German company law: directors’ liability for intentional harm

Background

The German Federal Court of Justice (Bundesgerichtshof) has confirmed its case law on directors’ duties and liability for intentional harm.

The defendant was the managing director of a German limited liability company (the GmbH) which sold wheat on the plaintiff’s account. The plaintiff bought seeds from the GmbH on a smaller scale. The plaintiff and the GmbH had agreed to set off their respective debts once a year and to pay out the surplus to the plaintiff at a certain date.

The defendant embezzled the money, which the GmbH owed to the plaintiff, and was held liable for damages for intentional harm caused, by the Lower Court. German law only allows for money to be claimed for intentional harm if two requirements are met:

• Firstly, there must be an intention to cause the harm in question.
• Secondly, the wrongful conduct has to be contra bonos mores (carried out immorally).

Decision

The Bundesgerichtshof overruled this decision and held that the defendant had not acted immorally. It also held that the defendant was not a party to the agreement between the GmbH and the plaintiff. There was no contractual relationship with the plaintiff and there was no fiduciary duty owed to the plaintiff. In German law, the director’s duty to abide by the law does not, generally, affect third parties. The duty is generally only owed to the director's company.

Even though the Bundesgerichtshof denied an external liability for intentional harm in this case, directors must be aware that third-parties can hold them liable on basis of the German Civil Code.

Bundesgerichtshof, 07 May 2019, VI ZR 512/17