Unauthorized representation: liability of the intermediary

Introduction

In Dutch commercial legal practice, intermediaries (authorized persons) frequently conclude agreements with a third party in the name of the principal. In doing so, agreements are concluded between the third party and the principal: the intermediary is not bound (article 3:66 (1) DCC). This is called authorized representation of the principal.

If an intermediary exceeds his authority or acts as a representative without the required authorization, the third party can under certain circumstances plead that an agreement has nevertheless still been concluded between the third party and the principal (article 3:61 (2) DCC and article 3:69 DCC). See my blog: “Unauthorized representation: commitment of the principal to the agreement.” However, third parties can also - when article 3:61 (2) DCC and article 3:69 DCC do not apply - hold the intermediary liable for damage suffered due to the unauthorized representation.

This blogpost concerns the question as to under which circumstances third parties can hold the intermediary liable for damage suffered due to unauthorized representation, alongside discussion of the various legal bases for liability.

Guarantee to authorization (article 3:70 DCC) and Tort (article 6:162 DCC)

If an intermediary exceeds his authority or acts as a representative without the required authorization, the third party can hold the intermediary liable under article 3:70 DCC for the damage suffered due to the unauthorized representation. Article 3:70 DCC entails strict liability for unauthorized representation. This means that for a liability claim under article 3:70 DCC, culpable conduct on the part of the intermediary is not required; in principle, the sole fact that the appearance of authority to represent occurred is sufficient.

However, article 3:70 DCC lays out two situations where the unauthorized intermediary cannot be held liable: first, if the third party knew or should have known that there was no sufficient authorization, and second, if the intermediary informed the third party about his lack of authority; in that case, the third party has only himself to blame. These exceptions should be interpreted narrowly, according to statute and settled case law; this means that it is not easy to argue that one of these exceptions applies. With regard to the first exception, this means that if the intermediary had declared that he had a sufficient authorization or acted as if he had a sufficient authorization, the third party is not in principle obliged to investigate the authorization of the intermediary. In that case, the unauthorized intermediary cannot argue that the third party should have known that there was no sufficient authorization, and that the third party has himself to blame. The first exception does not apply in that case; the third party can hold the intermediary liable in principle. See also SC 26 June 1981, ECLI:NL:HR:1981:AG4215, NJ 1982/1, indicating that the unauthorized intermediary cannot unreservedly argue that the third party should have checked the competence of the intermediary in the Trade Register.

Furthermore, case law has established that if a third party wants to hold an unauthorized intermediary liable under 3:70 DCC, a third party only has to argue that sufficient authorization was lacking as far as the third party can argue and substantiate this with facts. The intermediary bears the burden of proving that he did in fact have had sufficient authority. This reversal of the burden of proof is an exception to the general rule. The general rule, under Dutch law, is that a party relying on legal consequences of asserted facts or rights will bear the burden of proving these facts or rights. As the facts regarding the authorization are within the territory of the intermediary, this reversal of the burden of proof applies. See SC 22 November 2013 ECLI:NL:HR:2013:1384,  NJ 2014/114 (Zandvliet/Vlielander).

Aside from article 3:70 DCC, the third party can also hold the intermediary liable for damage suffered due to the unauthorized representation under article 6:162 DCC (fault-based liability). However, the third party can hold the intermediary liable under article 6:162 DCC only if the unauthorized representation was unlawful. This means that if the third party wants to hold the intermediary liable under 6:162 DCC, additional circumstances are required. Liability under article 6:162 DCC may apply for instance, if the intermediary gave incorrect information about the authorization at hand, or if the intermediary created the impression that he was authorized to do so in other respects. The sole fact that he exceeded his authority, or acted as a representative without the required authorization, is not sufficient for a liability claim under article 6:162 DCC. See SC 31 January 1997 ECLI:NL:HR:1997:ZC2266, NJ 1998/704 (De Slingerij/Provincie Groningen).

The advantage of holding the intermediary liable for the damage suffered due to the unauthorized representation under article 6:162 DCC (rather than under article 3:70 DCC) is that the principal is generally liable for the damage in case of a liability claim under 6:162 DCC. If, for instance, the third party holds an employee liable under article 6:162 DCC, generally, the employer is liable under article 6:170 DCC (strict liability).

Conclusion

If an intermediary exceeds his authority or acts as a representative without the required authorization, a third party can hold the intermediary liable for the damage suffered due to the unauthorized representation both under article 3:70 DCC and under article 6:162 DCC. In this blogpost, I discussed the requirements for these two different legal bases for liability, including the relevant case law.

The requirements under article 3:70 DCC are less strict then those under article 6:162 DCC. An important advantage of holding the intermediary liable for the damage suffered under article 6:162 DCC above article 3:70 DCC, is that generally the principal is liable for the damage in case of a liability claim under article 6:162 DCC.