Once again, the Supreme Court of the Czech Republic recently ruled on the issue of the duty to act with due and reasonable care. Its conclusions on this matter are more important today than ever before, with the approaching entry of the New Civil Code (Act No. 89/2012 Coll., hereinafter “NCC”) into force. Under Section 159 of the NCC, the duty to act with due and reasonable care will not only fall to the company’s statutory bodies, but to all members of elected bodies. Liability will also be more stringent. If a member of an elected body does not compensate the legal entity for damages caused by a breach of his/her duty to act with due and reasonable care, then he/she will be liable to the creditor of the legal entity for its debt to the extent of these damages (Section 159 (3) NCC).
It will therefore be important for anyone, who is a member of an elected body, to know the essence and meaning of the term “due and reasonable care”.
In its judgement of 29 August 2013 in the case before the Supreme Court of the Czech Republic, case no. 29 Cdo 2869/2011, a company was suing for compensation from a receiver, who had paid a contractual fine on behalf of the company, which was sought by its creditor. She paid this contractual fine on the basis of a legal opinion that she had requested in order to evaluate this claim. The damages sought by the company were for the payment of this contractual fine, which in its view, despite the legal opinion she had obtained, had not been legitimately claimed.
Both the court of first instance and the appellate court ordered the defendant to pay the company CZK 500,000, including late interest and legal costs. In the opinion of both courts, the creditor’s entitlement to the payment of the contractual fine was not proven.
In the opinion of the appellate court, the receiver was not absolved of liability by having had an expert opinion prepared, as this only examined the general entitlement to the payment of the contractual fine, and not the legitimate creditor of the claim on the grounds of the contractual fine. In fact, this opinion implied the possibility of moderation of the contractual fine, which the defendant did not reflect in her further decision in any way.
As the receiver was convinced that she had taken all aspects into consideration and acted with due and reasonable care, she lodged an appeal against the decision of both courts with the Supreme Court of the Czech Republic.
The receiver felt that as she had sought professional consultation and had no reason to doubt the professional competence of the attorney in question, then in a situation where this attorney judged the entitlement to the contractual fine to be legitimate and where the possibility of moderation depended on the deliberation of a specific court, she could not have breached her duty to act with due and reasonable care by paying the contractual fine when she had obtained a sufficient basis for a qualified decision.
The Supreme Court of the Czech Republic agreed with the receiver. The Supreme Court emphasised that a member of a statutory body is responsible for the due performance of the duties of their office (in accordance with due and reasonable care), not the results of their activity. If a person acts with due and reasonable care, they are not obliged to pay the company damages, even if such damages arise as a result of such conduct (see the Supreme Court’s judgement of 29 April 2013, case no. 29 Cdo 2363/2011).
The Supreme Court referred to its previous judgements, in which it explained that a member of a statutory body need not necessarily have all the expert knowledge, qualifications or skills required to perform all the activities falling within the competence of the statutory body.
If he/she does not have the necessary expertise to handle a matter falling within the competencies of his/her office, he/she must arrange for the matter to be evaluated by a person with the required knowledge, which is what transpired in the given case.
When considering whether to voluntarily pay the claim against the company, which she has reasonable grounds to think justified, the receiver must take into account all relevant aspects, including the risk of losing the case in litigation and the associated costs of proceedings, as well as (in view of the usual length of proceedings) the risk of increasing the amount to be paid by virtue of late interest.
If the receiver therefore has reasonable grounds to consider the payment of the contractual fine as justified (taking all aspects into account), he/she is not ordinarily considered to have acted in contravention to the duty of due and reasonable care, if he/she decides to voluntarily pay the fine and not face the risk the court will not rule in favour of moderation in case of litigation.
In view of the Supreme Court’s conclusion above, it can therefore be said that the duty of due and reasonable care primarily lies in obtaining sufficient information to make a qualified decision. If a decision is based on the expert opinion of a professional that the person acting with due and reasonable care has no reason to doubt, then this person is not in breach of their duty to act with such care. In view of Section 159 of the NCC and the impact of these provisions on the duty to act with due and reasonable care for all members of elected bodies (i.e. not just entrepreneurs), it can only be recommended that the members of elected bodies consult each important decision with an expert, and not expose themselves to the risk of a breach of their duty to act with due and reasonable care.
For more information, please contact K&A partner, Mgr. Jiří Kučera, e-mail: jkucera@kuceralegal.cz; tel.: +420604242241