Knowledge attribution or: What is the level of knowledge that companies possess?

The Supreme Court of the Czech Republic clarifies the question of knowledge attribution of representatives of legal entities.

The Supreme Court of the Czech Republic has recently clarified the extent to which a legal entity can be attributed knowledge of its representatives – such as the lack of good faith.

The Supreme Court has determined the extent of the attribution based on the decision-making authority of the representatives and their share in shaping the will of the legal entity. First, however, the Supreme Court rightly notes that the knowledge of a representative, who himself/herself represented the company in the legal action in question is, essentially, always attributable to the company, irrespective of the above criteria.

Furthermore, the Supreme Court makes it clear that knowledge of the statutory representatives (e.g. the managing director) of a legal entity is always attributable to a legal person, due to the nature of a statutory body alone and the related participation in the process of shaping its will. The Supreme Court also explained that this applies regardless of whether the relevant member of the statutory body has represented the company in a certain legal act or not.

According to the Supreme Court, directors have a comparatively high share in shaping the will of the legal entity by virtue of their extensive powers in a certain area and the decision-making power in that area. Therefore, their knowledge is attributable to the legal person, even if the director concerned has not represented the company himself/herself in the legal act in question, although he/she was entitled to do so.

Lacking the characteristics of the statutory body, the Supreme Court considers authorized representatives, such as authorized agents (‘prokurista’), to be the furthest away from shaping the will of the legal entity. According to the Supreme Court, their knowledge could be attributed to a legal entity only if the representative concerned actually represented the company in the legal act in question.

The judgment of the Supreme Court is to be welcomed to the extent that the distribution of relevant knowledge among several persons, eventually knowledge representatives, typically may not be detrimental to business partners of the legal entity and knowledge of a sole representative is sufficient. As a logical consequence, in the process, this leads to splitting the burden of allegation and the burden of proof: Who refers to the knowledge of a legal entity is only obliged to prove – depending on which of the above groups of people are concerned – that any member belonging to the relevant group of persons had knowledge of the relevant fact.

Source: Decision of the Czech Supreme Court of 15 November 2017 ( 29 Cdo 4554/2015)

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