Directors Beware: How to Navigate Belgium's Latest Tort Liability Changes
In Short
The Situation: Tort liability rules for directors in Belgium changed significantly following the recent publication of a new Book 6 of the Civil Code. The new rules will enter into force on January 1, 2025.
The Result: Book 6 of the Civil Code abolishes the principle of quasi-immunity of directors by granting a contracting party a direct, extracontractual claim against such directors, in addition to a contractual claim against the company.
Looking Ahead: Once the new rules enter into force, they will apply immediately to all new claims resulting from breaches that took place after January 1, 2025, even if the liability arises in connection with contracts entered into before that date.
On July 1, 2024, a new Book 6 of the Civil Code, which significantly updates the legislative framework on tort liability in Belgium, was published in the Belgian State Gazette. Although this new law affects directors as well as employees and subcontractors, this Commentary focuses on the changes affecting the liability of directors. The new rules will enter into force on January 1, 2025.
Currently, directors under Belgian law benefit from a "quasi-immunity," meaning that a director cannot be held liable by a third contracting party in the event of a company's breach of its contractual obligations. Only in exceptional circumstances can a contracting party hold the director liable, including in the case of:
- An act that not only breaches a contractual obligation but also violates the general duty of care expected of a normal and prudent director;
- Criminal offenses;
- Pre-contractual faults; and
- A director's manifest gross misconduct that significantly contributes to the bankruptcy of the company.
The current rule of quasi-immunity does not affect the possibility for the company to hold the director liable under the Belgian Companies and Associations Code.
Book 6 of the Civil Code, through its article 6.3, abolishes this principle of quasi-immunity for directors by granting the contracting party a direct, extracontractual claim against such directors, in addition to the contractual claim against the company. As a corollary to this change, Book 6 provides that, when facing a direct claim from a third party, directors may invoke the exceptions stemming both from: (i) their own contract with the company; and (ii) the main contract between the contracting party and the company.
However, if the misconduct is limited to a contractual shortcoming by the company, the director will not be personally liable to the contracting party. The director may be liable only if the act consists of an extracontractual fault (a tort).
This liability, in certain cases, may be limited because under Belgian law, directors benefit from a liability cap up to a certain amount, depending on the size of the company and subject to other exceptions (article 2:57 §3 of the Belgian Companies and Associations Code).
In this context, article 6.15 of the Civil Code also needs to be taken into account. It provides a company with faultless liability for misconduct by its directors. The law does not provide for any priority of claims, which is criticized in legal doctrine. Thus, it is possible that a claim may be brought against both the company and its directors.
Once the new rules enter into force, they will apply immediately to all new claims resulting from breaches that took place after January 1, 2025, even if the liability arises in connection with contracts entered into before January 1, 2025. Therefore, contracting parties should pay specific attention to tort liability when entering into new contracts and also review the potential implications of these new rules on existing contracts.
Three Key Takeaways
- The actual impact of the new rules remains uncertain, but companies likely will want to provide for liability limitation clauses in their contracts to exclude (where possible) or limit claims against its directors. These clauses should be included in the main contract between the company and the third party, as well as in the contract between the company and the director.
- Directors can invoke the terms of both contracts when facing a direct claim from a third party. Additionally, the company may want to consider setting up or improving insurance coverage for directors' civil tort liability.
- A contracting party will require the company to disclose any limitation on the liability of its directors that may be held against it.
