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You are here: BAILII >> Databases >> Court of Justice of the European Communities (including Court of First Instance Decisions) >> Cooperatieve Rabobank "Vecht en Plassengebied" (Law relating to undertakings) [1997] EUECJ C-104/96 (16 December 1997) URL: http://www.bailii.org/eu/cases/EUECJ/1997/C10496.html Cite as: [1998] 1 WLR 1025, [1997] EUECJ C-104/96, [1998] 2 CMLR 270

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JUDGMENT OF THE COURT (Sixth Chamber)

16 December 1997(1)

(Company law - First Directive 68/151/EEC - Scope - Representation of a company - Conflict of interests - Lack of authority of a director to enter into a binding transaction on behalf of the company)

In Case C-104/96,

REFERENCE to the Court under Article 177 of the EC Treaty by the Hoge Raad der Nederlanden for a preliminary ruling in the proceedings pending before that court between

Coöperatieve Rabobank 'Vecht en Plassengebied' BA

and

Erik Aarnoud Minderhoud (receiver in bankruptcy of Mediasafe BV),

on the interpretation of Article 9(1) of the First Council Directive 68/151/EEC of 9 March 1968 on co-ordination of safeguards which, for the protection of the interests 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 (OJ, English Special Edition 1968 (I), p. 41),

THE COURT (Sixth Chamber),

composed of: H. Ragnemalm (Rapporteur), President of the Chamber, G.F. Mancini and P.J.G. Kapteyn, Judges,

Advocate General: A. La Pergola,

Registrar: L. Hewlett, Administrator,

after considering the written observations submitted on behalf of:

• Coöperatieve Rabobank 'Vecht en Plassengebied' BA, by J.C. van Oven and A.P. Schoonbrood-Wessels, of the Hague Bar,

- the Spanish Government, by R. Silva de Lapuerta, Abogado del Estado, acting as Agent,

• the Finnish Government, by H. Rotkirch, Head of the Legal Department in the Ministry of Foreign Affairs, acting as Agent,
  
  
• the Swedish Government, by L. Nordling, Rättschef in the Department of Foreign Trade of the Ministry of Foreign Affairs, acting as Agent, and
  
  
• the Commission of the European Communities, by A. Caeiro, Legal Adviser, and B.J. Drijber, of its Legal Department, acting as Agents,

having regard to the Report for the Hearing,

after hearing the oral observations of Coöperatieve Rabobank 'Vecht en Plassengebied' BA, represented by J.C. van Oven; of Mr Minderhoud, receiver in bankruptcy of Mediasafe BV, represented by J.J. Feenstra, of the Rotterdam Bar; of the Spanish Government, represented by R. Silva de Lapuerta; and of the Commission, represented by B.J. Drijber at the hearing on 8 January 1997,

after hearing the Opinion of the Advocate General at the sitting on 12 March 1997, gives the following

Judgment

1. By judgment of 22 March 1996, received at the Court on 1 April 1996, the Hoge Raad der Nederlanden (Supreme Court of the Netherlands) referred three questions to the Court for a preliminary ruling pursuant to Article 177 of the EC Treaty concerning the interpretation of Article 9(1) of the First Council Directive 68/151/EEC of 9 March 1968 on co-ordination of safeguards which, for the protection of the interests 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 (OJ, English Special Edition 1968 (I), p. 41, hereinafter 'the First Directive').
   
   
2. Those questions were raised in proceedings brought by the Coöperatieve Rabobank 'Vecht en Plassengebied' BA (hereinafter 'Rabobank'), financier of the holding company Holland Data Groep BV (hereinafter 'HDG'), of five of its operating companies and of Mediasafe BV (hereinafter 'Mediasafe'), against the receiver of Mediasafe on the subject of his challenge to the validity of an agreement to offset debit balances against credit balances, entered into between HDG, the five companies and Mediasafe on the one hand, and Rabobank on the other.
   
   
3. It appears from the order for reference that on 23 October 1989 Rabobank concluded an agreement with HDG and the five operating companies concerning the calculation of interest on joint accounts and the offsetting of debit balances against credit balances under which the companies were to be jointly and severally liable to Rabobank.
   
   
4. On 21 November 1989, HDG and Stichting Nieuwegein (Nieuwegein Foundation) set up Mediasafe, in which HDG held 99 shares and Stichting Nieuwegein 1 share. HDG was appointed sole director and two commissioners were appointed, on a proposal from Stichting Nieuwegein, to oversee the management and the general course of business of Mediasafe on behalf of Stichting Nieuwegein.
   
   
5. On 11 December 1989, Rabobank concluded another agreement concerning the offsetting of debit balances against credit balances, the substance and scope of which was the same as that of 23 October 1989. Mediasafe was represented by HDG, its sole director. Under that agreement all the companies in the HDG group, including Mediasafe, declared themselves jointly and severally liable for their debts to Rabobank.
   
   
   
   
6. On 22 May 1990, Mediasafe was declared bankrupt. Mr Minderhoud was appointed receiver of the company. At the time Mediasafe's account with Rabobank showed a credit balance of HFL 447 117.60.
   
   
7. By letter of 5 June 1990, Rabobank informed the receiver that, in accordance with the agreement of 11 December 1989 and Article 53 of the Faillessementswet (Bankruptcy Law), it proposed to offset credit balances against debit balances of the current accounts of the other companies in HDG in respect of which Mediasafe was joint and several co-debtor. Rabobank stated that, once the balances had been offset in this way, Mediasafe's credit balance with Rabobank at the date of the bankruptcy stood at HFL 67 337.36.
   
   
8. By judgment of 31 July 1990, HDG and its five other operating companies were declared bankrupt.
   
   
9. The receiver sought payment from Rabobank of the difference between Mediasafe's credit balance before and after this offsetting operation, which amounted to HFL 379 780.24. He argued that the agreement to offset balances of 11 December 1989 could not be given effect because there was a conflict of interests within the meaning of Articles 12(3) and (4) of Mediasafe's statutes and Article 2:256 of the Netherlands Civil Code between Mediasafe and HDG - which concluded the agreements, inter alia, on behalf of Mediasafe in its capacity as sole director. Consequently, HDG had no authority to represent Mediasafe when the agreement was concluded.
   
   
10. Article 2:146 of the Netherlands Civil Code, which applies to 'naamloze vennootschappen' (public limited liability companies), and Article 2:256, which applies to 'besloten vennootschappen met beperkte aansprakelijkheid' (private limited liability companies), provide that where there is a conflict of interests between a company and the directors authorized to represent it when a legal instrument is being concluded, that instrument can only be concluded by the commissioners of that company.
    
    
11. That statutory provision was also incorporated in Article 12(3) and (4) of Mediasafe's statutes, under which:
    
    '3. In the event of a conflict of interests between the company and one or more of its directors, the remaining director(s) shall be empowered to bind the company.
    
    4. If there is only one director or if there is a conflict of interest involving all its directors, the company shall be represented by the board of commissioners.'
    
    
12. By judgment of 4 August 1993, the Arrondissementsrechtbank (District Court), Utrecht, held that, by reason of a conflict of interests within the meaning of Article 2:256 of the Civil Code, HDG had no authority to conclude, on behalf of Mediasafe, the agreement to offset balances with Rabobank and took the view that the latter, as a professional organization, had constructive notice of that conflict of interest. The Arrondissementsrechtbank accordingly upheld the receiver's claim.
    
    
13. That judgment was upheld by the Gerechtshof (Regional Court of Appeal), Amsterdam, on the same grounds.
    
    
14. Before the Hoge Raad der Nederlanden, Rabobank argued that a conflict of interests within the meaning of Article 2:256 of the Civil Code could only exist in the case of an instrument concluded between a company and its director. The Hoge Raad rejected that argument, thus recognizing the applicability of that provision to situations in which there was an indirect conflict of interests. However, it questions whether for a company to rely on Article 2:256 of the Civil Code as against a third party might not be incompatible with Article 9 of the First Directive, under which:
    
    '1. Acts done by the organs of the company shall be binding upon it even if those acts are not within the objects of the company, unless such acts exceed the powers that the law confers or allows to be conferred on those organs.
    
    However, Member States may provide that the company shall not be bound where such acts are outside the objects of the company, if it proves that the third party knew that the act was outside those objects or could not in view of the circumstances have been unaware of it; disclosure of the statutes shall not of itself be sufficient proof thereof.
    
    2. The limits on the powers of the organs of the company, arising under the statutes or from a decision of the competent organs, may never be relied on as against third parties, even if they have been disclosed.
    
    3. If the national law provides that authority to represent a company may, in derogation from the legal rules governing the subject, be conferred by the statutes on a single person or on several persons acting jointly, that law may provide that such a provision in the statutes may be relied on as against third parties on condition that it relates to the general power of representation; the question whether such a provision in the statutes can be relied on as against third parties shall be governed by article 3.'
    
    
15. Taking the view that Article 2:256 of the Civil Code should be interpreted in the light of the provisions of the First Directive, the Hoge Raad der Nederlanden referred the following questions to the Court for a preliminary ruling:
    
    '(1) Is it consistent with the First Directive for a company to be allowed to rely, as against a third party with whom a director generally authorized to represent the company has entered into a transaction on its behalf, on the fact that the director lacked authority on the ground that the transaction involved a conflict of interests between him and the company?
    
    (2) Is Question 1 to be answered in the affirmative only if the third party had knowledge of the conflict of interests at the time when the transaction took place, or could reasonably have been expected to have knowledge of that conflict of interests on the basis of the information available to him at the time?
    
    (3) Is Question 1 to be answered in the affirmative only if the conflict of interests at the time when the transaction took place was so plain that no reasonable third party could have believed that no such conflict existed?'
    
    
16. Mr Minderhoud and the Swedish Government argue that Community law is not applicable to the situation described in the question put by the Hoge Raad der Nederlanden and that neither Article 9 nor any other provision of the First Directive concerns the question whether a company may be bound in the event of breach of a rule, such as that applicable in the main proceedings, limiting authority to enter into binding obligations.
    
    
17. Rabobank, the Spanish Government and the Commission consider that Article 9(1) of the First Directive prevents a company from relying, as against a third party with whom the director has concluded a legal instrument which binds the company on the fact that the director lacked authority because he had an interest which conflicted with that of the company, where that lack of authority was not the result of a mandatory legal provision. In that respect, they claim, it is of no relevance whether the third party was aware of the conflict of interests or whether the existence of that conflict of interest was obvious.
    
    
18. The Finnish Government and, in an alternative submission, the Swedish Government consider that the First Directive does not preclude a national provision to the effect that a company can plead nullity on the basis of a conflict of interests if the third party was aware or could not have been unaware of the existence of a conflict of interests. A fair balance could thus be maintained between the certainty of commercial transactions, on the one hand, and the need to protect the company, on the other.
    
    
19. The purpose of the First Directive, it must be noted, is to coordinate the safeguards required by Member States of the types of limited liability company listed in Article 1, for the purpose of protecting the interests of, inter alia, third parties.
    
    
20. To that end, Section II of the First Directive lays down provisions which restrict to the greatest possible extent the grounds on which obligations entered into in the name of the company are not valid, as is clear from the fifth recital in the preamble.
    
    
21. The first paragraph of Article 9(1) of the First Directive provides that acts done by the organs of the company are to be binding upon it even if those acts are not within the objects of the company, unless such acts exceed the powers that the law confers or allows to be conferred on those organs.
    
    
22. However, it is clear from both the wording and the subject-matter of that article that it concerns the limits on a company's powers as allocated by law to the various organs of the company and is not intended to coordinate the national laws applicable where a member of an organ finds himself in a conflict of interests with the company represented because of his personal circumstances.
    
    
23. Moreover, the rules governing enforceability to be derived from this provision relate to the powers which the law, to which third parties can refer, grants or allows to be granted to the company organ, and not to the question whether a third party was aware of a conflict of interests or could not have been unaware of it in the circumstances of the case.
    
    
24. It follows that the rules governing the enforceability as against third parties of acts done by members of company organs in such situations fall outside the normative framework of the First Directive and are matters for the national legislature.
    
    
25. This conclusion is, moreover, confirmed by the proposal for a Fifth Directive to coordinate the safeguards which, for the protection of the interests of members and others, are required by Member States of companies within the meaning of the second paragraph of Article 58 of the EEC Treaty, as regards the structure of sociétés anonymes and the powers and obligations of their organs (Journal Officiel 1972 C 131, p. 49; OJ 1983 C 240, p. 2).
    
    
26. Article 10(1) of that proposal for a Fifth Directive provided that every agreement to which the company was party and in which a member of the management organ or of the supervisory organ, was to have an interest, even if only indirect, must be authorized by the supervisory organ at least.
    
    
27. Article 10(4) of the proposal for a Fifth Directive provided, further:
    
    'Want of authorization by the supervisory organ or irregularity in the decision giving authorization shall not be adduced as against third parties save where the company proves that the third party was aware of the want of authorization or of the irregularity in the decision, or that in view of the circumstances he could not have been unaware thereof.'
    
    
28. Accordingly the answer to the question referred to the Court must be that the rules governing the enforceability as against third parties of acts done by members of company organs in circumstances where there is a conflict of interests with the company fall outside the normative framework of the First Directive and are matters for the national legislature.
    
    Costs
    
    
29. The costs incurred by the Spanish, Finnish and Swedish Governments and by the Commission of the European Communities, which have submitted observations to the Court, are not recoverable. Since these proceedings are, for the parties to the main proceedings, a step in the action pending before the national court, the decision on costs is a matter for that court.
    
    On those grounds,

    THE COURT (Sixth Chamber),

    in answer to the questions referred to it by the Hoge Raad der Nederlanden by judgment of 22 March 1996, hereby rules:
    
    
    
    The rules governing the enforceability as against third parties of acts done by members of company organs in circumstances where there is a conflict of interests with the company fall outside the normative framework of the First Council Directive 68/151/EEC of 9 March 1968 on co-ordination of safeguards which, for the protection of the interests 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, and are matters for the national legislature
    
    
    

Delivered in open court in Luxembourg on 16 December 1997.

R. Grass

Registrar

1: Language of the case: Dutch.