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Derived Damage under Dutch Caribbean Law

It has been established, under Dutch Caribbean case law, that if a company suffers a loss caused by a third party, e.g. by not duly performing its contractual obligations vis-à-vis the company or by acts that are wrongful vis-à-vis the company, only the company has the right to reclaim this loss from the third party. The loss does not provide the shareholders the power to initiate their own action for compensation, for the decrease in value of the shares, against the third party. It is up to the company to seek compensation for the loss caused to it by the third party, in order to protect the interests of all those who have an interest in preserving the assets of the company.

However, there are exceptions to the principle that derivative damage is excluded from compensation, and that allow for an action by the shareholder vis-à-vis the third party causing the damage, namely in the event that the third party has breached a specific due diligence standard vis-à-vis the shareholder. This may include the case that the third party had the intention to disadvantage the shareholder.

A recent judgment of the Supreme Court once again shows that in some instances a derived action is possible, as long as it can be established that the unlawful act is directed towards the shareholder.

The case involved the situation whereby a holding company had transferred its business activities to a subsidiary. However, a cease and desist order was imposed, by an administrative body, as a result of which the holding company had to cease operations. The decision of the administrative body was later annulled by an administrative court. This established that the administrative body had acted unlawfully by taking the administrative decision, i.e. the cease and desist order.

Although the decision of the administrative body to terminate the activities were therefore addressed to the holding company, the damage was suffered in the subsidiary (i.e. financial loss and a lower profit). As a result, however, the holding company suffered damage in the form of loss of dividend and / or a lower value of its shares in the subsidiary.

The Supreme Court ruled that in this setting – in which unlawful action is directed against the holding company – there is room for compensation for derived damage. Damage to a subsidiary may also cause damage to the shareholder in the form of missed dividend payments or a lower value of the shares. If it is certain that the shareholder has indeed suffered this loss and the other requirements have been met, the derived damage is eligible for compensation according to the Supreme Court.

The decisive criterion for the question whether the shareholder can claim derivative damage from the third party causing the damage is therefore with regard to who acted unlawfully. If this is in relation to the subsidiary, there is in principle no room for compensation for derived damage. If this is in relation to the shareholder, then the shareholder is entitled to compensation for derived damage.