Self-dealing (conflicts of interests) and the power of directors to represent their company

Abstract

The Supreme Court's ruling of 25 November 2016 reasons that self-dealing (dual representation) (although the case is actually a corporate conflict of interests, not an instance of self-dealing) does not truly amount to unauthorized action in the meaning of article 1259 of the Civil Code, which states that A cannot conclude contracts in B's name unless authorized by B to do so. The court's reasoning is that this is so because in this case the legal standing to act stems from being a company director. As is well known, directors' power of representation embraces the company's entire purpose, and any restriction of their powers is null as against third parties. As against third parties acting in good faith and without gross negligence, the company is even bound by its directors' acts when those acts overstep the bounds of the company's purpose. This standpoint is, in our opinion, contrary to the judgment of the Court of Justice of the European Union (Sixth Chamber) of 16 December 1997, Cooperatieve Rabobank «Vecht en Plassengebied» BA v Erik Aarnoud Minderhoud. There the court admitted that the rules governing enforceability as against third parties of acts done by members of company organs in situations of conflict of interests with the company they represent fall outside the normative framework of Directive 68/151/EEC of the Council of 9 March 1968 (the First Directive) on co-ordination of safeguards which, for the protection of members and others, are required by Member States of companies within the meaning of the second paragraph of Article 58 of the Treaty, with a view to making such safeguards equivalent throughout the community; therefore, the rules governing the enforceability as against third parties of acts done by members of company organs in such situations are matters for the national legislature.