Prohibition of self-dealing

25 July 2023 | Knowledge, News, The Right Focus

Recently, there have been a number of interpretative doubts as to the correct application of the prohibition of self-dealing laid down in the Civil Code.

Article 108 of the Civil Code provides that: “An attorney-in-fact may not be the other party to an act in law performed on behalf of a principal, unless the power of attorney provides otherwise or, owing to the nature of the act in law, any possibility of the principal’s interest being violated is excluded. This provision shall apply accordingly if the attorney-in-fact represents both parties”.

Prohibition of self-dealing: purpose

According to the lawmakers, the introduction of the prohibition in the Civil Code was justified, inter alia, by the need to ensure the protection of the interests of a principal, i.e. a person who authorises another entity to represent him/her in an act having a direct effect for him/her.

After all, an attorney-in-fact may use the power of attorney granted to his/her own advantage.

When the Civil Code allows self-dealing

There are two exceptions to the general rule against self-dealing.

An attorney-in fact may be the other party to an act in law or may represent both parties if:

This follows directly from the wording of the power of attorney; (if the attorney is to represent both parties, both principals must agree); or
The content of the act in law excludes the possibility of infringement of the principal’s interests (one way to dispel doubts in this respect may be for the power of attorney to specify a particular act in law to be performed by the attorney, e.g. the purchase of an item from entity x for a price y).

Scope of the prohibition of self-dealing

Although the literal wording of the provision might suggest that it applies only to a situation where an attorney-in-fact represents a natural person, prevailing case law suggests that the provision in question should also apply to the representation of legal persons by members of their bodies.

In a resolution of seven Supreme Court judges of 30 May 1990, III CZP 8/90, OSNC 1990 (entered in the book of legal principles), the Supreme Court found that:

“No contract of a limited liability company and no contract of a joint-stock company concluded between a state-owned enterprise and a natural person shall be valid if that person acts on his/her own behalf and as a director of the state-owned enterprise at the same time.
No contract of a limited liability company and no contract of a joint-stock company concluded between a person acting on his/her own behalf and as an attorney-in-fact of a state-owned enterprise at the same time shall be valid if that person holds the position of deputy director, chief accountant or equivalent position in that enterprise or is a member of that enterprise’s workers council.”

However, the above Supreme Court resolution changed the course of case law, stating that Article 108 of the Civil Code does not have to be applied in a situation where the same natural person is a member of the bodies of two companies performing a specific act in law and in situations other than an act in law between two companies represented by the same person[1] .

According to the Supreme Court, the absence of a norm in the Commercial Companies Code analogous to Article 108 of the Civil Code does not justify the conclusion that the lawmakers intended to allow members of the bodies of legal persons to perform acts with themselves. In such a situation, for reasons of expediency and by analogy, the provision of the Civil Code should therefore be applied.

Extended application of the prohibition

However, in its resolution of 12 January 2022 (Case No. III CZP 24/22), the Supreme Court found that the prohibition of self-dealing applies in a situation where two limited liability companies conclude a debt assignment agreement and one of the companies is represented by an attorney-in-fact appointed by a member of the one-person management board of the former, who at the same time represents the latter as a holder of a general commercial PoA (Polish: prokurent). The Supreme Court referred to its previous rulings supporting the application (by analogy) of Article 108 of the Civil Code to the bodies of legal persons (e.g. resolution of 30 May 1990, III CZP 8/90, judgment of 9 March 1993, I CR 3/93, and judgment of 23 March 1999, II CKN 24/98).

The Supreme Court also ruled that the application of Article 108 of the Civil Code was valid and necessary in the light of the above Supreme Court resolution of 30 May 1990, III CZP 8/90, which has the force of law.

Furthermore, the Supreme Court considers that the application of the principle follows directly from the Commercial Companies Code, according to which the Civil Code applies to matters not regulated by the Commercial Companies Code.

This means that the obligation to apply the prohibition of self-dealing does not apply by analogy, as indicated in previous case law, but on the basis of Article 2 of the Commercial Companies Code.

However, this does not apply to cases where other applicable provisions apply, e.g. the so-called special representation of a limited liability company, according to which: “In a contract between the company and a member of the management board and in a dispute with the member of the management board, the company shall be represented by the supervisory board or an attorney-in-fact appointed by a resolution of the general meeting.”

Summary

The above Supreme Court resolution of 12 January 2022, III CZP 24/22, significantly expands the interpretation of the application of Article 108 of the Civil Code. It confirms the obligation to explicitly apply the principle in the case of acts performed by members of the bodies of legal persons. At the same time, it extends its application to a situation where an act is not performed by the same person (but one of them has been authorised by the other, e.g. acting as a member of the principal’s management board).

Any questions? Contact us

[1] E.g. judgment of the Supreme Court of 24 July 2009, II CSK 41/09;

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