One resolution, many doubts | In Principle

The Supreme Court has ruled that it is impermissible to issue a commercial proxy to one person allowing the proxy to act only jointly with a member of the management board. What does this ruling mean for companies that have already issued such proxies?

In a resolution of a seven-judge panel issued on 30 January 2015 (Case III CZP 34/14), the Supreme Court of Poland held that it is impermissible to enter a commercial proxy in the National Court Register with a reservation that the proxy can act only together with a management board member (known in Polish law as an “improper joint commercial proxy”—prokura łączna niewłaściwa).

Change in direction of the case law

This issue has been debated by legal scholars in Poland for years. The conflicting practice of different registry courts on whether or not to make entries for such proxies in the National Court Register led the Supreme Court to attempt to straighten up the law in this area.

The court pointed out that the Civil Code contains a fixed catalogue of types of commercial proxies, namely:

• Independent commercial proxy (prokura samoistna), authorising a one-person proxy to act on his or her own
• Joint commercial proxy (prokura łączna), issued to two or more persons and requiring them to act together when making declaration of will for a business entity
• Branch proxy (prokura oddziałowa), limiting the scope of the proxy’s authority to matters connected with a specific branch of an enterprise.

The construction under which a commercial proxy is issued to a single person but with a restriction that the proxy may act only jointly with a member of the management board is not provided for in the Civil Code. Therefore, in the court’s view, a commercial proxy of this type cannot be created through a decision of a commercial entity (typically the management board of a company).

The recent resolution represents a departure from the previous line of case law from the Supreme Court of Poland, as expressed in the resolution of a three-judge panel dated 27 April 2001 (Case III CZP 6/01) and in a ruling from the pre-war era (18 February 1938, Case C I 170/37). In fact one of the judges on the panel that issued the resolution in 2001 was also on the panel that issued the resolution in January 2015, and he did not dissent from the new ruling.

In its earlier statements on improper joint commercial proxies, the Supreme Court not only permitted them to be issued but (in the 2001 resolution) indicated exactly how they should be reflected in the commercial register, i.e. as a “joint commercial proxy—with a member of the management board” in the case of a company, or, in the case of a partnership, as a “joint commercial proxy—with a partner (or general partner) representing the partnership.”

Following that suggestion, many companies decided to issue an improper joint commercial proxy, and such proxies were entered by the courts in the commercial register and then went on to perform legal acts for their principals for many years thereafter.

What to do now about actions by “improper” proxies?

Here we reach the heart of the problem (a side issue in the dispute over the existence of legal grounds for issuing an improper joint commercial proxy and entering it in the commercial register) whose resolution could be hugely important for businesses which issued such proxies, as well as other entities (such as the other parties to contracts) which received declarations of will on behalf of the principal by such “improper” commercial proxies acting together with members of the management board.

This problem requires consideration of the effect the recent resolution by the Supreme Court has on actions taken by these proxies for their principals.

The Supreme Court attempted to answer this question, but only went halfway. The court stated that entries in the National Court Register for improper joint commercial proxies should be deleted. But citing the long-term, tolerated practice of the registry courts of recognising such proxies, and indicating the need to protect certainty in commerce, the court ordered that the interpretation stated in the resolution shall not apply to the evaluation of the consequences of legal acts taken by proxies appointed inconsistently with the resolution, but the resolution will apply only for the future, from the date of adoption of the resolution going forward.

Finally, as a marginal note, the court stated that issuing an improper joint commercial proxy does not make the proxy an independent proxy, but only an assistant to the manager, who cannot take any action without the consent of a member of the management board. Therefore, in light of Civil Code Art. 109¹ §2, which prohibits limitations on a commercial proxy with effect against third parties, the reservation authorising the proxy to act only together with a member of the management board should be deemed to be ineffective against third parties. The consequence of adopting this interpretation would be to recognise a proxy appointed in this manner as essentially an independent commercial proxy. This in turn does not seem to square with the directive under Civil Code Art. 65 §1 to interpret declarations of will (here concerning issuance of the commercial proxy) as required by the circumstances in which the declaration was made. Because in making the declaration of will to issue the commercial proxy, the intention of the management board was to exclude the possibility of the proxy acting independently, the declaration of will of the management board cannot be interpreted as seeking to issue an independent commercial proxy, which by definition involves the proxy’s acting independently.

Consequently, the Supreme Court’s position raises a number of practical doubts affecting businesses which had issued similar proxies up to the date when the resolution was announced (30 January 2015).

While a resolution by the Supreme Court and the interpretation made by the court does not constitute a universally binding source of law, it should nonetheless be acknowledged that issuing or exercising an improper joint commercial proxy after the announcement of the court’s resolution is risky at the very least.

It should also be expected that entries of such proxies in the National Court Register will be removed over time by the registry courts pursuant to Art. 12(3) of the National Court Register Act, which requires the courts to delete entries that are legally impermissible.

Problematic acts taken after announcement of resolution

There is a practical problem caused by adoption of this resolution concerning how to classify the legal consequences of acts made on the basis of the disallowed type of proxy.

These consequences should be considered separately for three different periods:

• Until the date of adoption of the resolution by the Supreme Court, or more precisely until the date of announcement of the resolution (i.e. up until 30 January 2015, when both of these events occurred)
• From the date of announcement of the resolution until the date of announcement of the justification for the resolution (which occurred on 30 March 2015)
• From the date of announcement of the justification onward, i.e. from 30 March 2015.

With respect to the first period, the prior rulings of the Supreme Court (expressly admitting the possibility of issuing an improper joint commercial proxy), the actions of certain registry courts (entering such proxies in the National Court Register), and the express statement by the Supreme Court of only future effect of the new resolution provide strong arguments against any disputing of actions by such proxies prior to 30 January 2015. Moreover, these circumstances must not be ignored when interpreting the declaration of will by the principal in appointing such a proxy. (Civil Code Art. 65 requires the circumstances, social policy and established custom to be considered.)

With respect to acts by proxies during the period between announcement of the Supreme Court’s resolution and publication of the justification, the situation is somewhat more complicated. The wording of the resolution itself referred only to the impermissibility of entering an improper proxy in the commercial register, and the court did not state until the justification was published two months later that it was impermissible to issue such authorisation in general, and thus persons acting as such proxies lack authority. It therefore appears correct to assume that the resolution did not begin to exert its full effects until the justification for the resolution was published, i.e. from 30 March 2015 onward.

This is vital, because acts by “improper” proxies from that day forward may be regarded as acts by a “false attorney” (falsus procurator). This in turn means under Civil Code Art. 103 that the validity of contracts concluded by such persons depends on their ratification by the business entity (i.e. the company) in whose name the contract was concluded. Correspondingly, the other party to such a contract (such as a customer or supplier) may give the entity in whose name the contract was concluded a reasonable time to ratify the contract.

It should be pointed out that such ratification as a precautionary measure applies only to acts of a “false attorney” (which the “improper proxy” is in this case), and does not apply to a “false body”—i.e. a member of the management board acting together with the proxy. Under the case law of the Supreme Court (in particular the somewhat reactionary resolution of a three-judge panel of 5 December 2008, Case III CZP 124/08), a legal act by a “false body” is deemed to be absolutely void pursuant to Civil Code Art. 39 in connection with Art. 58.

Under Civil Code Art. 60, so long as conclusion of the contract in question did not require compliance with some special form (such as a notarial deed or notarised signatures), an act by a “false attorney” may be ratified implicitly. Thus, if the principal on whose behalf an improper commercial proxy concluded a contract subsequently went on to perform the contract (for example by delivering the goods, paying the purchase price, or the like), it should be recognised that the contract concluded in the principal’s name was implicitly ratified.

But it should also be borne in mind that under Civil Code Art. 104, a unilateral act performed in the name of another person without authority cannot be ratified. Such acts are void by operation of law (except for a situation where the addressee of the unilateral act consented to its performance by an unauthorised person). Therefore acts taken by improper commercial proxies from 30 March 2015 forward (or under the most cautious approach, from 30 January 2015 forward) should, as a rule, be regarded as invalid.

Necessary change in grounds for authority of proxies

For these reasons, it is clear that businesses affected by this issue should promptly amend the authorisations for their commercial proxies. Moreover, if such proxies made unilateral acts together with management board members during the period from 30 March 2015 forward (or indeed from 30 January 2015 forward), conducting those acts again on a proper basis should be considered. Or, if the acts included submission of a declaration of will, confirmation could be sought from the person to whom the declaration of will was submitted showing that the person consented to the act of the improperly appointed proxy.

Maciej Szewczyk, Corporate and M&A Practice, Wardyński & Partners