Netherlands: Director Can Be Held Personally Liable

The Supreme Court ruled on 23 November 2012 that a managing director can be held personally liable if he has acted in breach of a personal duty of care, even if the company can also be held liable for the same actions. This type of liability is governed by the standard rules on tort and does not require serious culpability on the part of the director. The Supreme Court also held that a director can be held personally liable, alongside the company, for tortious conduct by the company. In short, this is the case where a director is seriously culpable in a personal capacity with regard to that conduct. 

Facts

The case arose from a dispute between the buyers of a villa on the Spanish Costa Blanca and both a company acting as an intermediary in the sale and its (indirect) managing director who maintained the contacts with the buyers. While viewing the construction project, the buyers came across municipal warning signs. The director told them that these signs were connected with the fact that construction per piece of land exceeded the permitted limits. According to the director, this problem would be solved by the seller paying a fine to the municipality. Once the fine was paid, the violation of the building regulation would have no further consequences. Subsequently, the parties concluded the sale. A few months later, the seller advised the buyer that construction could not start due to protest from neighbouring residents, and the purchase agreement was dissolved. The buyer subsequently bought a half-finished villa in another development from the same seller, again using the services of the (indirect) director of the intermediary company. The director was already aware before that sale that there were problems concerning building permits for the development, and that the municipality was rumoured to have given an order for demolition of villas built illegally. Less then two months after the second purchase, the buyers heard that their villa had been demolished because no building was permitted on the relevant land and no building permit had been issued for this. The buyers then sued the intermediary company and its (indirect) director for damages. They based their claim on tort committed by the company and the director due to a failure to inform them of the fact that the villas were built illegally and that there was a risk of demolition.

Earlier Supreme Court decisions

The Supreme Court ruled in earlier case law - notably its decision of 8 December 2006 in Ontvanger v Roelofsen – that a company's creditor who has suffered damage due to a claim remaining unpaid and unrecoverable may under certain circumstances hold the person liable who, in his capacity as director, has (i) acted on the company's behalf, or (ii) has procured or allowed the company's failure in meeting its statutory or contractual obligations. This liability would exist alongside the company's liability. In both instances, the managing director can only be assumed to have committed a tort towards the company's creditor if there is sufficiently serious, personal culpability on his part, also having regard to his duty of care as set out in section 2:9 DCC.

The Supreme Court's recent decision

In its recent decision, the Supreme Court made a slight adjustment to Ontvanger v Roelofsen, by replacing the wording "acted on the company's behalf" by "assumed an obligation on the company's behalf". This adjustment appears to arise from two points of view introduced by the Supreme Court.

Firstly, a managing director can be held liable alongside the company – and not only in cases involving a creditor's unpaid and unrecoverable claim - for a tort committed by the company if there is serious personal culpability on the director's part concerning that tortious conduct because he should have prevented that conduct, given the apparent interests of the injured party.

Secondly, the managing director's liability for the company's tort in this case is not based on his acting as a director, but on his acting in breach of his personal duty of care. According to the Supreme Court, the standard rules on tort apply to such individual liability and no serious culpability of the director is required. And this also applies in a case such as the present one, in which the tortious conduct of the director can, by general standards, also be considered as the company's conduct, resulting in the company's own liability based on tort.

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