Date 03.04.2024
At the end of February 2024, the Borgarting Court of Appeal delivered a verdict on whether board members have personal liability for legal costs a company has been ordered to pay when the compa-ny later goes bankrupt. In this case, the Court of Appeal concluded that the board members could not be held liable. Hjort assisted the board members in this dispute against Berlevåg municipality.
The background of the case, which was brought before the Court of Appeal by our distinguished dispute resolution lawyer Alex Borch, is a dispute from 2021 between two companies and Berlevåg municipality. The companies demanded compensation from the municipality but lost the case and were ordered to pay legal costs of 2.1 million Norwegian kroner.
The verdict led to bankruptcy for the companies. This, in turn, led to the municipality demanding compensation from the companies’ board members, who were also founders and owners. After the bankruptcy, the dispute revolved around whether the board members of the companies could be held personally liable for the legal costs the companies were ordered to pay.
After the Oslo District Court concluded that the board members were liable (with a 25% reduction for the contributory negligence of the injured party), the case was appealed to the Court of Appeal. The Borgarting Court of Appeal came to the opposite result, and the board members were acquitted and awarded legal costs. This meant that the legal costs related to both the district court and the Court of Appeal must be covered by the municipality. The Court of Appeal based its decision on the legal principles set out by the Supreme Court in a 2022 ruling, which established a legal rule that board members can be held liable for the company’s legal costs if they should have realized that the lawsuit had “little prospect of success.” In this case, the Court of Appeal concluded that this was not the case.
The Court of Appeal’s ruling also confirms what the Supreme Court established in 2022: It takes a lot for board members to be held personally liable for legal costs adjudicated against a company in the district court. This appears to be a well-founded starting point. There must be the opportunity to have the courts assess cases with an uncertain outcome without board members who decide to litigate in such cases risking personal liability for the legal costs if the lawsuit is unsuccessful.
The deadline for appeal has not expired, so the verdict can still be appealed to the Supreme Court.
