Liability law, causation and the condicio sine qua non test
One of the requirements for establishing liability in probably any system of liability law is the requirement of causation. It would, after all, be pointless for such a system to impose liability upon a party for damage that he has not caused. But whether damage has actually been caused by the non-performance or unlawful act of the defendant is not always easy to determine. As with many other jurisdictions, Dutch liability law relies on the condicio sine qua non or "but for" test. This test entails imagining a hypothetical (or "counterfactual") situation without the non-performance or unlawful act of the defendant. If it is reasonably plausible that in this hypothetical situation the claimant would not have suffered the damage for which he seeks compensation, this damage is deemed to have been caused by the non-performance or unlawful act of the defendant, at least in a legal sense.
"Emptying" a company and the recovery of claim
While this might seem clear in theory, in practice the condicio sine qua non test is not always straightforward. Hofstad sued Rixtel, arguing that Rixtel had acted unlawfully by disposing of all of the assets of De Provinciale, an insurance intermediary company formerly owned by Hofstad, including its insurance portfolio. Although Rixtel had bought the portfolio, it had not yet paid the purchase price to De Provinciale. As a result of this "emptying" of De Provinciale, Hofstad argued, it had not been able to recover a claim it had against De Provinciale regarding an overdraft facility. Rixtel contested the causal link between the "emptying" of De Provinciale and Hofstad's inability to recover its claim and convinced the Court of Appeal. The Court of Appeal decided that Hofstad had not sufficiently substantiated that in the event Rixtel had not disposed of all assets, De Provinciale would have made sufficient profit allowing Hofstad to recover its claim. The Court of Appeal pointed to the fact that the solvency and equity position of De Provinciale had already deteriorated, to the extent that there was a possibility that bankruptcy proceedings would be issued.
Imagining the hypothetical situation
The Court of Appeal overlooked that in the hypothetical situation, without the unlawful act of Rixtel, De Provinciale would have had more assets than in the factual situation, regardless of its profits. Either De Provinciale would still own its insurance portfolio (if Rixtel had not bought the insurance portfolio at all) or De Provinciale would have received cash in return (if Rixtel had bought the insurance portfolio and paid the purchase price). In its decision of 9 June 2017 (ECLI:NL:HR:2017:1053), the Supreme Court therefore decided that the Court of Appeal should have gone a step further in its estimation of what would have happened hypothetically. It should have also taken into account whether – in the event that De Provinciale would not have been able to make sufficient profits – Hofstad would have been able to seek recovery (i) from the insurance portfolio, or (ii) from the purchase price if Rixtel had paid for the portfolio (to be continued).
Read about the Dutch Supreme Court's decision of 2 June 2017 (ECLI:NL:HR:2017:1008) on the "reversal" rule in the law of evidence in PART II of this blog.