Liability of the Board of Directors for the Costs of an Unsuccessful Lawsuit

Facts

This case concerned the liability of the Board of Directors of Y. Beteiligungen AG for the costs of an unsuccessful lawsuit over the registration of registered shares in the company's share register. The respondent, a shareholder of Y. Beteiligungen AG, claimed that the Board of Directors had acted in breach of duty by pursuing the legal dispute over the refusal to register, even though this had been an abuse of rights and therefore unfounded. As a result, the Board of Directors had caused the company unnecessary costs.

Considerations

The Federal Supreme Court held that the abusive conduct of legal proceedings can generally constitute a breach of the duty of loyalty under Art. 717 para. 1 CO. The Board of Directors must carefully examine the prospects of success when deciding on whether to pursue legal action. However, the mere fact that the proceedings were ultimately unsuccessful cannot be taken as a violation of the duty of care. Rather, it must be examined in each individual case whether, in light of the given circumstances and risks of the proceedings, it was reasonable for the Board of Directors to take legal action. In the present case, the Federal Supreme Court concluded that the appellants as members of the Board of Directors of Y. Beteiligungen AG had acted in breach of duty by defending themselves in court…