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In a recent ruling, the Dutch Supreme Court has readdressed the doctrine of unauthorized representation (onbevoegde vertegenwoordiging)

In a recent ruling, the Dutch Supreme Court has readdressed the doctrine of unauthorized representation (onbevoegde vertegenwoordiging)

In a recent ruling, the Dutch Supreme Court has readdressed the doctrine of unauthorized representation (onbevoegde vertegenwoordiging)

08.10.2015

The central question in this ruling is: can an appearance of due authority (schijn van vertegenwoordigingsbevoegdheid) be based on facts occurring after completion of the relevant legal act? The Supreme Court ruled that appearance of authority can arise by doing nothing, and that it is irrelevant whether the circumstances in which the appearance of authority occurred took place after completion of the relevant legal act.

The Supreme Court 24 April 2015 (ECLI:NL:HR:2015:1119)

On 9 November 2009, X entered into a settlement agreement, on behalf of the body of Mayor and Alderman of the municipality of Dronten, with a person referred to as Hamers . In the settlement agreement, the parties agreed to submit themselves to binding advice proceedings in relation to the extent of damages suffered by Hamers. According to Hamers, he had suffered damages as a result of late and incorrect delivery of real property by the municipality. In summary proceedings, the judge ordered the municipality to pay Hamers the amount determined in the binding advice proceedings. The municipality requested the court to declare that the settlement agreement and the outcome of the binding advice should be declared void or at least not binding. The municipality claimed that X was not authorized to represent the body of Mayor and Aldermen. Hamers argued against this point and stated that, given the circumstances, he could rely on X being authorized to represent the municipality in connection with the settlement agreement. According to Hamers, the appearance of authority could be construed on the basis of the fact that the municipality had paid the costs of the binding advice proceedings and also because X had appeared on behalf of the municipality in the summary proceedings.

The District Court and the Court of Appeal briefly considered these facts and decided that Hamers was not entitled to rely on the appearance of authority because the facts had happened after the entry into the agreement. However, the Supreme Court disagreed with the decision of the Court of Appeal. The Supreme Court held that: "The appearance of authority may also be based on facts and circumstances which occurred after the completion of the relevant act".

This judgment is relevant for the finance practice because many documents are entered into on the basis of acts of representation. For example, a signatory seemingly authorized to represent a company on the basis of a power of attorney or another instrument may turn out not to have been able to bind the company to a particular agreement if the power of attorney or another instrument is later deemed invalid or if its scope is insufficient.

Under certain circumstances the counterparty of the company is protected against the consequences of a defect in the authority of a signatory. The counterparty can make an appeal on the appearance of authority (schijn van vertegenwoordigingsbevoegdheid). A successful appeal results in the company being bound by the relevant legal act. Appearance of authority may be construed on the basis of the statements or the conduct of the unauthorized person and a reasonable assumption by the counterparty that the unauthorized person was authorized to represent the company. The reasonableness of the assumption must be assessed on the basis of the relevant circumstances. Often, this implies that the company is in one way or another (partly) responsible for the appearance of authority.

The Supreme Court ruling does not provide new rules but is new in the sense that it has explicitly confirmed that appearance of authority can be based on facts and circumstances which have occurred after completion of the relevant act and is not solely based on the facts which occurred before or during completion of the relevant legal act.

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