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Caught on our radar

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A consulting company received no compensation from a non-profit association for services performed because the Chairman of the association was not in fact authorised to sign for the company by himself.

A ruling by the Svea Court of Appeal shows how important it is to enter into a contract with a formally authorised representative and that it’s wise to check the authority even if the representative appears to have the “right position”.

Background

In this case, a consultant for a small consulting company conducted training on behalf of a non-profit association involved with labour market-oriented projects. The consulting company’s contract included training of about 50 participants. When the consulting company never received compensation for their training, which, according to the company, had been conducted on the request of the association Chairman, the company decided to sue the association.

The association contested their liability to pay, arguing that the Chairman lacked authority to enter into that kind of agreement on behalf of the association. The board of the association had decided that business events such as this one, involving fees of SEK 25,000 or more, had to be signed by two board members.

The consulting company, on the other hand, argued that the Chairman – given his position, which was akin to a managing director – had authority to enter into the agreement despite the board’s decision.

Liability to pay under contract?

Initially, the Court of Appeal concluded that the consulting company had to prove that the Chairman of the association had been authorised to sign the agreement in question on behalf of the association. The board’s decision on signatories clearly suggested the opposite, according to the Court. The consulting company never did manage to prove that the Chairman was still authorised to sign. The Court of Appeal mentioned in this context that the fact that the consulting company neither realised nor should have realised the lack of authority was irrelevant to the question of contractuality.

Liability to pay on grounds other than contractual?

The consulting company then argued, as an alternative basis for liability to pay, that the work performed by the company led to economic benefits for the association. Here, the Court of Appeal said that a person who provides a service for someone without assignment typically has no right to compensation and that compensation is paid only in very few cases, regulated by law or recognised by practice (such as certain minor car repairs that are not ordered but deemed suitable and economically sensible). In this case, the consulting company neither claimed nor managed to show any circumstances that would entitle compensation. The claim was therefore dismissed.

Top keep in mind

Before entering into a contract, check the authority of the person who represents the counterparty if the counterparty is a company or an association. Limited companies and trading companies can be checked through the Swedish Companies Registration Office. For associations, minutes from a board meeting or a proxy should be requested. As shown by the case above, a contract may not otherwise be considered to exist and no compensation will be paid.