No external liability but no carte blanche!
German Federal Court of Justice (BGH) on organizational duties and D&O liability
The German Federal Court of Justice (BGH) recently dealt in a competition law matter with the reach of the organizational duties of a managing director of a German limited liability company (GmbH) with respect to external third parties (judgement of 18.06.2014, file no. I ZR 242/12). In the specific case, the plaintiff had filed an action against both a German limited liability company (GmbH) and its managing director because in its opinion the managing director was also personally liable to it in addition to the company. The German Federal Court of Justice (BGH) clarified that the organizational duties of a managing director only exist in principle with respect to the company, but not with respect to external third parties. According to the court, a personal liability with respect to third parties due to a breach of organizational duties only comes in consideration in exceptional cases. This could, for example, be the case if the managing director ignores breaches of which he is aware or prevents himself from obtaining knowledge of such. The same applies if the managing director has himself established a business model aiming at the infringement of rights.
This judgement is not, however, a carte blanche for managing directors. If they culpably breach their organizational duties to the company, they may be liable to pay damages to the company. The creditors of the company in each case may then be able to enforce a claim against the managing director by virtue of the fact that this is deemed as asset of company.