Protection against unauthorized representation in The Netherlands

In a judgment of 26 November 2014, the Rotterdam District Court denied the claim of a creditor on the grounds that a third party had waived that claim. The fact that this third party was in no way authorized to do so could – in this circumstances of this case – not be invoked against the debtor.
In this blog, I will briefly explain under what circumstances under Dutch law a person is protected against the unauthorized representation of his counterparty.

Heineken and Mr. M.

The circumstances of the above matter were as follows.
The Baja Beach Club in Rotterdam had obtained financing from a loan company that extends loans to businesses in the hospitality branch (the “loan company”). Both the director of the Baja Beach Club (“Mr. M.”) and beer brewer Heineken had accepted liability for claims of the Baja Beach Club under the loan agreement. Mr. M. as a co-debtor of that loan and Heineken as a guarantor.
After the Baja Beach Club went bankrupt, Heineken repaid 80% of the amount owed to the loan company, thereby acquiring a claim for that amount on Mr. M.
Heineken and the loan company jointly claimed payment of their claims in preliminary relief proceedings. After these claims were denied by the Court (because the Court ruled that Heineken and the loan company did not have a pressing interest in their claims, which is required in preliminary relief proceedings) Heineken and Mr. M. started negotiations.
As a result of these negotiations, Heineken and Mr. M. agreed that “they would let the matter rest” and that there would be no more litigation.
The loan company (perhaps even unaware of this agreement) started new proceedings, in which it claimed payment of the outstanding loan balance.
Mr. M. defended himself by arguing that he assumed that the waiver granted by Heineken also applied to the loan company. The Court accepted this defense and ruled that the loan company was bound to the waiver, even though it had not authorized Heineken to grant a waiver on its behalf.
Among others, the Court deemed the following circumstances for its decision:

• The loan company was affiliated to Heineken, because it was started by Heineken and extends loans through intermediaries that belong to the Heineken group of companies;
• The communication between the loan company and the Baja Beach Club had in the past largely gone through Heineken;
• Mr. M. could reasonably have understood Heineken’s waiver to also include the loan company’s claim.

Protection against unauthorized representation under Dutch law

Dutch statutory law stipulates that unauthorized representation cannot be invoked against the contracting party of the represented person, if that contracting party justifiably relied on the existence of an adequate power of attorney.
Reliance on the existence of a power of attorney is justifiable if:

• it is based on an act or statement of the person who is represented;
• it is based on circumstances that should be attributed to the person who is represented and those circumstances can reasonably lead someone to assume that a power of attorney was granted.

Based on Dutch case law, circumstances as mentioned above can, for instance, be the fact that there is an obscure organizational structure and division of powers between two companies (typically within the same group).
If you have any questions concerning the (unauthorized) representation of Dutch companies or persons, you can contact us!