The extra-contractual liability of corporations, directors and employees

Introduction

The entry into force of Book 6 of the Civil Code on extra-contractual liability on Jan. 1, 2025 represents a major reform of liability law in Belgium. This Book 6 contains several provisions that directly affect the liability of companies, directors, members of management boards and employees.

The most notable change is the upheaval that Article 6.3 BW introduces by:

• Allowing the concurrence of contractual and extra-contractual liability
• Put an end to the quasi-immunity regime of performing agents (auxiliaries) by allowing the contracting party to bring an extra-contractual claim against the latter

Below, our lawyers discuss the features of both the old and new regimes, and specifically the implications of Article 6.3 for directors. Is a director an auxiliary person? Under what conditions can his liability be invoked in that capacity? What defenses can he invoke? Special attention is given to the consequences of the discharge granted to the director by the general meeting and its possible enforceability against the co-contractor.

1. General considerations

1.1. Book 6 is of supplementary law

The provisions of Book 6 are supplementary law, "unless it appears from their text or scope that they are, in whole or in part, of a mandatory or public policy character" (Art. 6.1 BW). Parties can therefore contractually deviate from it. This confirms the principle contained in Article 5.89, §1, paragraph 1, BW, according to which the parties may agree on a clause that releases the debtor in whole or in part from his non-contractual liability, unless the law provides otherwise.

1.2. Not only Book 6 applies

Book 6 constitutes a "lex generalis" and does not preclude the application of other provisions and/or legislation. Several scenarios are conceivable:

First, the rules of Book 6 can be applied simultaneously with other compatible provisions or legislation, as well as with other books of the Civil Code. For example, Article 5.17(1) of the Civil Code provides that "the parties may incur extra-contractual liability to each other during the pre-contractual negotiations". If a party's extra-contractual liability is invoked following a faulty termination of negotiations, the extent of damages will be assessed according to the provisions of Book 6. No provision of Book 6 expressly deviates from the Code of Companies and Associations (CCA).

Second, exclusive and specific provisions or legislation take precedence over the rules of Book 6. For example, Article 18 of the Labor Contracts Act of July 3, 1978 that "In case the employee causes damage to the employer or third parties in the performance of his contract, he is liable only for his deceit and his serious fault. For minor fault he is liable only if it occurs with him habitually rather than accidentally". Thus, an employee's liability for damages during the performance of his employment contract is assessed under Article 18 Labor Contract Law and not under the provisions of Book 6.

1.3. Application of Book 6 over time

Article 44 of the law of February 7, 2024 contains a transitional provision: the provisions of Book 6 apply to facts that may give rise to liability and that have occurred after the law enters into force (Jan. 1, 2025). They do not apply to the future consequences of facts that occurred before the enactment of this law.

This transitional rule leads to discussion, especially about Article 6.3 of the Civil Code. According to a first interpretation, the legislator wanted to protect the expectations of parties who entered into a contract before the entry into force of Book 6. At that time, the regime of the quasi-prohibition of concurrent liabilities and the quasi-immunity of the auxiliary person applied. According to this interpretation, the "facts that may lead to liability" to the contract itself, as a result of which Article 6.3 of the Civil Code would not apply if the contract in question was entered into before the entry into force of Book 6.

Other legal experts argue that the "facts that may lead to liability" refer to the breach of the contractual obligation. If this breach occurs after January 1, 2025, Book 6 would apply, including Article 6.3, even if the agreement was entered into before January 1, 2025. If this interpretation were to stand, it would be desirable to negotiate an addendum to these agreements between the parties, containing a waiver of the right to invoke Article 6.3 of the Civil Code.

2. The concept of fault (Article 6.5 of the Civil Code).

Article 6.5 BW states: "Every person is liable for the damage he causes to another through his fault" This is a restatement of the former Article 1382 of the old Civil Code.

However, Book 6 introduces a statutory definition of the concept of error. An error exists "from the violation of a legal rule imposing or prohibiting certain conduct or the general standard of care applicable in society" (Art. 6.6, §1 BW). The general standard of care requires "a behavior consistent with that of a prudent and reasonable person placed in the same circumstances" (Art. 6.6, §2, first paragraph BW).

The definition confirms the retrospective nature of the assessment of fault: the prudent and reasonable person must be placed in the same external circumstances that existed at the time of the harmful act. The in abstraction assessment of fault is retained. This assessment does not take into account personality traits of the offender (character, emotion), but rather objective criteria such as occupation, experience, education and the nature of the activity.

Article 6.5 BW contains no reference to the seriousness of the fault; the lightest fault is thus sufficient to oblige the perpetrator to compensate the damage in full. The fault may consist in an intentional or unintentional act, in a positive act or in an omission.

The law gives the court some criteria as a tool on which to rely to determine the rule of conduct when the error results from the violation of the general standard of care: 1° the reasonably foreseeable consequences of the conduct; 2° the proportionality of the risk of the damage occurring, its nature and its extent in relation to the efforts and measures necessary to avoid it; 3° the state of the art and of scientific knowledge; 4° the requirements of good workmanship and good professional practice; 5° the principles of good management and good organization.

3. Concurrence of liabilities (Article 6.3, §1 BW)

3.1. Previous scheme

Prior to the introduction of Book 6, according to established Supreme Court case law, there was a principled impossibility for contracting parties to invoke the rules of extra-contractual liability in the context of their contractual relationship.

This principle had only two exceptions:

• If the error also constituted a criminal offense
• If the fault had a mixed character: it constituted not only a violation of the contractual obligation, but also of the general duty of care, and caused damages other than those resulting from the poor performance of the contract

3.2. New arrangement

Article 6.3, §1, paragraph 1, BW brings a complete reversal: "Unless otherwise provided by law or contract, the legal provisions on extra-contractual liability apply between co-contractors“

The new provision thus gives the injured party a choice between extra-contractual and contractual liability, but while respecting the special liability rules applicable to the contract. In accordance with Article 6.1 BW, the parties can contractually exclude the application of the extra-contractual liability regime.

Since the two liability systems cannot be applied simultaneously, it is up to the plaintiff to determine which of the two he bases his claim on. He is by no means required to invoke the extra-contractual liability; he can also base his claim on the contractual liability if he prefers.

However, Article 6.3, §1, second paragraph, first sentence BW provides a limitation: "However, if on the basis of extra-contractual liability the injured party claims compensation from his co-contractor for damages caused by the breach of a contractual obligation, this co-contractor may invoke the defenses arising from his contract with the injured party, from the law on special contracts and from the special limitation rules applicable to the contract“.

Contract defenses are mainly exoneration clauses that define the terms of liability or modify its effects in a way that deviates from the common law. These may include an exclusion of indirect or consequential damages, or a maximum amount for direct damages.

Special contract laws, are those that apply to special contracts and govern the terms and consequences of liability for breach of a contract in a way that differs from the common law. For example, a buyer would not be able to bring an extra-contractual claim to try to hold a seller liable for visible defects or to overcome the fact that he would not have acted in time to invoke hidden defects.

However, statutory and contractual provisions cannot be invoked as a defense by the contracting party when the claim for damages arises from an impairment of physical or psychological integrity or from an error committed with the intent to cause damage.

3.3. Practical importance of concurrence

There are several reasons why a creditor may have an interest in invoking his debtor's extra-contractual liability. For example:

• The contract may contain exoneration or indemnification clauses that meet the requirements of Article 5.89 of the Civil Code. Bringing an extra-contractual claim can then help circumvent these clauses if they do not cover both types of liability;
• According to Article 5.87 BW, only damage that was foreseeable at the time the contract was concluded is compensable. No such limitation exists for extra-contractual liability, which allows for full compensation;
• Contractual claims may have shorter limitation periods than non-contractual claims, for which the limitation period does not begin to run until the day after the victim discovers the damage. Thus, an extra-contractual claim may still be admissible while a contractual claim would be barred by the statute of limitations;
• Professional liability insurance policies often exclude coverage for contractual claims, with coverage then limited to extra-contractual liability. Thus, it may be beneficial to act on an extra-contractual basis to take advantage of insurance coverage;
• The contract may contain a forum clause (Berlin, New York.) that could lead the injured party to refrain from bringing an action for fear of the high costs that the contractual proceedings might entail. However, if the harmful event occurred in Belgium, the co-contractor, perpetrator of the fault and domiciled in a Member State other than Belgium, could be sued before the Belgian courts, since in case of tort or quasi-delict, according to IPR rules, the dispute may be brought before the courts of the place where the harmful event occurred or threatens to occur.

4. Extra-contractual claim against the auxiliary person (Article 6.3, §2 BW)

4.1. What is an auxiliary?

Book 6 does not define the term auxiliary person.

According to the Supreme Court, an auxiliary is a natural or legal person entrusted by the debtor of a contractual obligation with the performance of that obligation, regardless of whether it is performed for its own account and in its own name or for the account and in the name of the debtor.

However, a person who merely provides material conditions that allow a debtor to perform its obligations or merely provides materials is not an auxiliary person. In other words, a person who does not replace a co-contractor to perform all or part of a contractual obligation is not an auxiliary. This includes, for example, suppliers of machinery or raw materials.

4.2. Previous scheme

The intended hypothesis is that of a triangular relationship in which an auxiliary person (Party C), who assists or replaces a co-contractor (the principal debtor) (Party B) in the performance of contractual obligations arising from the principal contract, causes damage to his principal's co-contractor (the principal creditor) (Party A).

Since the so-called Stuwadoors judgment of the Supreme Court of December 7, 1973, the aggrieved principal creditor (Party A) could only bring an extra-contractual claim against the auxiliary persons (Party C) of the principal debtor (Party B) under the same conditions as those governing a claim against the principal debtor on an extra-contractual basis (Party B). Thus, regardless of the nature of the contractual relationship, the performance to which he contributed, or the seriousness of the fault he committed, the auxiliary person (Party C) enjoyed the same protection against extra-contractual claims by the principal creditor (Party A) as his principal (the principal debtor) (Party B). In principle, Party C could not be held liable by the principal creditor (Party A), but only by his principal, the principal debtor (Party B), which has led legal doctrine to speak of the "quasi-immunity" of the auxiliary person.

4.3. New arrangement

Article 6.3, §2 BW provides: "Unless the law or the contract provides otherwise, the law provisions on extra-contractual liability shall apply between the injured party and the auxiliary of his co-contractors. However, if the injured party claims compensation for damages caused by the non-performance of a contractual obligation from an auxiliary of his co-contracting parties on the basis of extra-contractual liability, the latter may invoke the same defenses as his principal may invoke under paragraph 1 with respect to the obligations in the performance of which the auxiliary contributes. The assistant may also invoke the defenses which he himself may invoke in this connection against his co-contractor under paragraph 1“

Thus, the principles outlined above apply mutatis mutandis to the triangular relationship and can be presented as follows:

• Party A may bring a contractual or extra-contractual claim against Party B within the limits of Article 6.3, §1 BW;
• Party B may bring a contractual or extra-contractual claim against Party C within the limits of Article 6.3, §1 BW;
• Party A cannot bring a contractual claim against Party C because no contract exists between Party A and C; A Party A only contracted with B;
• but, and here lies the novelty, Party A can bring an extra-contractual claim against Party C;
• Party C may invoke against Party A the defenses referred to in Article 6.3, §1 of the Civil Code that arise from both the contractual relationship A-B and the contractual relationship B-C, except when the claim for damages brought by Party A against C arises from an impairment of Party A's physical or psychological integrity or from a fault committed by Party C with the intent to cause damage;
• Since Article 6.3, §2 BW is of supplementary law, Party A can validly waive its application in the context of the A-B relationship. If the contract A-B does not contain such a waiver, it cannot be imposed on Party A by a contractual provision of the contract B-C, since, per hypothesis, such a clause would be unenforceable against Party A and Party A must agree to the waiver of its right to invoke Article 6.3, §2 BW in all cases. In that case, the only protection that Party C could impose on B would be that, in the context of the B-C contract, either Party B would undertake to ensure that Party A will not bring an extra-contractual claim against Party C, or Party B would undertake to indemnify Party C against any condemnation that would be brought against Party C in the context of an extra-contractual claim brought by Party A. The acceptance of such clauses will of course depend on the respective bargaining power of the parties involved.

It should be emphasized, however, that Book 6 does not modify the previous regulation in the event of damage caused to a third party by a cocontractor. If a co-contractor causes damage in the performance of his contract to a third party who is not a co-contractor or an auxiliary, the latter may bring a non-contractual claim against the co-contractor who caused the damage, if the breach of the contractual obligation simultaneously and independently of the contract constitutes an extra-contractual fault or another ground for extra-contractual liability. Thus, the extra-contractual liability to third parties exists in addition to the contractual liability to the co-contractor.

5. Application of the new regime to corporate directors

5.1. Overview of directors' liability grounds

Directors shall not be personally liable for the company's commitments or obligations, nor for damages resulting from the company's failure or poor performance of its contractual obligations. Article 2:49 Code of Companies and Associations (WVV). determines:"The legal entities act through their organs whose powers are determined by this Code, the object and the statutes. The members of these bodies do not personally commit themselves for the commitments of the legal person." Consequently, in principle, directors cannot be sued by third parties for the performance of the company's contractual obligations.

Directors are contractually liable to the company (and not to third parties) for management errors committed in the performance of their duties.

Directors may also be jointly and severally liable to the company and third parties for all damages resulting from a violation of the WVV or bylaws.

Moreover, directors are liable to third parties for damages caused by extra-contractual fault.

Finally, the discharge has the effect of releasing directors from their contractual liability to the company with respect to their management in relation to the completed fiscal year. The discharge only covers directors' liability to the company under the contractual relationship between the company and the director; however, it does not affect the liability that directors may have to third parties, such as creditors of the company.

5.2. Can a director be a helper?

According to the settled case law of the Supreme Court, organs of a legal person are assimilated to "executing agents" or "auxiliaries," at least when the legal person acts through its organ for the effective performance of its contractual obligation, as it could have done through an "employee" (appointee) or other "executor."

The preparatory works of Book 6 confirm that "Auxiliary persons are primarily considered employees, other appointees and organs of legal entities“.

Directors are thus equated with auxiliary persons for the purposes of Article 6.3, §2 BW.

However, the cases in which directors' liability can be invoked on the basis of Article 6.3, §2 BW will be very limited in practice:

• Indeed, to be considered auxiliary persons, directors must be responsible for the effective performance of an obligation assumed by the company. The mere fact that a director signs a contract on behalf of the company, either by virtue of his capacity as a representative body or by virtue of a specific delegation of powers granted to him, is not sufficient to qualify that director as an auxiliary.
• Moreover, the company does not necessarily act through its governing body for the effective performance of its contractual obligations. In many companies, the company operates either through a collegiate body, whose members individually do not have the status of a body, or through a single director, with the understanding that in both cases the duties are divided among several employees or other agents. It is these employees or agents who, in practice, are usually charged with carrying out the commitments made by the company.

It will therefore be rather exceptional to consider an independent director, a non-executive director or even an executive director as an auxiliary person within the meaning of Article 6.3, §2 BW.

The most obvious case is that of members of non-collegial governing bodies who, in small companies, cannot rely on the internal organization and delegations of powers, and who are in fact the only persons through whom the company can act towards third parties.

5.3. Application of article 6.3 BW in relation to a director

5.3.1. Company-director relationship: concurrence of contractual and non-contractual liability

Thanks to the new rules of Book 6, the company can in principle bring an action against its directors for a fault that constitutes both a breach of the directors' contractual obligations to the company and an extra-contractual fault within the meaning of Articles 6.5 and 6.6 of the Civil Code.

As an example, reference may be made to a director who fails to prepare or file financial statements, or who disregards the procedure regarding conflicts of interest. This director commits both a managerial misconduct and a non-contractual misconduct consisting in the violation of an obligation imposing on him to adopt a certain behavior.

5.3.2. Triangular relationship co-contractor-director: non-contractual liability of the director as an assistant director

Under the new Book 6 rules, contractual counterparties of the company can hold directors liable for damages caused by a harmful act or omission of those directors, acting as auxiliaries in the performance of any of the company's contractual obligations.

Thus, the company's contractual counterparties will be placed in the same situation as other third parties who suffer damages due to a harmful act or omission committed by one of the directors, since these other third parties can already bring an action for damages against the directors on the basis of extra-contractual liability.

The claim based on Article 6.3, §2 BW is a claim for extra-contractual liability. This implies that the company's co-contractor, in order to invoke the director's liability as an auxiliary person, must prove, in accordance with Article 6.5 of the Civil Code, the existence of (i) a fault on the part of the director, i.e., conduct on the part of the director in connection with the company's contractual failure that constitutes a non-contractual fault, (ii) damage suffered by the company's co-contractor, and (iii) a causal connection between the director's fault and the damage suffered. Thus, if the company's co-contractor cannot rely solely on the breach of a contractual obligation but must demonstrate an extra-contractual fault on the part of the auxiliary person that causes it damages, the question arises as to how case law will make this distinction. Indeed, the violation of the rules of art, professional practice and the principles of good governance and proper organization is qualified as an extra-contractual fault, which could easily reach the threshold for proving it. Of course, the director will be able to dispute that these conditions are met in the specific case.

This also implies that the claim brought against a director acting as an auxiliary person cannot be equated with a form of guarantee claim by the director concerned for the commitments entered into by the company. Indeed, pursuant to Article 2:49 of the Companies Code, directors cannot be sued by third parties for the performance of the company's contractual obligations. They can only be sued for an extra-contractual fault committed by them (with their own assessment criteria) and are only liable for compensation for the harmful consequences of that fault.

5.3.3. Possibility to contractually exclude the application of Article 6.3, §2 BW

Article 6.3, §2, paragraph 1 of the Civil Code is of supplementary law. It is therefore possible to contractually exclude its application. Given the increased liability risks posed by Article 6.3, §2 BW, there will probably be pressure from auxiliary persons to induce the company to include such an exclusion in the main agreement between the company and the third party. We also see this happening more and more in practice.

Obviously, the inclusion of such an exclusion clause in the principal contract requires the consent of the third-party principal creditor. It may also be useful to add a guarantee according to which persons related to the company's counterparty will also waive claims based on the extra-contractual liability against the auxiliary person. This should help prevent the liability limitations provided for in the contract from being circumvented by a claim originating from another company in the group to which the company's counterparty belongs.

5.3.4. Defenses available to the driver as an auxiliary person

The auxiliary may invoke the same defenses as those that may be invoked by the company against its co-contractor on the basis of Article 6.3, §1 of the Civil Code (to the extent that these defenses relate to the performance of the obligations to which the auxiliary collaborates), as well as the defenses that the auxiliary may personally invoke against the company on the basis of Article 6.3, §1 of the Civil Code.

The auxiliary may also rely on the protection mechanisms provided by the law itself, in particular the WVV:

• Marginal review, a priori assessment and declaration of error
  
  A director sued on the basis of Art. 6.3, §2 BW may invoke the two principles that must guide the assessment of a director's fault according to Article 2:56 CC, regardless of whether the determination is of contractual or non-contractual liability: (i) the assessment must be made a priori, based on the information available at the time the decision was made; this means that a court may only take into account facts and circumstances that the director knew, or reasonably could have known, at the time the mistake was committed; and (ii) directors are liable only for decisions, acts or conduct that manifestly fall outside the range within which normally careful and prudent directors might reasonably differ in the same circumstances.
  
  
• Liability limitations
  
  The director may also invoke the limitations of liability referred to in Article 2:57 of the WVV. These limitations shall apply to all directors' auxiliaries together and to any event or set of circumstances leading to liability, regardless of the number of creditors or the amount of claims.
  
  
• Statute of limitations
  
  According to Article 2:143 CC, all claims against directors for transactions in connection with their duties are time-barred after five years from those transactions or, if intentionally concealed, from their discovery. This five-year period applies to all types of civil liability, regardless of the legal basis. This period differs in certain respects from the common law limitation period on civil liability, as regulated by the old Civil Code.
  
  
• Driver insurance
  
  Under Belgian law, it is possible to insure - to a certain extent - against directors' liability. This insurance is almost always taken out by the company for the benefit of its directors. The premiums are normally paid by the company. It is therefore advisable for companies to check with their brokers whether the directors' insurance also covers the new liability rules of Book 6 of the Civil Code.
  
  

5.3.5 Is discharge a defense?

The question whether the director, acting as an auxiliary person, (C) can validly invoke the discharge granted to him by the company (B) as a defense in the context of the liability claim brought against him by the third party (A) on the basis of Article 6.3, §2 of the Civil Code is not easy to answer.

The liability of the auxiliary person on the basis of Article 6.3, §2 BW is a non-contractual liability; thus, the third party must show that the breach by the auxiliary person of the contractual obligation arising from the main agreement between the third-party co-contractor (A) and the company (B) simultaneously constitutes an extra-contractual fault of the auxiliary person (C). In other words, the breach of the contractual obligation by the auxiliary person (C) constitutes either a breach of a legal obligation or a breach of the general duty of care.

It is generally accepted that not every management error necessarily constitutes an extra-contractual error.

The director's liability to the company is broader than that he has to third parties; indeed, the obligations resting on the director to the company are those to manage the latter with due care in its interests, while the obligation underlying Article 6.5 of the Civil Code is that of behaving like a normally careful and prudent manager.

The discharge is to be regarded as a waiver by the company of the actio mandati; it is therefore a waiver by the company to invoke the director's contractual liability to the company. The discharge does not affect third parties (for whom the discharge is a res inter alios acta is pursuant to Article 5.103 of the Civil Code), nor for the company, which can still bring an extra-contractual claim against the director even if it has granted him discharge.

It follows from the foregoing that, even if one could argue that the discharge granted to the director by the company in the context of article 6.3, §2 of the Civil Code is opposable to third parties, since it would be a defense that the auxiliary person can invoke within the framework of his contractual relationship with the company (on the basis of art. 6.3, §2, last paragraph BW), one could nevertheless argue that this discharge cannot have the effect of averting the third party's claim based on an extra-contractual fault of the director, since the discharge does not cover this fault.

Under the former regime, the limitation of the scope of the discharge to the company's claim based on the single managerial misconduct had little practical effect for the director, since the cases in which the company or the third party could invoke the director's extra-contractual liability were very limited given the prohibition of concurrent liabilities and the theory of quasi-immunity of the executing agent on which the director could rely. In addition to the fact that the director may now face a non-contractual claim brought by the third party on the basis of Article 6.3, §2 BW, his exposure to a non-contractual claim brought by the company has become more extensive with the introduction of the new regime of Article 6.3, §1 BW.

If the director, in the context of an extra-contractual claim brought by the company (B) or by the third-party co-contractor (A), cannot invoke the discharge as an effective defense, are there other options for the director (C) to protect himself against such claims?

We have seen that it was possible to include in the contract between the third-party co-contractor (A) and the company (B) a waiver by the third party of the right to invoke Article 6.3, §2 of the Civil Code. On the other hand, it would not be possible to include such a waiver under the contract between the company (B) and the director (C), since, by hypothesis, the third-party co-contractor (A) would not have agreed to it.

In addition, one could theoretically imagine that, in addition to the discharge, in the context of the relationship between the company (B) and the director (C), the company waives the right to invoke the director's extra-contractual liability based on Article 6.3, §1 of the Civil Code (e.g., through a contractual clause to this effect included in the service contract that would be concluded between the company and the director for the performance of his functions), with this waiver taking place according to the rules of common law.

But the question then is whether this extended discharge to the claim based on extra-contractual liability is reconcilable with article 2:58 WVV which states: "The liability of a member of an administrative body or daily director may not be limited beyond that specified in Article 2:57. The legal entity, its subsidiaries or the entities controlled by it may not exonerate or indemnify in advance the persons mentioned in the first paragraph from their liability to the legal entity or to third parties. Any provision in the articles of association, in an agreement or a unilateral expression of will that is contrary to the provisions of this article shall be held to be unwritten.". The parliamentary preparatory works indicate unequivocally: "The limitation of liability applies regardless of the nature of the liability (contractual or extra-contractual fault) or the nature of the fault (ordinary or (obviously) gross fault)“.

Consequently, it must be concluded that:

• the discharge, even if it were to be argued that it could be asserted against the third-party co-contractor (A) by the assistant director (C), concerns only the contractual liability of the director (C) against the company (B) and thus cannot constitute an effective defense against the extra-contractual claim based on Article 6.3, §2 of the Civil Code brought by the third-party co-contractor (A) against the assistant director (C);
• any attempt to extend the scope of the discharge by a waiver by the company (B) of the right to invoke Article 6.3, §1 BW against the director (C) would run up against the prohibition of Article 2:58 CC.

6. Application of the new regime to members of the executive council

Members of an executive council in a dual structure, or of an executive committee with managerial and representative powers (be it in the context of day-to-day management or delegations of power) in a monistic structure, will more easily qualify as auxiliaries, as they are often personally involved in the performance of obligations assumed by the company.

Since they usually do not have employee status, they cannot benefit from the favorable liability regime of Article 18 of the Labor Contracts Law.

In principle, a member of such a committee who is neither a director nor a day-to-day manager is not bound by the limitations of article 2:58 CC; he could therefore benefit from a form of "hold harmless" or "indemnification letter" granted by the company itself and covering, in particular, the liability that these members may incur on the basis of article 6.3 CC. The service agreements that bind these persons to the company could therefore contain such protection, insofar as it is considered that the directors' insurance they usually enjoy does not provide them with sufficient protection.

It should be noted that, when applying Article 2:58 CC, this possible extended protection cannot be granted by the company (but can be granted by a third party such as a shareholder) if these members are also charged with day-to-day management or if, as is the case in certain regulated sectors, they are also mandatory directors.

Finally, if a member of the executive committee holds a position as a director in a subsidiary, this position will be considered as exercised in the context of his position as a member of this executive committee. Consequently, the "hold harmless" from which he would benefit at the level of the parent company may be extended to the functions exercised within the subsidiary, it being understood that his function as a director at the level of the subsidiary will prevent the latter from granting him such protection in view of the prohibition of Article 2:58 of the Companies Code. The same applies to an executive exercising his functions in the parent company under self-employed status, to whom a function as a director in a subsidiary would be entrusted.

7. Application of the new regime to employees.

Persons who have employment contracts may also very often qualify as auxiliary persons to the extent that, by virtue of their functions, or where appropriate on the basis of internal delegations of authority, they participate directly in the performance of contractual obligations entered into by the company.

Employees benefit from the mitigated liability regime of Article 18 of the Labor Contract Law for acts and omissions occurring in the context of the performance of that contract. This limitation applies only for the protection of the employee vis-à-vis the employer and third parties, but cannot be invoked by the employer against third parties.

Book 6 does not change the regime referred to in Article 18. In other words, employees can be sued as auxiliaries under Article 6.3, but they can invoke against the co-contractor the limited liability regime they enjoy under the Labor Contracts Act.

In general, the statutory protection will be considered sufficient and we note little interest in practice to strengthen it contractually (even if, theoretically, a "hold harmless" to cover liability arising from Art. 6.3 BW could be granted to them).

8. Articles 6.4 and 6.15 BW - Extra-contractual liability of legal persons

8.1. Natural and legal persons are treated equally

Article 6.4 BW states: "Unless otherwise provided by law, the provisions of this book apply to both private and public legal entities and natural persons“

Book 6 affirms a principle of equal treatment of natural and legal persons for the application of the rules of extra-contractual liability.

Thus, the company itself may directly incur extra-contractual liability (e.g., in case of non-compliance with an operating permit and discharges of pollutants in excessive quantities resulting in pollution of a neighboring watercourse).

However, equivalence (equal treatment) has its limits. The law may provide for a special provision such as, for example, Article 6.26, paragraph 2 of the Civil Code, concerning the extra-patrimonial damage of legal persons which includes all the consequences of the impairment of physical or psychological integrity, to the extent that such damage is compatible with the very nature of the legal person.

8.2. Liability of legal entities for governing bodies and their members.

According to Article 6.15(1) of the Civil Code, "the legal person of private law without fault for the damage caused by its governing bodies or by the members, in law or in fact, of those bodies to third parties during and in connection with the performance of their duties, as a result of their fault or any other fact giving rise to liability“.

Thus, legal entities are liable for damages caused by persons holding non-subordinate directorships under the same conditions under which principals are liable for their appointees.

This pursues a clear goal of treating "personnel employed by the legal person" uniformly, from bottom to top, without distinction between employees and organs. Indeed, under the regime of the old Civil Code, if the fault was committed by an employee, the legal entity without fault was liable for the damage caused (it was then the liability for another's act of art. 1384, third paragraph of the old Civil Code that applied). However, the liability changed in nature if the fault was committed by an organ, that is, by persons in the higher echelons of the management of the legal entity, since it was then based on article 1382 of the old Civil Code.

The latter liability was scarier because of the organ theory. The governing body identifies itself with the legal entity: the act it performs is, with respect to third parties, the act of the legal entity itself. But the body identifies with the legal entity only if it remains within the limits of its powers. Thus, in order for the liability of the legal entity to come into play, it was necessary that the damaging event attributable to the body was due to the poor performance of an act that this body, by virtue of its own functions, had the power or duty to perform. An indirect or incidental connection between the injurious act and the function was not sufficient, whereas such a connection was sufficient to bring into play the liability of the body corporate for an act of its appointee.

Finally, it is important to note that the liability for another's act provided for in Article 6.15 of the Civil Code does not exclude the fault liability of the legal person concerned, nor does it grant individual immunity to the persons who caused the damage and whose liability can still be invoked.

9. Cumul of liability grounds - Examples

Example 1

A software company enters into a contract with a hospital to implement a new electronic health record (EHR). The contract specifically states that the software must meet all legal data protection requirements and that implementation must take place within six months.

After eight months, the implementation is still not complete and, moreover, the software is found to have serious security flaws, allowing unauthorized access to patient data. This leads to a data breach in which sensitive patient medical information becomes public. The CEO and CTO of the software company were personally involved in the project and ignored multiple warnings from their developers about the security problems.

The hospital can:

1. Invoke the contractual liability of the software company for breach of the contractual term and failure to provide software that complies with legal data protection requirements;
2. Invoke the software company's extra-contractual liability based on Article 6.5 of the Civil Code for personal fault consisting of lack of supervision and internal control over the development of the software and ignoring warnings about security problems;
3. Invoke the software company's (extra-contractual) strict liability based on Article 6.15 of the Civil Code for errors committed by its governing bodies and their members, since the CEO and CTO were directly involved in decisions that led to the breach of contractual obligations;
4. To invoke the extra-contractual liability of the CEO and CTO on the basis of Article 6.3, §2 BW, since they acted as auxiliaries and committed an error in the execution of the contract concluded between the software company and the hospital. The extra-contractual fault consists in the violation of legal data protection obligations (GDPR) and the violation of the general standard of care by deliberately ignoring security risks.

Example 2

A construction company is appointed as the general contractor for the construction of an office building. The construction company subcontracts the electrical work to a subcontractor. The contract between the principal and the construction company expressly provides that all work must comply with applicable safety and building codes.

After completion of the building, a fire occurs due to an electrical fault in the wiring. Investigation reveals that the electrical work was not carried out in accordance with safety regulations. Moreover, it is revealed that the director-delegate of the construction company personally neglected quality controls and was aware of the electricity subcontractor's questionable reputation, yet decided to work with it because of its low price.

The builder can:

1. Invoke the contractual liability of the construction company for non-compliant execution of the works and violation of the obligation to deliver a building that complies with applicable safety regulations;
2. Invoke the construction company's extra-contractual liability based on Article 6.5 of the Civil Code for personal misconduct consisting of a lack of supervision of the subcontractor's work and the selection of a subcontractor of questionable reputation;
3. Invoke the (extra-contractual) objective liability of the construction company based on Article 6.15 of the Civil Code for errors committed by its director-delegate, who was personally involved in the defective control of the works and the choice of the subcontractor;
4. To invoke the extra-contractual liability of the director-delegate on the basis of Article 6.3, §2 of the Civil Code, since he acted as a helper and committed an error in the execution of the contract concluded between the construction company and the building owner. The extra-contractual fault consists in the violation of legal safety regulations in the construction industry and the violation of the general standard of care by ignoring quality controls and knowingly cooperating with a subcontractor of questionable reputation.

Conclusion

Although the number of non-contractual liability claims against directors who are considered auxiliaries is likely to increase following the entry into force of Article 6.3, §2 of the Civil Code, the cases in which they are recognized as founded will ultimately be very limited, given all of the exclusions and defenses that the director can invoke in defense. These claims against directors will probably often be a means of pressure, intended to force an amicable settlement with the company.

In any event, the entry into force of Book 6 of the Civil Code on January 1, 2025 will bring far-reaching changes in terms of the liability of companies, directors, members of management boards and employees. These changes may have far-reaching consequences for your company, its directors and managers.

Don't wait until it's too late. Contact our law firm for a thorough analysis of your specific situation and let us assist you in taking the necessary preventive measures:

• Modification of your contracts to exclude the application of Article 6.3 BW
• Evaluation of your driver's insurance policy
• Optimization of your internal governance structure
• Legal advice for directors and executives