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Supreme Court: liability of a company acting as a director

Supreme Court: liability of a company acting as a director

Supreme Court: liability of a company acting as a director

02.08.2017 NL law

In a recent judgment, the Supreme Court ruled that if a company acting in its capacity as director of another company is liable based on a wrongful act (onrechtmatige daad), Dutch law provides that the natural persons who were acting as directors of that director-company at the time the liability arose are jointly and severally liable. The Supreme Court also ruled that a claimant is not required to state and prove that serious blame (ernstig verwijt) can be attributed to such natural persons acting as directors for the actions on which the liability of the director-company is based.

However, if the statutory ground on which the liability is based provides for exculpation this can be invoked by such natural persons acting as directors. In cases of a wrongful act, the natural persons acting as directors would need to state and prove that serious blame cannot be attributed to them. This judgment of the Supreme Court provides for a division of the burden of proof.

Supreme Court 17 February 2017 (ECLI:NL:HR:2017:275).

A South African fruit exporter used a Dutch company as agent for the sale of its grapes in Europe. The agent sold the grapes for the fruit exporter and provided the fruit exporter with the proceeds minus the costs of sales and an agency fee. The director of the agent was its holding company. The two directors of the holding company were brothers and had divided tasks between themselves. The fruit exporter discovered, among other things, that the agent had accounted for lower proceeds than the actual proceeds. As a result, the fruit exporter claimed damages against the agent before the District Court of Arnhem. The District Court upheld the fruit exporter's claim and ruled in an interim judgment that the agent was liable for the damages. However, before the District Court could give a final judgment, the agent was declared bankrupt.

After the agent's bankruptcy, the fruit exporter filed a claim for damages against the holding company and its directors in their capacity as (indirect) director of the agent, requesting the court to rule that each (indirect) director had acted wrongfully towards the fruit exporter by, for example, accounting for lower proceeds in connection with the sale of the grapes. The District Court ruled that serious blame could be attributed to the holding company and one of the brothers for the actions of the agent and that they were liable for the damages of the fruit exporter caused by these actions. However, the District Court ruled that serious blame could not be attributed to the other brother. The Arnhem-Leeuwarden Court of Appeal confirmed the District Court's judgment.

The fruit exporter appealed to the Supreme Court and argued that if liability of a director-company has been established under Dutch law, any natural person acting as a director of that director-company is jointly and severally liable alongside the director-company. Therefore, contrary to the ruling before the District Court and the Court of Appeal, both brothers were liable on the basis of Dutch law according to the fruit exporter. The other brother did not agree and argued that for him to be held liable the fruit exporter must state and prove that serious blame should be attributed.

The Supreme Court ruled in favour of the fruit exporter: as the liability that was based on a wrongful act claim of the director-company was irrevocable, the natural persons acting as directors of the director-company were also jointly and severally liable under Dutch law. This means that the fruit exporter did not have to state and prove that serious blame could be attributed to such natural persons acting as a director of a liable director-company for the actions on which the liability of the director-company was based. However, it must be noted that if the provision on which the liability is based provides grounds for exculpation, this can be invoked by the natural persons acting as directors of the liable director-company independently from the director-company. According to the Supreme Court, this reasoning falls in line with the wording and rationale of Section 2:11 of the Dutch Civil Code (Nederlands Burgerlijk Wetboek, the "DCC") as well as the requirements for director's liability based on a wrongful act.

This Supreme Court judgment clarifies that Dutch law does not provide any grounds to accept an exception under Section 2:11 of the DCC for liability based on a wrongful act claim; it applies to all statutory grounds of directors' liability. Also, the Supreme Court has established a division of the burden of proof. In the event a director-company is liable on the basis of a wrongful act and the claimant has invoked Section 2:11 of the DCC, the natural person acting as director of that director-company will also be liable unless that natural person states and proves that there is a ground for exculpation.

The judgment is strongly in favour of a claimant/creditor. By invoking Section 2:11 of the DCC, the claimant will not be required to state and prove that serious blame can be attributed to the natural persons acting as directors.

Team

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