8.4 Establishment of responsibilities and impact of grounds for decisions on later proceedings

239. In Chapter 6.2 I conclude that although the grounds given sometimes vary in the way they are formulated, the Enterprise Division always answers two legal questions in the run-up to its final judgment that an executive or supervisory director is responsible for mismanagement or improper management: (a) whether the executive or supervisory director has failed in the performance of his or her task and if so, (b) whether he or she has failed in the performance of his or her task to such an extent and/or contributed to such an extent to (had such a share in) the mismanagement or improper management that this mismanagement or improper management can be attributed to him or her. I also conclude that the second question involves a protection principle which is comparable with that in the procedures set out in Articles 9 and 138(248)(1), Book 2, Civil Code. However, because different criteria apply, it is not clear whether the scope within which executive and supervisory directors can make mistakes ‘with impunity’ is equally great in both regulations or whether, for example, it is more likely for directors to be blamed for serious failure to perform their tasks than for mismanagement or evidently improper management. In my opinion the case law shows that there are no major differences, if any, between the two sets of criteria.

240. In Chapter 6.4 it is observed that in its ruling on the Laurus case the Supreme Court reneged on its previous decision in the OGEM Holding case that – loosely translated – grounds given by the Enterprise Division may acquire the force of res judicata in a later liability lawsuit. The point of departure now is that the facts established by the Enterprise Division in the proceedings in accordance with Articles 9 and 138(248)(1), Book 2, Civil Code are not regarded as res judicata, not even subject to contrary evidence. I argued that although in the Laurus case the Supreme Court limited itself to the second stage of the proceedings, it may be assumed that this decision also applies to proceedings for recovery of costs, which are formally not part of proceedings based on Article 355(1), Book 2, Civil Code.

In spite of the decision on the Laurus case, in my opinion it cannot be affirmed absolutely that the position of executive and supervisory directors in proceedings pursuant to Articles 9 and 138(248)(1) of Book 2 of the Civil Code has improved in comparison with the situation whereby grounds given by the Enterprise Division could be regarded as having the force of res judicata. In the first place my findings from the procedural intermezzo included in Chapter 6.3 lead to the conclusion that the consequences of the consideration stated in the OGEM Holding case are sometimes overestimated. By virtue of the text of Article 236 of the Code of Civil Procedure, res judicata can be attributed only to grounds given by the Enterprise Division in the framework of dealing with an application for the recovery of costs, because it is only in these cases that the same legal relationship is at issue – namely whether or not the executive or supervisory director has failed imputably in the performance of his or her task – between the same parties. Another point is that in the Laurus case the Supreme Court also took into account that in some circumstances the liability court – in view of the content of the report drawn up by the investigators, the discussion of this report at the hearing and, I would like to add, the Enterprise Division’s responses to the report – may deem it provisionally proved that the individual held liable has not performed his or her task in the way in which a reasonably competent and reasonably acting officer should have performed that task in the circumstances. I argue that although the present decision seems to pertain to the procedure pursuant to Article 9, Book 2, Civil Code, in proceedings pursuant to Article 138(248)(1), Book 2, Civil Code the court, since it is now free in its assessment of the evidence (Article 152(2) of the Code of Civil Procedure), may also arrive at a similar judgment. This means that it is imaginable that – notwithstanding the wording of the Supreme Court’s ruling on the Laurus case – on the basis of the inquiry file in which the actions of an executive or supervisory director are described in detail (either in proceedings for recovery of costs or in second-stage proceedings), the liability court may deem it proved that the director in question has culpably failed in the performance of his or her task to such an extent that he or she can be blamed for serious negligence (Article 9, Book 2, Civil Code) or that his or her actions can be regarded as evident improper management (Article 138(248)(1), Book 2, Civil Code). In my opinion the significance of this should not be underestimated. The board member or supervisory director is entitled to produce evidence to the contrary, but he or she has to prove that the Enterprise Division’s judgment is wrong, or at least implausible.

241. In Chapter 6.5 I conclude that the best way to deal with the problem that the Enterprise Division’s grounds for a decision may have an impact – possibly a far-reaching impact – on liability proceedings would be to delete those parts of Article 354, Book 2, Civil Code which determine that the costs of the investigation can be partially or wholly recovered from an executive director, a supervisory director or someone else employed by the legal entity if the report shows that this individual is responsible for improper management or an unsatisfactory state of affairs in the legal entity. However, the most important thing is for the Enterprise Division to exercise restraint with regard to judging the actions of individuals and as much as possible to limit its judgment to the actions of bodies. In my opinion the result of these changes would be that the liability court would be unlikely to arrive at a provisional opinion based on evidence. This means that in proceedings pursuant to Articles 9 and 138(248)(1), Book 2, Civil Code the burden of proof would lie with the company or the liquidator if it is insolvent, and that the executive and supervisory directors would have ample opportunity to exonerate themselves.