Political appointments unacceptable

The Court of First Instance of Curacao passed judgment on 23 January 2012 in the case of Selikor N.V. versus Drs. Ivar Asjes (JOR 2012, 105). This case is a follow-up to the judgment of the Joint Court of Appeal of the Netherlands Antilles and Aruba of 10 August 2010, JOR 2010, 296.

In a nutshell the case boils down to Asjes being appointed as the managing director of waste processor Selikor N.V., but that this is an appointment pushed through politically without an open job application procedure. This deprived at least six of Selikor’s members of staff of the opportunity to apply themselves for the position of managing director. This purely political appointment has subsequently been reversed by the court.

In the case which led to the judgment of 23 January 2012 Selikor claimed that Asjes be ordered to refund the management fee paid to him because these payments were made undue. This claim has been awarded. Not only did the court annul the resolution for the appointment but also the resolution to enter into an employment contract with Asjes. Such an annulment has retrospective effect and thereby the basis for the payments by Selikor to Asjes had disappeared.

It is noted aside that it has been legally provided for in Curacao that the legal relationship between a managing director and the legal entity is not considered or not also considered as an employment contract (Section 2:8 subsection 5 of the Curacao Civil Code). Nevertheless, in practice agreements are often formed which are referred to by the parties as employment contracts. The parties in an agreement are free to declare applicable by analogy certain or all private law provisions with regard to employment contracts. Moreover, the provisions with regard to contracts for professional services can be relevant. When the parties have not arranged anything it speaks for itself that a court required to assess a case seeks a connection with those provisions. For that matter, a managing director can indeed be allowed to be employed by another legal entity, for instance a group company. Therefore, unless explicitly agreed otherwise, a managing director cannot invoke the dismissal protection inherent in labor law.

Asjes invoked the closing sentence of Section 2:22 subsection 2 of the Curacao Civil Code. This Sections reads as follows: ‘If the resolution is a legal act of the legal entity which is aimed at a counterparty, or if it is a requirement for the validity of such a legal act, the nullity or annulment of the resolution cannot be held against that counterparty, if he did not know or if he did not have to know the defect attached to the resolution. Nevertheless, the nullity or annulment of a resolution to issue shares to the intended shareholder and a resolution to appoint a managing director or a supervisory director can be held against the appointed official; however, the legal entity must compensate the loss of the counterparty if he did not know or did not have to know the defect in the resolution.‘

By invoking the quoted subsection Asjes claimed compensation. Since a political appointment was involved and also considering the circumstances as described in the judgment (ground for decision 3.6 and 3.7) Asjes should have taken into account from then on that his appointment would be controversial and that it would be submitted for review by the court. Asjes has a point to the extent that the Court of First Instance held in another case that the court has not been charged with an independent duty to assess the unreasonableness or undesirability of the policy of the government as shareholder to appoint new managing directors and supervisory directors in government companies at each political change of the guard (see in this connection the annotation referred to above). It was actually inferred from that judgment that political appointments as such could withstand the test of legal criticism.

On the other hand it was only a judgment in first instance and there had already been serious criticism of this policy for a long time. It is also relevant that in 2005 the OECD issued the Guidelines on Corporate Governance of State-Owned Enterprises which are effective as an international benchmark and which for instance provide that the management board must be composed such that it can operate objectively and independently. Moreover, in this connection the interests of third parties played a role, namely of the members of staff who were deprived of the opportunity also to apply for the job. The shareholder of Selikor was not the Island Territory of Curacao but the Stichting Implementatie Privatisering (StIP) foundation. The establishment of StIP in 2000 was meant to prepare for the privatization of government companies. This form had been chosen in an effort to reduce the direct influence of politics on government companies.

Therefore contrary to what Asjes has suggested, the importance of good corporate governance was already acknowledged in the year 2000. Finally, it appears from the facts that Asjes’ appointment and in particular the formation of an employment contract with him had been pushed through quite hastily, also in order to avoid a judgment being passed one day later still being able to throw a spanner in the works. In ground for decision 3.6 this is expressed thus: ‘The outcome of that judgment was sensed and the apparent intention of signing the employment contract was to render that judgment toothless in advance‘. Therefore the Court has considered rightly that Asjes should have taken into account a defect in the resolution that could give rise to annulment. In other words: Asjes could not assume a lawful resolution passed in good faith and consciously accepted the risk that the resolution would be annulled. Therefore this risk should be at his expense and he cannot shift this onto the company.

According to the law of Curacao and of the Netherlands the resolution for the appointment can be annulled due to it being contrary to the principles of reasonableness and fairness. Selikor’s members of staff belong to a circle of persons as meant in Section 2:7 subsection 1 of the Curacao Civil Code (in the Netherlands Section 2:8 of the Dutch Civil Code). There is a provision in the Netherlands that is comparable to Section 2:22 subsection 2 of the Curacao Civil Code: Section 2:16 subsection 2 of the Dutch Civil Code.

Apart from the fact that the resolution for the appointment can be contrary to the provisions in the Articles of Association with regard to the appointment of managing directors, according to the law of the Netherlands as well as that of Curacao it is likewise imaginable that in the case at hand there could be a wrongful act by Selikor against the members of staff by depriving them of the opportunity to apply for the job and that Selikor could likewise have acted wrongfully against them by failing to dismiss the appointee (see Supreme Court 29 November 1996, JOR 1997, 28 in the case of Chipshol).

Karel Frielink
Attorney (Lawyer) / Partner

12 May 2012

(Karel's Legal Blog)


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