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An investment company owned and headed by A commenced and completed legal proceedings against, among others, a law firm, despite the fact that the investment company would not be able to pay any costs imposed if unsuccessful in the legal proceedings. When the legal proceedings were lost, and the investment company was not able to pay the costs imposed, the law firm commenced proceedings against A, claiming that he be held personally liable for payment of the costs awarded. The law firm succeeded in its claim before the City Court of Copenhagen as well as before the High Court of Eastern Denmark.

The case pertained to an investment company, which had previously commenced proceedings against, among others, a law firm, claiming payment of DKK 20.5m. The law firm had drafted a legal opinion which, in the opinion of the investment company, was defective and hence gave rise to liability on the part of the law firm.

The City Court of Copenhagen, however, found for the law firm, fully dismissing the claim, and the investment company subsequently chose to lodge an appeal against the judgment with the High Court of Eastern Denmark. During the appeal proceedings, however, the investment company was subjected to bankruptcy proceedings, and the appeal proceedings were cancelled, since the bankruptcy estate did not wish to become a party to the appeal proceedings.

Overall, the law firm was awarded costs before the City Court and the High Court totalling DKK 700,000, which amount the bankruptcy estate was not able to pay. Against this background, the law firm directed a claim against the ultimate owner and sole member of the management of the investment company, A, claiming that he indemnify the loss suffered by the law firm due to the investment company's non-payment of the costs ordered.

In that connection, the law firm claimed, among other things, that, in his capacity as authorised to sign for the company and autonomous CEO of – and also ultimate owner of – the investment company, A could be held personally liable for the financial loss suffered by the law firm as a result of the investment company commencing and completing legal proceedings against, among others, the law firm without having sufficient funds to pay the costs if the case was lost (which it was, as stated above).

Judgment of the City Court of Copenhagen
By judgment of 27 September 2019, the City Court of Copenhagen ordered A to pay the amount claimed by the law firm of DKK 700,000 plus statutory interest as well as costs.

The City Court based its decision on the grounds that, in the period relevant to the proceedings, A made up the management of the investment company, and that A had full insight into and knowledge of the company's affairs, including the company's financial position, just as A had also been in charge and aware of the company's financial transactions and capital structure. In addition, the City Court based its decision on the ground that A was also the company's ultimate owner.

This being the case, the City Court of Copenhagen thus found that it gave rise to liability on the part of A that A decided to commence and complete legal proceedings against the law firm, which took place, without ensuring that the investment company would be able to pay costs to the law firm in the event that the case was lost.

The fact that A himself expected that the legal proceedings against the law firm would have a favourable result for the investment company and that such expectation was – to a certain extent – strengthened by the legal advice rendered to A prior to the commencement of legal proceedings against the law firm did not, in the opinion of the City Court of Copenhagen, have any relevance for A's liability in the case.

Subsequently, A lodged an appeal against the judgment delivered by the City Court of Copenhagen with the High Court of Eastern Denmark.

 

Judgment of the High Court of Eastern Denmark
By judgment of 26 March 2021, the High Court of Eastern Denmark affirmed the judgment delivered by the City Court of Copenhagen. In that connection, the High Court of Eastern Denmark upheld the City Court's outcome and grounds, and stated that A had acted so as to incur liability by letting the investment company initiate procedural steps and, consequently, A was liable for the loss inflicted on the law firm by the investment company. Accordingly, the High Court also ordered A to pay the claim filed by the law firm.

During the appeal proceedings before the High Court of Eastern Denmark, A had expressed a (new) viewpoint that the investment company had an outstanding account against its parent company which – in A's opinion – could have been used to pay the creditors of the investment company, including the law firm. The law firm contested that this was the case, and the High Court of Eastern Denmark did not attach any significance to this when making its decision in the appeal proceedings.

Comments by Bech-Bruun
The judgment delivered by the High Court of Eastern Denmark (and also the judgment made by the City Court of Copenhagen against which the appeal was lodged) are in compliance with the judgment delivered by the Danish Supreme Court on 19 January 2018 in case no. 80/2017 (referred to in the Danish Weekly Law Reports U.2018.1487 H) pertaining to a Dutch parent company's liability for costs incurred by its subsidiary in legal proceedings commenced by the subsidiary.

In the proceedings in question, the Supreme Court ordered that the Dutch parent company which, in addition to being the owner of the subsidiary was also in charge of the subsidiary, had had full knowledge of the subject-matter of the case and course of events as well as the loss potential for the defendant authorities, for which reason the parent company had acted so as to incur liability by letting the subsidiary proceed with the legal proceedings without regard for the subsidiary's inability to pay any costs imposed.

The judgment delivered by the High Court of Eastern Denmark (and that delivered by the City Court of Copenhagen) are indeed seen to be consistent with the aforesaid Supreme Court judgment. By way of the judgment delivered by the High Court of Eastern Denmark, it was consequently confirmed – and emphasised once again – that the management of a company may risk being held liable for the company's financial transactions, including, for example, for commencement and completion of legal proceedings, if the management is fully aware of the legal proceedings as well as the company's unsound financial situation and its inability to pay any costs imposed if the case is lost.