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Can acts and statements from an unauthorised representative qualify as acknowledgment of liability and interrupt a limitation period?

Can acts and statements from an unauthorised representative qualify as

Can acts and statements from an unauthorised representative qualify as acknowledgment of liability and interrupt a limitation period?

23.02.2018 NL law

On 26 January 2018, the Supreme Court delivered a judgment (ECLI:NL:HR:2018:108) about the interruption of the limitation period for a claim for damages. The key element in this case was whether the acts and statements of an insurer and a loss adjuster qualified as an acknowledgement of liability and, if so, whether this acknowledgement could be attributed to the liable party

Under Dutch law, recognition of a claim by the liable party interrupts the limitation period for that claim, which causes a new limitation period of not more than 5 years to start running (Clauses 3:318 and 3:319 Dutch Civil Code ("DCC")). The Supreme Court ruled that as the claim had been acknowledged by the insurer on behalf of the liable party, the starting point was that the aggrieved party may rely on the authority of the insurer to represent the liable party.

This may be different if there are statements from the insurer or liable party to the contrary. Because liability had already been acknowledged, the Supreme Court lowered the threshold for an act or statement to qualify as an acknowledgement of the claim. It is sufficient that such act or statement entails that the employee is entitled to an amount that exceeds the amount the insurer has already paid.

Background

In 1998, an employee had a severe accident at his place of work. The employee held his employer liable for the damages he had incurred as a consequence of the accident. The liability insurer of the employer acknowledged liability for the claim in writing in 2001 and appointed a loss adjuster to settle the damages.

The loss adjuster and the employee's lawyer subsequently entered into discussions about the amount of damages incurred by the employee as a result of the accident. After several years, an agreement was reached on the damages from the date of the accident up to and including 2004. Even though advance payments were made for the period after 2004, the parties could not reach an agreement about the overall amount of damages for 2004 onwards and therefore the employee started legal proceedings in 2010 and 2011.

The (subjective) statutory limitation period for tort claims is 5 years (Clause 3:310 under 1 DCC). The employer took the view that the employee's claim had become time-barred in 2006 as after 2001 (when the initial acknowledgement was made by the insurer on behalf of the employer) the employee had not interrupted the limitation period in any way.

The employee contested this and claimed that the acts of the insurer and the loss adjuster during the period after 2001 qualified as acts of acknowledgement of liability by the employer within the meaning of Clause 3:318 DCC, which meant the limitation period had been interrupted in time, on more than one occasion, and therefore the employee was still entitled to compensation.

Both the subdistrict court and the Court of Appeal agreed with the employer though. The Court of Appeal held in this case that acknowledgement should have taken place by the liable party itself and could not take place by a third party unless the third party was regarded as a representative of the liable party. This was not the case, according to the Court of Appeal, because – in short – the insurer and the loss adjuster only corresponded with the employee about the amount of damages and not about the liability of the employer.

According to the Court of Appeal, the employer was not involved in this correspondence. Therefore, the employee could not have reasonably expected that the insurer and the loss adjuster intended to acknowledge liability on behalf of the employer, and the employer could not have expected the employee to understand the statements and acts of the insurer and the loss adjuster as an acknowledgement.

Supreme Court decision

In the Supreme Court proceedings that followed, the only issue to be determined was whether the statements and acts of the insurer and the loss adjuster could have been considered acts of acknowledgement and, if so, whether these acts could be attributed to the employer. These statements and acts could be attributed to the employer if either the employer had granted the insurer and the loss adjuster a power of attorney or, on the basis of a declaration or conduct of the employer, the employee had assumed and, in the circumstances could reasonably assume, that a sufficient power of attorney had been granted (Clause 3:61 under 2 DCC).

There is a substantial amount of case law on whether in a particular situation a principal that has not granted a power of attorney is nonetheless bound by a transaction entered into on his behalf by an unauthorised representative. A landmark case in this respect is HR 19 February 2010, ECLI:NL:HR:2010:BK7671 (ING/Bera), in which the Supreme Court ruled that there can also be room for attributing the appearance of the granting of a power of attorney to the involuntary principal, when the other party had a legitimate expectation that a power of attorney was granted to the representative on the basis of facts and circumstances that are at the risk of the involuntary principal.

More recently, the Supreme Court clarified this in its decisions of 3 February 2017, ECLI:NL:HR:2017:142 (Tamach/Hodenius) and 14 July 2017, ECLI:NL:HR:2017:1356. In these cases, the Supreme Court explained that the expectations of the other party should not be built exclusively on facts and circumstances that concern the unauthorised representative, but also on facts and circumstances that (1) concern the involuntary principal, and (2) justify the involuntary principal, given his relationship with the other party, bearing the risk of the unauthorised representation.

Referring to its case law, the Supreme Court decided to take a different view to the Court of Appeal. The Supreme Court first considered whether the statutory limitation period can be interrupted by, among other things, the acknowledgement of liability by the liable party under Clause 3:317 under 1 DCC. Such acknowledgement can also be provided by a representative. In this case, the claim was initially acknowledged by the insurer on behalf of the employer. Therefore, according to the Supreme Court  – except for statements from the insurer or the employer to the contrary – the starting point was that that the employee could rely on the authority of the insurer and the loss adjuster to represent the employer.

Because liability had already been acknowledged in this case, the Supreme Court lowered the threshold for an act or statement to qualify as a subsequent acknowledgement of liability for damages incurred after 2004. In this regard, for an act to qualify as acknowledgement, it is sufficient that the insurer acknowledges that the employee is entitled to an amount that exceeds the amount the insurer has already paid.

In view of these guiding principles, the Supreme Court reversed the decision of the Court of Appeal, finding that it had been insufficiently motivated.

Comment

This judgment demonstrates that is important for legal practitioners to be aware that the acknowledgement of a claim may interrupt the limitation period at a point in time, but not forever. Once the initial limitation period is interrupted, a new limitation period starts to run (Clause 3:319 under 1 DCC). Even if the liable party has acknowledged the claim, the claimant should therefore interrupt subsequent limitation periods if the matter has not been resolved in time or insist that the liable party again acknowledges the claim.

Also, if a principal grants a power of attorney to a representative for a particular legal act, whether that be the acknowledgement of a claim or otherwise, he should be aware that he may raise the legitimate expectation with the other party that the representative is also authorised to perform legal acts following the one that was initially authorised. A principal should therefore monitor the subsequent acts of the representative and inform the other party in a clear and unequivocal manner if that representative is no longer authorised to act on his behalf.

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