Recent Case Law on Foundation Governance

In two recent decisions, the Liechtenstein courts have ruled on the judicial dismissal of foundation board members. This is a particularly important issue in foundation law, as the foundation board has a pivotal role in the management of the foundation. It is crucial that the members of the foundation board dutifully pursue the purpose of the foundation as determined by the founder.

Case StGH 2021/80 (LES 2022, 140) was brought before the Constitutional Court in an individual action by a dismissed board member against a decision of the Princely High Court. The Constitutional Court dismissed the complaint, confirming the view of the Princely High Court, which ruled that, in addition to an actual gross breach of duty, conflicts of interest may also constitute an important reason for the dismissal of a member of the foundation board. According to the Constitutional Court, it is not necessary that the member of the foundation board has violated their duties due to a conflict of interest. Rather, the mere perception of a possible conflict of interest and a resulting abstract threat to the interests of the foundation may be sufficient for the dismissal of the member. The court found that the conflict of interest of the dismissed board member manifested itself in several ways, one of which was the initiation of several civil and criminal proceedings against a beneficiary of the foundation (whether justified or not).

In another recent decision, the High Court dealt with an application for the provisional removal of a director of a foundation. The High Court held that such a provisional dismissal would pre-empt the final decision on the dismissal, and that a particularly strict standard must be applied in order to establish that the foundation is in specific danger. It further ruled that, in the case of a foundation board consisting of several members, the strict requirements for the provisional dismissal of a member are not met, if a breach of duty is alleged and proven with respect to only one member and, in addition to this member, a professional trustee with a trustee`s licence is also a member of the foundation board. In such case it is to be assumed that, for the duration of the main proceedings, the professional trustee will prevent any use of the foundation's assets that is contrary to the purpose of the foundation.

Both decisions provide welcome clarification on key issues relating to the dismissal and provisional dismissal of board members and provide guidance on one of the key avenues of redress in foundation governance litigation.

For further information, please contact Dominique Marxer.