In civil law many rules rely for their legal effect on the presence of certain knowledge or a certain intention with one of the parties. If the party at hand is a legal entity, like a limited company, it can be difficult to determine what the entity knew. Fragments of information can be present in different parts of the organisation; an officer of the company may have gained his knowledge through his private life; he may also have a duty of confidentiality. In my doctoral thesis ‘Toerekening van kennis aan rechtspersonen’ (‘Attribution of knowledge to legal entities’), I have investigated when information that at any time is or has been available within a private legal entity qualifies as knowledge of the legal entity under Dutch law, making an in-depth comparison with German law. The thesis contains a summary in English.
Theoretical framework and standard cases
The research starts with an analysis of the theoretical framework: what does ‘attributing’ actually mean, why do we do it and on what grounds? It then deals with standard cases. These are cases in which an officer’s knowledge is ‘indiscriminately’ attributed to the legal entity, i.e. without any substantiation. The first type of standard situation arises when the officer has performed a legal act for the legal entity on the basis of a power of attorney, and when the validity or the legal effect of that legal act depends on the presence of certain knowledge. In such a situation article 3:66(2) Dutch Civil Code (DCC), which sets forth the doctrine of the larger share, determines to what extent the knowledge of the officer qualifies as knowledge of the principal, i.e. of the legal entity. The thesis sets out in depth how article 3:66(2) DCC applies to legal entities in various settings, comparing it to the application of § 166 Bürgerliches Gesetzbuch.
Outside the domain of representation, the knowledge of the officer who is sufficiently involved in the aspect of the legal relationship to which his knowledge is relevant, will qualify as the knowledge of the legal entity if the officer has a duty to take measures based on that information. I explain why this can be taken on as a general rule, what the exceptions are and how corporate bodies fit into this system.
‘Knowledge fragmentation’ and other complications
Things become more complicated when the relevant information is or has been available within the legal entity, but not with the officer involved who should have taken measures on that basis (the ‘acting officer’). For this situation, the term ‘knowledge fragmentation’ can be used. In situations of knowledge fragmentation, the court will have to assess whether, according to common perception (‘verkeersopvattingen’), the legal entity can rely on the ignorance of the acting officer, weighing all relevant circumstances. This assessment can largely be made by answering the question whether, in a properly functioning organisation, the information would have reached, and would been used by, the acting officer in good time. However, if the applicable rule requires a party to have actual knowledge, the court will need to exercise restraint.
Common opinion as to how an organisation should function co-determines what circumstances are relevant and what weight should be attributed to them. The doctoral thesis treats the circumstances that play a role in attributing knowledge extensively. The most important circumstances or points of view are: (i) the foreseeable relevance of the information (to the knowledgeable officer); (ii) the reason to request information (for the acting officer); and (iii) the purport of the applicable rule. Special attention is given to cases in which the ultimate question is whether the other party could rely on the ‘knowing’ officer to pass on the relevant information to other officers within the legal entity. In such cases, additional circumstances, related to this specific other party, must be taken into consideration. An example is the other party’s own knowledge and expertise.
There may be legitimate reasons to restrict the sharing of information within a legal entity. The basis for restriction may lie in professional obligations of confidentiality, data protection regulations or Chinese walls. The doctoral thesis investigates whether, when legitimate restrictions apply, screened off information will nevertheless qualify as knowledge of the legal entity.
An officer may gain his knowledge in a capacity other than as an officer for the legal entity, whether privately, in a different position, as director of another legal entity or as the legal entity’s contracting party. All these types of situations are dealt with in ‘Attribution of knowledge to legal entities’. No uniform approach can be adopted for these issues.
The thesis provides those who practice the law an assessment framework that will enable them to determine and substantiate, for each individual situation, what information that at any time is or has been available within the legal entity qualifies as knowledge of the legal entity.