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Unauthorised representation

Unauthorised representation

A power of attorney is the authority granted by someone (the grantor) to another (the grantee) to carry out a legal act in his name, such as entering into an agreement for example. If subsequently it turns out that the agreement was entered into by someone who, although asserting to act on the basis of a power of attorney, did not if fact have such a power, the apparent grantor is in principle not bound. This may be different if there had been an appearance of representative authority on which the other contracting party had relied and which must be attributed to the apparent grantor.

Recently, the Supreme Court gave an interesting ruling on the doctrine of unauthorised representation. I will start with an outline of the case.

The facts
Simplified, the following occurred: For the benefit of the purchase of a property portfolio, A obtained a mortgage loan from a bank (hereafter: ‘the Bank’) of approximately € 3 million. A had to repay this loan at the latest on 14 June 2013.

On 10 June 2013, A had a telephone conversation with his lawyer (hereafter: ‘the Lawyer’), on the options available to A to repay the aforementioned loan.

In an email of 11 June 2013, the Lawyer notified civil-law notary Y (hereafter: ‘the Civil-law Notary’), and CC’d to B, insofar as relevant here, in summary as follows:

“In the case set out in brief above, I was notified by your client [B], that the purchase and transfer of the property portfolio of my client, A, will take place in your presence.

In summary, the situation is currently such that in November last year my client was granted a loan from the Bank (enclosed the loan agreement) whereby a right of option and a right of mortgage was granted. I hereby enclose copies of the option right agreement and the mortgage deed.

All the registered properties listed in the mortgage deed will be purchased by B, or at any rate a third party to be designated by him, from my client for a purchase price of EUR 3,225,000 – whereby the mortgagee must pay (the Bank) at the latest on 14 June 2013 an amount (repayment of loan and (extra) interest) of EUR 2,916,434.11.”

On 12 June 2013, the Civil-law Notary sent the Lawyer and B a draft purchase agreement, with the notification “(…) and I confirm the appointment for signing this afternoon at 17:00 hours at my office”. In the draft purchase agreement, B is listed as the buyer of the property portfolio and A as the seller.

In a letter of 12 June 2013, the Lawyer communicated to A:

“I have just received the enclosed (draft) purchase agreement from the Civil-law Notary with his confirmation that signing of the purchase agreement will take place this afternoon at 17:00 hours at his office.

I have in the meantime understood from A that he wants me not to proceed with the purchase agreement after all as he expects to receive EUR 1,500,000 in loan from party Z (hereafter: the ‘Re-financier’) and in addition there is also a ‘third’ party who wishes to buy several plots for EUR 1,500,000 (…)”

In an email of 13 June 2013, at 10:25 hours, the Lawyer has notified A, insofar as important here:

“Yesterday I have honestly communicated to B via the estate agent what your ‘problem’ was. Although B‘s offer is reasonable under the current circumstances, it means that you will continue to have major financial problems as you are unable to satisfy all creditors. It cannot be excluded that perhaps additional registered property has to be sold. But this can take place privately and therefore for a more favourable sale price.

I have expressly agreed with A that 13 June will definitely be the last day that he still has the possibility to find alternatives. I also discussed with A that, failing finalisation of this matter on the 13th, he would render his unconditional cooperation to the signing of the purchase agreement at the office of the Civil-law Notary.

I propose that we keep in regular telephone contact today and that in the absence of written confirmation of receipt of monies by the Civil-law Notary before, or at the latest on, 13 June 2013, 15:00 hours, A undertakes to sign in the presence of the Civil-law Notary. (…)

On 13 June 2013, before or at the latest at 15:00 hours, I must have received confirmation from the Civil-law Notary of the purchase price from the Re-financier and the loan. Failing which, it will be decided in favour of the sale option to B and the signing of the purchase agreement will take place at the office of the Civil-law Notary at 16:00 hours.”

In an email of 13 June, 16:08 hours, the Lawyer, insofar as relevant here, wrote the following to B:

“A few minutes ago my client notified me that he has been successful in obtaining a loan from a private party in combination with the sale of limited registered properties, which loan and sales proceeds will be sufficient to repay the full debt position to the Bank. The intended sale of the property portfolio known to you, will therefore not take place.”

In an email of 13 June, 16:26, the Lawyer told A:

“Dear A,
Many, many congratulations!!! Although it has been nerve-racking, with the sale of a limited part of the property portfolio it has been possible to raise enough money to buy off the Bank.
As I indicated, I do not exclude the possibility that B will submit a claim as, in his view, a purchase agreement had been formed in respect of the portfolio with a purchase price of EUR 3,225,000. I cannot deny that I notified party B that there was a deal at EUR 3,225,000. Whether this very short text-exchange is sufficient for a court to allow a claim by B, I cannot currently assess. It is however a fact that I am expecting ‘some’ action from that side. However, A had given me express permission to enter into a deal for EUR 3,200,000 (+ a little bit more).”

The dispute
After first having seized the property portfolio, B started proceedings against A in which he primarily claimed specific performance of the – in his assertion – purchase agreement formed between the parties on 11 June 2013. The claim sought to obtain an order for A to transfer the property portfolio to B on payment of the agreed purchase price of € 3,225,000 subject to a penalty. In the event A was no longer able to transfer all the registered property, B claimed in the alternative that A shall be ordered to perform the purchase agreement for that part of the property portfolio which could still be transferred by him and to pay a penalty. In addition, B claimed compensation and statutory interest.

A asserted that no purchase agreement had been formed between the Lawyer and B. The Lawyer was not authorised to enter into such an agreement on his behalf. The Lawyer had no other authority than to enter into an agreement with a third party from his own network in the event A was unable to find a solution for his financial problems himself on time. In the counterclaim proceedings, A claimed the lifting of the prejudgement seizure and compensation.

In the first instance
In its final judgment, the District Court rejected B’s claims, lifted the seizure and ruled that B was liable for the loss suffered by A as a result of the prejudgement seizure.

Appeal
The Court of Appeal considered, inter alia, that it had not been established whether A had granted the Lawyer a power of attorney to sell his property portfolio. But even if a power of attorney had not been granted, A could nevertheless be bound if B had justifiably relied on the existence of an adequate power of attorney of the Lawyer on the basis of facts and circumstance which are at the risk of A and from which, on the basis of public opinion, such appearance of representative authority can be derived. On this point, the Court of Appeal referred to an earlier judgement of the Supreme Court, which broadly states the same.

In this case, the Court of Appeal considered the following circumstances to be of importance. B, who had been aware that A had to repay his mortgage to the Bank on 14 June 2013 and knew the Lawyer as being the Lawyer who had assisted A in a procedure relating to the property portfolio, had approached the Lawyer with the question whether A’s property portfolio was for sale. The Lawyer apparently answered in the affirmative. Subsequently, the Lawyer had on 11 2013 sent the quoted email with annexes to B’s Civil-law Notary. As evidenced by this email, the Lawyer was aware that the registered property listed in the mortgage deed was going to be bought by B or by a third party to be indicated by him, he (the Lawyer) was aware of the amount of the agreed purchase price and had – in view of the annexes – all the documents required for the sale and transfer of the property portfolio at his disposal. B received this email as a CC. In this email, the Lawyer referred to A as his “client”.

During the personal appearance of the parties in the first instance, the Lawyer declared that B knew that he acted for A as lawyer and that he thinks that on 11 June 2013 he had notified B by telephone and by text that there was a deal for this amount (apparently: € 3,225,000). In his email of 13 June 2013 to A, the Lawyer also wrote that he could not deny that he told party B that there was a deal at € 3,225,000 and that he – now there was a sale to other parties – expected some action from B.

According to the Court of Appeal, the above facts and circumstances meant that, according to public opinion, the appearance was created for B that, by making such a statement, the Lawyer represented A in the matter of the sale, and that he was allowed to rely on this.

Unlike the District Court, the Court of Appearance attached value to the fact that the Lawyer is a lawyer and as evidenced by the wording of (inter alia) his email of 11 June 2013 was also acting in that capacity. The Court of Appeal stated that it had not become evident that the role of the Lawyer was a different one.

A also pointed out that the actions of the Lawyer were nothing more than that of an estate agent, but that argument ignores the fact that the Lawyer is not an estate agent but indeed a lawyer and had also acted in that capacity. That in this case B viewed the Lawyer as an estate agent and not as a lawyer, had been insufficiently argued so that the Court of Appeal disregarded this.

The conclusion of the Court of Appeal was that the actions of the Lawyer, even in the absence of a power of attorney from A, could be attributed to A.

The question whether A by his own actions (which includes omissions) had (also) created the appearance of representative authority could remain unanswered. From the letter from the Lawyer to A, the Court of Appeal deduced that A was aware of the agreement which the Lawyer had entered into with B. In particular the sentence “have in the meantime understood from A that he wants me not to proceed with the purchase agreement after all” points towards this.

It was established that A had not sought contact with B. According to established case law (see aforementioned judgement of the Supreme Court of 2 December 2011) it is also possible without such own actions, that the appearance of representation can be attributed to A, namely when, as in this case, the other party had justifiably relied on facts and circumstances which are at the risk of A and from which, in public opinion, such an appearance of representative authority can be derived. Now it has been ruled that this is the case here, it is no longer relevant whether A, as he asserted, wished to avoid the sale to B and had not intended to issue a power of attorney to the Lawyer.

Cassation
A subsequently brought the case before the Supreme Court and disputed the view of the Court of Appeal that in accordance with public opinion, the appearance had been created with B that the Lawyer represented A, so that B was entitled to rely on this, and that the actions of the Lawyer could be attributed to A.

The Supreme Court started with a reference to three previous judgements (1, 2 and 3) and stated first and foremost:

“the principle must be that attribution of the appearance of the granting of the power of attorney to the party being represented is also possible if the other party has justifiably relied on a power of attorney having been granted to an, in reality, unauthorised intermediary on the basis of facts and circumstances that are at the risk of the party represented without authorisation and from which, according to public opinion, such appearance of representative authority can be derived.”

This risk principle does not stretch so far that this also applies in cases where the expectation raised towards the other party is exclusively based on statements or behaviour of the unauthorised person. It follows from the ING/Bera judgement that in its judgement the court must also establish facts or circumstances which relate to the party represented without authorisation and which justify that such party, in the relationship with the other party, carries the risk of the unauthorised representation.
In the view of the Supreme Court, the Court of Appeal had in this case applied aforesaid rules correctly. After all the Court of Appeal, in its opinion that even if no power of attorney had been granted, A was nevertheless bound by the purchase agreement entered into by the Lawyer, had not solely based itself on facts and circumstances which took place between the Lawyer, B and the Civil-law Notary engaged by him. The Court of Appeal also based this view on accompanying facts and circumstances related to A which justify that A, in his relationship with B, bears the risk of the unauthorised representation.

In this context, the circumstance that the Lawyer had all the relevant documents for the sale and transfer of the property portfolio available to him, is particularly important. A asserted that those were still in the Lawyer’s possession due to his involvement in proceedings relating to the property portfolio previously conducted by him for A. Even if this is accepted, this does not detract from the fact that this concerns a circumstance which relates to A and could have contributed to the expectation created with B. The defence put forward by A implies after all that the Lawyer had received the relevant documents – being for a different purpose – from him. This circumstance could therefore be taken into consideration in the assessment of the Court of Appeal that A, in his relationship with B, bears the risk of the unauthorised representation.

The Court of Appeal also included in its assessment that B knew that the Lawyer is a lawyer and that he had previously assisted A in proceedings relating to the property portfolio. The Court of Appeal also pointed out that during the personal hearing relating to the relevant contact between the Lawyer and B, the Lawyer declared that “B knew that he acted for A as lawyer”. Partly because it was established that A had agreed that the Lawyer would look for a potential buyer for the property portfolio in his own network, these circumstances can also contribute to the view of the Court of Appeal that the appearance created by the Lawyer must be attributed to A.

Finally
In this new judgement, the Supreme Court continues a previously taken direction. By attributing the appearance of the power of attorney to the represented party, the court can base the justified expectation of the other party on facts and circumstances which are at the risk of the party represented without authorisation. The expectation created towards the other party cannot solely be based on statements or the behaviour of the person acting without authorisation. The court must in its judgement also establish facts or circumstances which relate to the party which is represented without authorisation and which justify that such party, in the relationship with the other party, carries the risk of the unauthorised representation.

By Jeroen Naus

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