Differentiated joint and several liability – New Case Law

In a recent decision of the Liechtenstein Supreme Court (06.03.2020, 03 CG.2017.571, LES 2020, 90), the Liechtenstein Supreme Court held that a member of the board of a foundation (which only consists of two members) is liable for all the damage caused to the foundation, even if his culpability is only minor in comparison with the culpability of the other member of the board. The decision may have far-reaching effects on the members of executive bodies of Liechtenstein foundations and companies as a whole.

The facts of the case can be summarized as follows. B and C were both members of the board of a Foundation. On 7 and 20 September 2012, C transferred the whole bank account balance (CHF 1,643,191.86) of the foundation to his own bank account without the knowledge of B. On 30 September 2012, B concluded a loan agreement with C on behalf of the foundation with a principal of CHF 1,643,191.86. No security was given for the loan. Eventually, neither the principal amount nor the agreed interest was repaid by C. Subsequently, the foundation filed a damage claim against B arguing that B had inappropriately enabled the distribution of all the foundation's assets to C. B argued that members of the board of a foundation are subject to a differentiated joint and several liability according to Art. 226 para. 2 PGR and that his culpability was minor in comparison to C's culpability.

The main question to be decided by the courts was whether one of several joint and several debtors is liable for all the damage caused or whether his liability vis-à-vis third parties should be be reduced in accordance with his degree of culpability. The court of first instance favored the second option and held that B was only liable for one quarter of the damage caused (implying that C was responsible for three quarters of the damage). The Court of Appeal reversed this decision and held that B was liable for the full amount of CHF 1,885,285.92 and this was confirmed by the Liechtenstein Supreme Court.

Art. 226 para. 2 PGR states that if several persons are liable to pay compensation for damage, each of them is jointly and severally liable with the others to the extent that the damage is personally attributable to them due to their own fault and circumstances. This provision has been adopted from Swiss law (Art. 759 of the Law on Obligations; Obligationenrecht, "OR"). Pursuant to Swiss law, the general provisions governing liability for damage in Art. 43 and 44 OR are also applicable when it comes to differentiated joint and several liability. Art. 43 OR allows the consideration of a minor degree of culpability and consequently reducing the liability to pay damages to third parties.

In its decision, the Supreme Court refers to the legislative materials and concludes that the Liechtenstein legislator did not intend to adopt a provision similar to Art. 43 OR. According to the Supreme Court, a reduction of liability in accordance with the degree of culpability cannot be inferred from the wording of Art. 226 para. 2 PGR. This provision only stipulates that an individual joint and several debtor must fulfil all the requirements determining liability (damage, causality, unlawfulness and culpability) to be liable for a certain damage. Of course, however, the degree of culpability plays a role when it comes to the internal distribution of the payment of damages among the board members. The members of the board who have had to recompense the damage may seek compensation from the other members. To sum up, in its recent decision the Supreme Court held that the Liechtenstein provisions governing damage claims do not allow for a reduction of liability in accordance with the degree of culpability. A member of the board of a foundation who has unlawfully and culpably caused damage to a third party has to recompense that damage even if other members of the board are also responsible for the damage. A minor degree of culpability does not reduce the liability vis-à-vis third parties.

B filed a constitutional complaint against this Supreme Court decision, which is currently pending with the Liechtenstein Constitutional Court under reference StGH 2020/039.

For further information, please do not hesitate to directly contact Dr. iur. Domenik Vogt, LL.M. (WU) LL.M. (Cambridge).