It is often said that the law cannot keep up with the pace of a changing reality, particularly technological progress. This is evident for example in the rules for representation of businesses, which are poorly adapted to online transactions. Fortunately the courts approach this problem with understanding.
People without a legal background may be surprised to learn that when they contact a salesperson—or more generally an employee of an enterprise—they cannot automatically assume that the arrangements they agree to with that person will be legally binding. But that is indeed the case under Polish law, because as a rule, depending on the legal form of the enterprise, the persons authorised to act for the enterprise are its management board (e.g. in the case of a limited-liability company, joint-stock company or cooperative), individual partners (e.g. in a registered partnership, limited partnership or professional partnership), or the businessperson himself in the case of a sole trader, who under the civil law is treated like an individual.
These fundamental mechanisms of representation poorly reflect contemporary commercial practice, particularly in large enterprises with standardised everyday transactions (B2B or B2C), typically represented by some type of sales rep, such as staff of the sales, trade or export department. Moreover, the norm is for agreement to be reached with such sales reps via internet.
Generally the risk of exceeding authority is borne by the customer
Regardless of its legal form, a business can obviously issue appropriate authorisation to its employees. But this does not change the fact that as a rule the risk connected with whether the representative is truly authorised to carry out the specific transaction is borne by the other party in contact with the enterprise. In the event of a dispute, the counterparty will have to prove that the enterprise was duly represented in the act on which the counterparty bases its claim (e.g. conclusion of a contract or acceptance of an order). It can easily be imagined that proving such authority in court could be difficult.
This problem may not even be resolved by the court’s ordering the business to present documents demonstrating the scope of the representative’s authority, because it depends on the honesty of the business whether they present authentic documents instead of, for example, claiming that there are no such documents because the employee had no such authority. Or this may indeed be the case, for example if the business never got around to putting the appropriate authorisation in writing.
Old law in new times
There are several ways the counterparty can try to deal with this difficult litigation position. Here we will discuss just one of them, which was successfully used in a recent case by our law firm involving a transaction between two businesses agreed online (via email) by their commercial representatives.
This involves Art. 97 of the Civil Code, which provides: “A person active at the premises of an enterprise designated for serving the public is deemed in the case of doubt to be authorised to perform legal acts that are typically made with persons using the services of the enterprise.” Oversimplifying a bit, this provision releases a counterparty from the need to prove that the representative of the enterprise was authorised to perform the given act if it involves acts (transactions) typical for the enterprise and—which is key—the representative is located “at the premises of the enterprise designated for serving the public.” The idea behind this regulation is to solve the problem of the disadvantageous and in some situations quite unfair allocation of risk between the enterprise and its customer in most disputes involving standard trans-actions.
The problem, as the reader no doubt has already noticed, is that Civil Code Art. 97 does not address communications at a distance, particularly using the internet, when the issue of the employee’s physical location is of secondary importance. On the other hand, the wording of Art. 97 is hardly surprising, because it reflects the spirit of different times, and has remained on the books unchanged since adoption of the Civil Code in 1964, repeating almost verbatim Art. 68 of the Commercial Code of 1934.
Courts at the defence of counterparties
The problem of the disconnect between Civil Code Art. 97 and contemporary conditions is increasingly pointed out in the case law. The courts are steadily expanding the application of this regulation to cover various instances of communication at a distance. For example, in a landmark ruling in 1998 the Supreme Court of Poland held that Art. 97 may apply to employees with access to “office equipment” such as company stamps and seals and a fax machine they use to transmit copies of documents stamped for the enterprise (Supreme Court order of 24 February 1998, Case I CKN 517/97). This interpretation was confirmed in further rulings from 2003 (Supreme Court judgment of 5 December 2003, Case IV CK 286/02) and 2014 (Supreme Court judgment of 6 August 2014, Case I CSK 598/13). In the 2014 case the parties had corresponded by email, among other means, but the court did not directly address this aspect.
The justification for the ruling in each of these cases was based on the theory that the enterprise should be liable for providing the employee with access to company equipment, because use of the equipment by the employee “could objectively give rise to a belief that the person is duly authorised.” This line of interpretation well reflects the essence and purpose of the regulation. It would be justified to continue this line of thinking by extending Art. 97 to online communication, particularly when transmission of scans of stamped and signed documents is involved.
So far, however, the issue of representation via internet under Civil Code Art. 97 has been directly addressed only by the lower courts. For example, the Łódź Court of Appeal has held (judgment of 27 December 2013, Case I ACa 808/13) that a representative designated by one of the parties to communicate with the counterparty is a “person active at the premises of the enterprise” within the meaning of Art. 97 when contacting and making arrangements with the other party by internet (in that case, extending a payment deadline). The court “updated” the interpretation of Art. 97 with the apt observation that “in an age of common use of the internet to relay not only information but also decisions, reliance on the spatial and functional criterion of the premises of the enterprise is losing its relevance.”
The courts of two instances (regional court and court of appeal) took a similar approach in a case handled by our firm, also stressing the significance of “entrusting” to the employee not only access to company equipment such as a computer, but also access to a company email account. The courts also recognised the importance of the function (position) held by the given representative and the title used in correspondence with counterparties. This appears to be the correct line, because an employee using a title such as “sales specialist” or “trade manager” justifies the assumption that the person is authorised to represent the enterprise in ordinary transactions made by the enterprise.
Balancing protection of the business and the customer
But the question arises of how far protection of the customer’s trust under Art. 97 should go in the case of communications at a distance. After all, it is much easier to be mistaken about the true scope of authority of the person determined by a footer on an email or a scan of a stamp on an attachment, than in the case of an employee at the customer service desk of a brick-and-mortar location. The online situation could much more easily lend itself to abuses. Thus it might be said that in communications at a distance, a rule of limited trust from counterparties should be applied.
Yet this conclusion would go too far and unnecessarily upset the flow and certainty of transactions made via internet or using other means of telecommunications. It should be borne in mind that—at least according to some commentators—Civil Code Art. 97 merely creates a presumption of authority, and thus the enterprise can still prove that appearances to the contrary notwithstanding, the person in question was not really authorised to act for the enterprise. And Art. 97 is indeed often applied by the courts in this manner. In its defence, the enterprise may for example rely on the wording of the individual’s employment contract, the existence of internal decision-making procedures, the established practice for transacting business with the same customer or other customers, and so on. The credibility of any evidence of this sort is then assessed by the court.
But if the view is followed that excludes proof by the enterprise that a person covered by Art. 97 was nonetheless not truly authorised to represent the enterprise, for the sake of balance it should be carefully examined whether the grounds for application of this provision are fulfilled in cases involving transactions concluded at a distance.
However, this would not alter the general conclusion that this provision is applicable to this category of cases, because, citing the Supreme Court again in Case I CKN 517/97, “The law should not be a bureaucratic barrier to the activity of enterprises, paralysing their efficiency. In this context a role should be seen for Civil Code Art. 97.”
Maciej Zych, Dispute Resolution & Arbitration Practice Group, Wardyński & Partners
The article is a part of the New Technologies Newsletter, August 2015