In a judgment dated 25 November 2011, the Ghent Court of Appeal penalised the plant manager and the general director of the Ghent-based clothing manufacturer Uco Sportswear for violations of environmental law. In the same judgment, the individual members of the board of directors were also penalised because the board of directors had systemically failed to address the various environmental complaints made during the period 2001-2005.
One of the board members challenged the judgment of the Court of Appeal (“the challenged judgment”) and filed an appeal with the Supreme Court (Hof van Cassatie/Cour de Cassation), arguing that “upholding criminal liability of directors for operational decisions makes no sense” and further stating that the judgment constitutes an unacceptable precedent. However, in a judgment given in June 2012, the Supreme Court rejected these arguments.
Arguments and Reasoning of Supreme Court
First, the claimant argued that the contested judgment infringed Art. 149 of the Belgian Constitution (Grondwet/Constitution) because the challenged judgment remained too vague as to the claimant’s argument regarding the question whether or not the board of directors had ever been confronted with the environmental difficulties. The Supreme Court disagreed and held that it had been established that the board of directors was sufficiently informed of the environmental issues but failed to address the situation properly.
Second, the claimant maintained that the challenged judgment violated Articles 66, 67 and 68 of the Criminal Code (Strafwetboek/Code pénal). More specifically, according to the claimant, the challenged judgment did not mention that the board of directors had effectively been aware of the environmental problems and the need to address those. Therefore, the challenged judgment could not justify criminal liability of the board of directors. The Supreme Court rejected this argument as well, stating that the board of directors had knowledge of the environmental issues and therefore should have remedied the situation.
Third, the claimant argued that his failure to act could only give rise to criminal liability if there had been an intention on his part to cooperate directly in the execution of the criminal offence. In this respect, the Supreme Court reasoned that “failure to act can constitute criminal participation if there is a legal obligation to undertake or prevent certain actions and when the failure to act was intentional and consequently facilitated the committing of a criminal offence”. The Supreme Court affirmed that in this case a legal obligation to undertake or prevent certain actions rested with the board of directors and that the claimant, as an individual member, failed to satisfy that obligation. The Court also noted that the claimant had never objected to the board’s decisions concerning the environmental-investment policy of the company.
Although this judgment is controversial and has already been heavily criticised by legal scholars, the conclusion that should be drawn from it is that any director, whether involved in the daily management or not, can be found to be participating in criminal offences committed by the company and may thus incur criminal liability. In general, both under Belgian company law and Belgian criminal law, directors have a fiduciary duty to be aware of and to monitor carefully what is happening in the company and should address serious situations properly, especially if criminal sanctions are involved.