3.2.1 The (un)problematic nature of the open norm: serious reproach

The point of departure for this research is directors’ liability under Dutch company law.1 In this highly dynamic field of law, three concepts of directors’ liability are dominant: the joint and several internal liability of directors to the company (art. 2:9 DCC); the joint and several external liability of directors in the event of bankruptcy (art. 2:138/248 DCC); and the external liability of individual directors to third parties for wrongful acts (art. 6:162 DCC).2 If one of these standards of conduct is violated, a director may fall prey to a court’s judicial review.

It has been argued that statutory liabilities are the subject of the Dutch Supreme Court’s integrated approach of ‘applying the standard of ‘serious reproach’ when reviewing directors’ liability.3 Serious reproach – the standard required to establish directors’ liability – was first introduced in 1997 in the Supreme Court’s ruling in Staleman v. Van de Ven.4 The liability standard instructs courts to consider ‘all relevant circumstances’ when undertaking the liability analysis. Several circumstances may be relevant, such as the nature of the company’s activities, the risks related to these activities, the division of tasks within the board of directors, any relevant guidelines to which management should adhere, the information available to management and the care and competence expected from management.5 I understand these circumstances to involve relevant contextual and behavioural legal case factor, which may be distinguished as follows: contextual factors may colour a court’s perception of a director’s (mis)behaviour. Contextual factors alone, however, may not lead to a director’s personal liability. This is precisely the distinction between corporate liability and a director’s personal liability. There must be individual misbehaviour – a behavioural factor – for which a director can personally be reproached, including but not limited to a norm violation or foreseeable damage on the part of the director (see paragraph 3.3.3 for more details on how contextual and behavioural legal case factors have been operationalised).

Since courts enjoy the discretion of context-based review, the points of view in Staleman v. Van de Ven should not be regarded as constraints on the courts’ considerations of directors’ liability. The only certain limitation is the requirement of objective judicial review of directors’ conduct.6 In other words, a director’s subjective bad faith or subjective incompetence or knowledge are, theoretically, irrelevant factors in the liability analysis. Or at least, claimants are not required to prove a director’s bad faith and courts are not obliged to infer a director’s bad faith in order to establish a director’s’ liability. In practice, given the circumstances, a director’s subjective state of mind may be relevant.

There are indications in case law that, where a court does infer or establish that a director had acted with malicious intent, the bad faith action on its own may establish a director’s personal liability. A well-known ‘bad faith’ case involves De Rouw v. Dingemans, where the director committed fraudulent acts and was judged personally liable to the company.7 Moreover, there are indications in case law that, where a court does infer that a director was in an advantaged position of knowledge, this position may influence the case outcome. For instance, the Altera Pars Media case involves the appointment of an Imca employee as the sole director on Altera’s board in anticipation of a proposed merger between Altera and Imca. The Disctrict court assumed on the basis of the director’s position that the director knowingly continued Altera’s financial policy to the detriment of Altera’s companies.8

‘Serious reproach’ is thus an open norm suitable for flexible application to different types of legal disputes and differing circumstances. In spite of this advantage, the use of a flexible, open norm is susceptible to criticism as it may increase legal uncertainty.9 When it comes to judicial review, the courts have to apply the open standard of serious approach to individual, contextspecific circumstances, thus enhancing legal uncertainty.10 In this research, I hypothesise that legal uncertainty is reduced because the Supreme Court has adopted ‘serious reproach’ as the analytical framework for different types of legal procedures to review director conduct. I will demonstrate that, based on an analysis of several key Supreme Court decisions, ‘serious reproach’ serves to construct and maintain a simple legal decision model intended to overcome the inherent complexity and unstructured nature of context specific, caseby- case judgments. The Supreme Court’s analytical framework of ‘serious reproach’ will be shown to follow a logical pattern: (1) courts identify norms that may have been violated; (2a) they objectively assess the degree to which these violations can be reproached; (2b) in so doing, they consider all relevant circumstances with respect to the defence advanced by the director concerned. I will refer to this model as the Supreme Court’s ‘simplified legal decision model’ and will now elaborate on how it may operate when courts apply ‘serious reproach’ to different types of legal disputes concerning directors’ liability.