for the damages suffered by one of their clients. This liability was the consequence of an attributable breach of contract by the law firm against that client.

The law firm and the lawyers B and C appealed the decision of the District Court of Amsterdam on the basis that the client was negligent (eigen schuld-verweer). The Court of Appeal of Amsterdam decided that the client had indeed been negligent and therefore needed to bear responsibility for part of the damages claimed. The Amsterdam Court of Appeal  thus reduced the client’s claim for damages by 70% and ordered the law firm and the lawyers B and C to pay the remaining 30% .

Lawyer A had not participated in the appeal proceedings. As a result, the original decision of the District Court of Amsterdam became final and binding as far as he was concerned.

The client subsequently appealed to the Supreme Court and argued, among other things, that the law firm and lawyers B and C no longer had an interest in the appeal proceedings as the decision of the District Court was already final and binding in respect of lawyer A. Because the liability established in that decision was a joint and several, this decision was – according to the client – also final and binding against the law firm and the lawyers B and C.

This raised two questions regarding the external liability of the law firm and lawyers A, B and C:

  1. If a judgment about the liability and the extent of damages against one of the jointly and severally liable debtors becomes final and binding, do the other joint and several debtors still have an interest in challenging that judgment?
  2. Does the more favourable judgment on appeal also apply to the debtor with joint and several liability that omitted to appeal the original judgment?

The Supreme Court decided that the fact that the judgment of the District Court of Amsterdam was final and irrevocable between the client and lawyer A, did not preclude the other defendants from filing an appeal to decide the extent of their own relationship with the plaintiff. The court confirmed that a debtor with joint and several liability has an independent relationship with the creditor and therefore has a legitimate interest in establishing the extent of this relationship independent of the other joint and several debtors .

The Supreme Court also decided that the more favourable judgment on appeal did not apply to the relationship between lawyer A and the plaintiff. The principle of final judgments is leading. As a result, the claim of the client to lawyer A is set at 100% of the damages incurred by the client and the claim of the client to the law firm, lawyer B and lawyer C is set at 30% . In this case lawyer A was liable for 100% of the damages to the client.

This raises the interesting question of what happens in the internal relationship between the law firm, lawyer A, B and C. Can lawyer A take action to recover the excess amount of 70% paid to the client against the partnership, lawyer B and lawyer C? The Supreme Court’s decision does not address this subject.

Under Dutch law, partners in a partnership are liable (draagplichtig) in equal proportions for claims that concern the partnership, unless the mutual agreement between the partners provides otherwise. However, in the absence of such arrangements,  what is the situation following  the Supreme Court’s decision?  On appeal, the  partnership itself was held  liable for 30% of the damages only. If the partnership has no assets then this 30% may be recovered from lawyer A, B and C. If you apply the principles under Dutch law in respect of the internal relationship between the partners, each lawyer is liable for one third of this 30%.

The initial decision of the District Court that was annulled in relation to the claim to the partnership, lawyer B and lawyer C, was maintained with regard to lawyer A. This means that 70% of the 100% awarded to the client under that District Court decision is a claim of the client against lawyer A only. However, that does not detract from the fact that the claim involved is one that concerns the partnership. This means that the partnership, including lawyer B and C, should in principle bear 70%.

Taking into account the circumstances of this case, and in particular the fact that the different court decisions were caused by lawyer A omitting to appeal against the District Court’s decision together with the other defendants, it is conceivable, that lawyer A alone will have to accept responsibility for this 70% because lawyer B and C could equally argue that even in the context of their internal relationship the 70% is imputable to lawyer A’s omission to appeal against the decision of the District Court.

To avoid possible conflicts and legal uncertainty regarding the internal recourse of a partnership and its partners,  when the partnership and/or the individual partners are held jointly and severally liable for claims that concern the partnership, it is advisable that all co-defendants appeal against any judgment in favour of the plaintiff.

The post Failure to appeal a judgment by one of the debtors with joint and several liability has clear-cut consequences in external relationships with other parties but uncertainty prevails in internal relationships between the debtors themselves is a post of www.stibbeblog.nl

 

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