Director liability in tort
If civil society organisations want to hold company directors liable, they must do so on the basis of an wrongful act (onrechtmatige daad). A wrongful act may be a breach of a right, or an act or omission in breach of a statutory duty or unwritten duty of care (ongeschreven zorgvuldigheidsplicht). Moreover, there must be culpability of the act to the director, damage, causal (condicio sine qua non) connection between the act and the damage, as well as relativity (the violated standard must serve to protect against the damage suffered).
A wrongful act can only be attributed to a director if he can be blamed for a personal, serious accusation (persoonlijk ernstig verwijt). Whether there is a personal serious accusation depends on the circumstances of the case, including (but not limited to) the nature of the activities to be performed by the legal entity, the risks generally arising therefrom and the information the director had or should have had at his disposal. In any case, there may be a personal serious accusation if the director knew or reasonably should have understood that the legal entity’s conduct brought about or authorised by him would result in the legal entity failing to fulfil its obligations, and also failing to provide recourse for the damage occurring as a result.
Thus, a director is more likely to act personally seriously culpable (persoonlijk ernstig verwijtbaar handelen) if it is clear in advance that the company is in breach of its legal obligations, rather than an unwritten standard of care established in retrospect. In principle, it could therefore be argued that more legislation leads to more risk of directors’ liability. However, it is now well established, for example, that CO2 emissions contribute to climate change and that human rights violations occur in cobalt mining and textile manufacturing. If directors of companies operating in the oil orcobalt extraction or clothing industry nevertheless fail to take this into account, they could be personally seriously culpable (even without the CSDDD coming into force).
Moreover, in the case of climate damage and human rights violations in the supply chain, the requirement of causality will not be easily met and it will be difficult to interpret the damage. Take damage to homes caused by heavy rain as an example. It is difficult to determine whether this downpour was the result of global warming, or that it would have occurred anyway. And if it is assumed that it was the result of climate change, can it be redirected to the acts or omissions of the directors of one company, such as Shell? And for what damages will they then be liable, assuming that the company of which they are directors contributed only minimally to this climate change in percentage terms? These questions are difficult to answer.
CSRD and directors’ liability
As I explained in my blog post ‘CSRD | What does it mean and how do I prepare my company for it?’, the CSRD requires companies to report on ESG/sustainability issues. This report is part of the management report, which in turn is part of the financial statements. If misrepresentation is made by publicly disclosed financial statements, the directors and supervisory directors are jointly and severally liable to third parties for any loss suffered as a result. This is a separate ground for directors’ liability. It is therefore important that the ESG/sustainability report does not become a marketing document and that a realistic picture is presented. If not, this could lead to liability of the directors concerned.
But what if the situation just does not look so bright? Disclosure of adverse effects of the company’s operations on people or the environment, or the lack of any intention to reduce CO2 emissions, could give civil society interest groups ammunition to initiate liability proceedings. Such proceedings will in principle be directed at the company. If the company fails to comply with a legal duty or unwritten duty of care, the company can be sued in tort. This can only lead to liability of the directors of the company in question if they are personally seriously culpable and the rest of the requirements for assuming a tort are met. As mentioned, this is not a threshold to be taken lightly. It should therefore be preferable for directors to present an honest picture in the annual report, even if it does not merit a sustainability award.
CSDDD and directors’ liability
As I outlined in my blog post ‘CSDDD | what does it mean and how do I prepare my company for it?’, the CSDDD requires companies to conduct due diligence on adverse human rights and environmental impacts in the value chain or supply chain. There is much commotion about the introduction of the CSDDD and it is therefore uncertain whether the CSDDD will see the light of day. Should the CSDDD, in its current or amended form, nevertheless be introduced, it is good to know that at least by itself it will not entail an increased risk of directors’ liability.
In the European Commission’s proposal, two provisions targeted directors of in-scope companies. The first was a general duty of care to take into account the impact on sustainability issues, including human rights, climate change and the environment, when fulfilling the duty to act in the best interests of the company. During negotiations on the final text of the CSDDD, this provision fell by the wayside. The second provision dealt with the responsibility of directors for implementing and monitoring due diligence measures, following consultation with stakeholders and civil society organisations. This provision was also defeated. However, this does not alter the fact that directors are responsible for ensuring that the company complies with its obligations.
If you would like to know more or have any questions about ESG and/or directors’ liability, please feel free to contact Stephanie ter Brake.
Click here for the previous blog on ESG or visit our ESG theme page on our website for more information on this topic.
