A managing director who culpably breaches his or her duties may be liable to pay damages to the company. This was confirmed by a ruling of the Oberlandesgericht (OLG) München, Munich’s Higher Regional Court.
A managing director may be liable to pay damages not only to third parties but also the company if he or she culpably breaches his or her duties. We at the commercial law firm GRP Rainer Rechtsanwälte note that this means that the managing director needs to have acted intentionally or negligently and caused harm to the company in doing so. The managing director’s conduct might already amount to a breach of duty of this kind if he or she concludes a new framework agreement and this does not include a customer protection (exclusivity) clause in contrast to the original agreement. In a ruling from 8 February 2018, the Oberlandesgericht München held that under these circumstances the managing director is deemed to have exceeded his or her discretionary commercial powers (Az.: 23 U 2913/17).
Companies include a customer protection clause to prevent a contractual partner from directly benefiting from the former’s business relationships and using the contacts to expand their own client base, thereby effectively poaching the company’s clients. In the instant case, a company had an agreement with a business partner that included a customer protection clause. This was later removed when the managing director renegotiated the framework agreement with said business partner. The managing director justified this by stating that the contractual relationship would otherwise have been terminated and he had therefore acted in the interests of the company.
The latter nevertheless sued him for payment of damages on the basis that removing the customer protection clause had resulted in the loss of a number of clients and thus harmed the company. The OLG München upheld the claim for damages, ruling that by concluding a new framework agreement without a customer protection clause, the managing director had acted in a manner that amounted to a breach of duty.
The Court went on to say that while a managing director does enjoy broad discretionary powers and that this entails taking commercial risks to a certain extent, he or she is deemed to have exceeded this discretion if, from the standpoint of a prudent and conscientious manager, there is undeniably a high risk of harm and, on the other hand, no reasonable economic grounds for taking this risk. The OLG concluded that by forgoing the customer protection clause, the managing director had exceeded his discretionary powers and thus committed a breach of duty.
Managing directors are faced with a great deal of responsibility and risk. Lawyers who are experienced in the field of company law can serve as competent advisors in relation to issues of manager liability.
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