Short Reads

What does a legal entity know?

What does a legal entity know?

What does a legal entity know?

12.04.2017 NL law

In civil law many rules rely for their legal effect on the presence of certain knowledge or a certain intention with one of the parties. If the party at hand is a legal entity, like a limited company (besloten vennootschap), it can be difficult to determine what the entity knew. Fragments of information can be present in different parts of the organisation; an officer of the company may have gained his knowledge trough his private life; he may also have a duty of confidentiality.

In her doctoral thesis 'Toerekening van kennis aan rechtspersonen' Stibbe lawyer Branda Katan investigates when information that at any time is or has been available within a private legal entity qualifies as knowledge of the legal entity

Theoretical framework and standard cases

The research starts with an analysis of the theoretical framework: what does 'attributing' actually mean, why do we do it and on what grounds? It then deals with standard cases. These are cases in which an officer's knowledge is 'indiscriminately' attributed to the legal entity, i.e. without any substantiation. The first type of standard situation arises when the officer has performed a legal act for the legal entity on the basis of a power of attorney, and when the validity or the legal effect of that legal act depends on the presence of certain knowledge. In such a situation article 3:66(2) Dutch Civil Code (DCC), which sets forth the doctrine of the larger share, determines to what extent the knowledge of the officer qualifies as knowledge of the principal, i.e. of the legal entity. The thesis sets out in depth how article 3:66(2) DCC applies to legal entities in various settings.

Outside the domain of representation, the knowledge of the officer who is sufficiently involved in the aspect of the legal relationship to which his knowledge is relevant, will qualify as the knowledge of the legal entity if the officer has a duty to take measures based on that information. Katan explains why this can be taken on as a general rule, what the exceptions are and how corporate bodies fit into this system.

'Knowledge fragmentation' and other complications

Things become more complicated when the relevant information is or has been available within the legal entity, but not with the officer involved who should have taken measures on that basis (the 'acting officer'). For this situation, Katan uses the term ‘knowledge fragmentation’. In situations of knowledge fragmentation, the court will have to assess whether, according to common perception (verkeersopvattingen), the legal entity can rely on the ignorance of the acting officer, weighing all relevant circumstances. This assessment can largely be made by answering the question whether, in a properly functioning organisation, the information would have reached, and would been used by, the acting officer in good time. However, if the applicable rule requires a party to have acutal knowledge, the court will need to exercise restraint.

Common opinion as to how an organisation should function co-determines what circumstances are relevant and what weight should be attributed to them. Katan's doctoral thesis treats the circumstances that play a role in attributing knowledge extensively. The most important circumstances or points of view are: (i) the foreseeable relevance of the information (to the knowledgeable officer); (ii) the reason to request information (for the acting officer); and (iii) the purport of the applicable rule. Special attention is given to cases in which the ultimate question is whether the other party could rely on the 'knowing' officer to pass on the relevant information to other officers within the legal entity. In such cases, additional circumstances, related to this specific other party, must be taken into consideration. An example is the other party's own knowledge and expertise.

There may be legitimate reasons to restrict the sharing of information within a legal entity. The basis for restriction may lie in professional obligations of confidentiality, data protection regulations or Chinese walls. Katan investigates whether, when legitimate restrictions apply, screened off information will nevertheless qualify as knowledge of the legal entity.

An officer may gain his knowledge in a capacity other than as an officer for the legal entity, whether privately, in a different position, as director of another legal entity or as the legal entity's contracting party. All these types of situations are dealt with in 'Attribution of knowledge to legal entities'. No uniform approach can be adopted for these issues.

Result

Branda Katan has provided those who practice the law an assessment framework that will enable them to determine and substantiate, for each individual situation, what information that at any time is or has been available within the legal entity qualifies as knowledge of the legal entity.

On Wednesday 12 April 2017, 16h30 CET, Radboud University Nijmegen, Branda Katan will defend her doctoral thesis on the attribution of knowledge to legal entities. PhD supervisors: prof. S.C.J.J. Kortmann en prof. S.E. Bartels.

Related news

03.07.2020 NL law
E-book NOW-2: Tweede tijdelijke noodmaatregel overbrugging voor behoud van werkgelegenheid

Articles - Op 17 maart 2020 kondigde het kabinet het eerste noodpakket aan met steunmaatregelen om de economische gevolgen van de coronacrisis te dempen. Onderdeel van dit noodpakket zijn onder andere de Eerste tijdelijke noodmaatregel overbrugging voor behoud van werkgelegenheid (“NOW-1”) en de Tijdelijke overbruggingsregeling zelfstandige ondernemers (“Tozo-1”).

Read more

02.07.2020 NL law
Initiatiefnota ter bevordering internationaal maatschappelijk verantwoord ondernemen: komt er een brede due diligence-wetgeving voor bedrijven tegen slavernij en uitbuiting?

Short Reads - Op 17 juni 2020 hebben de ChristenUnie, SP, PvdA en GroenLinks een Initiatiefnota “Tegen slavernij en uitbuiting – een wettelijke ondergrens voor verantwoord ondernemen” (“Initiatiefnota”) bij de Tweede Kamer ingediend. Kort gezegd beogen de initiatiefnemers een brede due diligence-wetgeving met als doel het voorkomen en adresseren van daadwerkelijke en potentiële negatieve gevolgen voor, of schendingen van mensenrechten en milieu door het handelen van bedrijven.

Read more

29.06.2020 NL law
European Banking Federation Guidance on testing of Cloud Exit Strategy

Short Reads - Financial institutions may outsource critical or important functions to cloud service providers (“CSPs”). On 25 February 2019 the European Banking Authority (“EBA”) provided guidelines (the “EBA Guidelines”) laying out the framework for outsourcing arrangements. The EBA Guidelines require institutions to have a comprehensive, documented and sufficiently tested exit strategy (including a mandatory exit plan) when they outsource critical or important functions.

Read more

02.07.2020 NL law
Aansprakelijkheid van de Staat bij vliegtuigcrash in Faro

Articles - In haar uitspraak van 8 januari 2020 oordeelde Rechtbank Den Haag dat de Nederlandse Staat onrechtmatig heeft gehandeld jegens de slachtoffers en nabestaanden van de vliegramp in Faro (Portugal) in 1992, waarbij een Nederlands toestel was betrokken. De onrechtmatigheid is gelegen in onjuiste dan wel onvolledige informatieverstrekking over de oorzaken van deze vliegramp door de toenmalige Raad voor de Luchtvaart, inmiddels opgegaan in de Onderzoeksraad voor Veiligheid (‘Raad’). 

Read more

29.06.2020 NL law
ABC-constructie bij vastgoedtransactie: verkoopbedrijf heeft afgeleid belang en is niet ontvankelijk bij bestuursrechter

Short Reads - Het zijn van ‘belanghebbende’ is een noodzakelijke voorwaarde om een ontvankelijk beroep te kunnen instellen bij de bestuursrechter (artikel 1:2 lid 1 Awb). Een persoon moet een zelfstandig en eigen belang hebben dat niet is afgeleid van een ander om als belanghebbende te kunnen worden aangemerkt. Dit is het leerstuk van afgeleid belang.

Read more