Legal Approaches of Purposes:
          the Case of Independent Agencies




January 2007
Boudewijn de Jonge
University of...
Legal Approaches to Purposes: the Case of Independent Agencies
Legal Approaches of Purposes: the Case of Independent Agenc...
Table of Contents
                                                                                     Introduction..........
Introduction
                                                                                The most basic entity of our ...
Part One
                                                                 In this part the origin and doctrinal necessity ...
Hobbes and the development of legal personality
                                                                          ...
nothing more than any other association, and that there is therefore no need for
                                         ...
The current dogmatic problems over independent agencies can be put in this
                                               ...
These new constructions of government, sometimes referred to as ‘governance’, may
                                        ...
Notorious examples of mislead expectations over purposes of organisations can be
                                         ...
all EU agencies that their actions shall be directed by the purposes mentioned in their
                                  ...
systems legal persons are registered, and upon registration a purpose must have
                                          ...
contractors, shareholders and employees may invoke ultra vires in inquiry (‘enquête’)
                                    ...
Another important difference with commercial corporations is that the State has more
                                     ...
A legal act of establishing or winding up an independent agency and delegating
                                           ...
1877 Treatise On The Office Of Notary Public   Legal Forms
1877 Treatise On The Office Of Notary Public   Legal Forms
1877 Treatise On The Office Of Notary Public   Legal Forms
1877 Treatise On The Office Of Notary Public   Legal Forms
1877 Treatise On The Office Of Notary Public   Legal Forms
1877 Treatise On The Office Of Notary Public   Legal Forms
1877 Treatise On The Office Of Notary Public   Legal Forms
1877 Treatise On The Office Of Notary Public   Legal Forms
1877 Treatise On The Office Of Notary Public   Legal Forms
1877 Treatise On The Office Of Notary Public   Legal Forms
1877 Treatise On The Office Of Notary Public   Legal Forms
1877 Treatise On The Office Of Notary Public   Legal Forms
1877 Treatise On The Office Of Notary Public   Legal Forms
1877 Treatise On The Office Of Notary Public   Legal Forms
1877 Treatise On The Office Of Notary Public   Legal Forms
1877 Treatise On The Office Of Notary Public   Legal Forms
1877 Treatise On The Office Of Notary Public   Legal Forms
1877 Treatise On The Office Of Notary Public   Legal Forms
1877 Treatise On The Office Of Notary Public   Legal Forms
1877 Treatise On The Office Of Notary Public   Legal Forms
1877 Treatise On The Office Of Notary Public   Legal Forms
1877 Treatise On The Office Of Notary Public   Legal Forms
1877 Treatise On The Office Of Notary Public   Legal Forms
1877 Treatise On The Office Of Notary Public   Legal Forms
1877 Treatise On The Office Of Notary Public   Legal Forms
1877 Treatise On The Office Of Notary Public   Legal Forms
1877 Treatise On The Office Of Notary Public   Legal Forms
1877 Treatise On The Office Of Notary Public   Legal Forms
1877 Treatise On The Office Of Notary Public   Legal Forms
1877 Treatise On The Office Of Notary Public   Legal Forms
1877 Treatise On The Office Of Notary Public   Legal Forms
1877 Treatise On The Office Of Notary Public   Legal Forms
1877 Treatise On The Office Of Notary Public   Legal Forms
1877 Treatise On The Office Of Notary Public   Legal Forms
1877 Treatise On The Office Of Notary Public   Legal Forms
1877 Treatise On The Office Of Notary Public   Legal Forms
1877 Treatise On The Office Of Notary Public   Legal Forms
1877 Treatise On The Office Of Notary Public   Legal Forms
1877 Treatise On The Office Of Notary Public   Legal Forms
1877 Treatise On The Office Of Notary Public   Legal Forms
1877 Treatise On The Office Of Notary Public   Legal Forms
1877 Treatise On The Office Of Notary Public   Legal Forms
1877 Treatise On The Office Of Notary Public   Legal Forms
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1877 Treatise On The Office Of Notary Public Legal Forms

  1. 1. Legal Approaches of Purposes: the Case of Independent Agencies January 2007 Boudewijn de Jonge University of Amsterdam
  2. 2. Legal Approaches to Purposes: the Case of Independent Agencies Legal Approaches of Purposes: the Case of Independent Agencies Supervisor: Mr. J.H. Reestman Corrector: Prof. Mr. I.C. van der Vlies Final thesis for the law school of Amsterdam University All rights reserved (2007).
  3. 3. Table of Contents Introduction................................................................................................................. 4 Part One ..................................................................................................................... 5 Hobbes and the development of legal personality .................................................. 6 The State as unique source of authority .............................................................. 6 Fragmentation of the State .................................................................................. 7 General functions of purpose provisions ................................................................. 9 Communication function ...................................................................................... 9 Direction function............................................................................................... 10 Correction function ............................................................................................ 11 Private law: the transgression of object theory...................................................... 11 Purpose theory in its purest form....................................................................... 12 Development till date ......................................................................................... 12 Public law: purpose provisions as part of accountability ....................................... 14 Accountability for the existence of an independent agency ............................... 14 New lines of accountability of the independent agencies .................................. 16 Position in international law ............................................................................... 17 Part Two ................................................................................................................... 19 The comparison .................................................................................................... 20 Legislative culture as factor................................................................................... 20 Interpretive spectrum of ‘purpose’......................................................................... 22 Independent agencies in context .......................................................................... 23 Netherlands ....................................................................................................... 23 United Kingdom................................................................................................. 26 United States..................................................................................................... 29 France ............................................................................................................... 32 European Union................................................................................................. 36 Comparative syntheses......................................................................................... 42 Part Three................................................................................................................. 43 Practical effects compared to private law.............................................................. 44 Communication ..................................................................................................... 44 Direction................................................................................................................ 45 Correlation between objectives and tasks ......................................................... 45 Legal Approaches of Purposes: the Case of Independent Agencies Limits to political influence on objectives ........................................................... 46 Correction ............................................................................................................. 47 Establishment .................................................................................................... 48 Parliamentary oversight..................................................................................... 48 Negligence of tasks ........................................................................................... 49 Directors’ liability................................................................................................ 49 Administrative decisions .................................................................................... 50 Civil liability........................................................................................................ 50 Conclusion on practical effects ............................................................................. 51 Bibliography.............................................................................................................. 52 Books .................................................................................................................... 52 Articles .................................................................................................................. 52 Table of Contents Reports / Policy Documents.................................................................................. 53 Caselaw ................................................................................................................ 54 Websites ............................................................................................................... 54 List of independent agencies and their legal acts ................................................. 55 3
  4. 4. Introduction The most basic entity of our society, the human being, the natural person, is since long not the sole recognised person in law any more. Advancement of society and increased co-operation between us has resulted in the introduction of the concept of ‘legal personality’ into law. Now, this concept applies only to groups of natural persons, but perhaps more entities will be recognised as players in law in the future – political movements and philosophers are claiming recognition of the animal as a legal subject these days, and some legal theorists foresee that electronic agents will be participants in law one day.1 An ever more complex society has also caused the face of the State to chance. No longer, the contrat social empowers a Sovereign, a natural person, but it is the State as a legal person that receives the general power from the citizens. The State, which does not operate as an indivisible entity anymore, but has subjected its power to external transnational organisations, and has internally brought its power outside the realm of the State with independent agencies, endowed with separate legal personality. The State is in a process of – not to be overstated – decentralisation or fragmentation and internationalisation. At both ends of the contrat social the face of the participating actors is under change; a very fundamental change at the State’s end. In times where the identity and intrinsic uniqueness of human being and State are questioned, scholars are seeking to give direction to this movement. The identity of human beings raises the questions of life: ‘who am I’, ‘why am I here’, etc. The discussion over identity and purpose of the other side in the contrat, the fragmented State and other new public legal personalities, can be put in similar terms. In this thesis, the modern identity of the State, as a participant in the contrat social, will be examined. Not the State itself will be the subject of the inquiry, but the new participants in the contrat social, that have arisen along side the State: the independent agencies, on a national and international level. It will be examined to what extent the legal definitions of their identity and purpose2 can offer practical direction in the search after their position and function in our Legal Approaches of Purposes: the Case of Independent Agencies society. This thesis is divided according to three questions to which a tentative inquiry will be set about: - Part One: why are identity and purpose of these organisations legally defined? - Part Two: what do these legal provisions consist of? - Part Three: how can these provisions be given a practical meaning in reality? 1 Teubner G. Rights of Non-humans? Electronic Agents and Animals as New Actors in Politics and Law, in: Journal of Law & Society 2006(33), and Cliteur P. and Baaij H. Stop discriminatie dieren [trans: Stop Animal Discrimination], in: NRC Handelsblad. Rotterdam: 3 October 2002. Introduction 2 The word ‘purpose’ is used herein – unless specified – with a broad meaning which encompasses words like function, role, objective, duty, aim, goal, etc. For a more detailed overview of the semantic spectrum, see page 22, infra. 4
  5. 5. Part One In this part the origin and doctrinal necessity for the definition of identity and purpose of an organisation will be examined. To place this into context, first the genesis of the concept of ‘legal personality’ will be reviewed. Then it will be explained how the definition of identity and purpose is tight up with the concept of legal personality and how this was worked out in private law. Finally, it will be seen what implications this holds for public law legal personalities. Legal Approaches of Purposes: the Case of Independent Agencies 5
  6. 6. Hobbes and the development of legal personality In Hobbes view of the contrat social, the State was created as to prevent civil society to collapse, to prevent anarchy brake loose.3 In the state of nature, no associations between human beings took place. But with the contrat, the multitude conferred its rights and powers upon one entity to secure the interests of all. To guarantee the effectiveness of the protection of society and the integrity of the State, no other entities could arise along side the State without the State approving their existence. The State, and the State alone, was the source of any exercise of power over the members of society. No person, no group and no collective could exercise power or create obligations for human beings, unless the State had explicitly vested this authority in the group. The State as unique source of authority The State was the universitas, containing universal power, and was a separate entity from its constituents. This resulted in a strict separation of private and public interests. Clearly, this was an answer to medieval feudalism, in which private persons were endowed with public power, and to the existence of craft guilds that consisted of private individuals pursuing group interests, while possessing great power over large groups of craftsmen.4 In Hobbes Leviathan, no one could exercise such power over others, without the State guarding the general interest. Initially, this strict separation of private and public interest led to strict limitations on individuals co-operating in groups. Such a group was not to be regarded as a separate entity from the individual group members, so to make clear that they pursued their own interests, and could be held individually responsible for any act. Human beings were the only persons that were actors in law, and that had standing vis-à-vis the State. Reality, however, demanded that individuals could act collectively. And therefore practice came into being that the Sovereign, the personification of the State, granted incorporation to a group. In the United Kingdom, for example, a Royal Charter was originally the only way to form an incorporated body.5 When economic developments demanded this, ‘partial associations’ were allowed along side the Royal Chartered groups – but, with a maximum of seven group members. Legal Approaches of Purposes: the Case of Independent Agencies Von Savigny carried on Hobbes’ ideas in this respect in most extreme form, when he concluded that in Roman law each and every group needed explicit concession by the State to come into being. Not just for the attribution of legal personality, but also for the mere existence of a group, State action was required.6 The idea of the State as the sole authorisation of any exercise of power in society, has been under attack several times. Especially in conflicts over the position of the State vis-à-vis other powerful persons, like the Church and the unions, doubts over the special role of the State were voiced.7 English Pluralists held that the State is 3 Hobbes T. De Cive : the English Version. Oxford: Oxford University Press (1983). 4 McLean J. Personality and Public Law Doctrine, in: University of Toronto Law Journal. 1999 (1), p131. 5 Groenewald Th. Doeloverschrijding bij BV en NV. Deventer: 2001, p11. Part One 6 McLean J. Op.cit. n4, p128. 7 Id., pp125-6. 6
  7. 7. nothing more than any other association, and that there is therefore no need for explicit or implicit authorisation from the State for their establishment. More moderate pluralists, like Dicey, took the position that the associations do not need the State’s approval for the existence and that individuals are free to associate, but only for the creation of obligations for individuals. Fragmentation of the State That discussion is of importance to the current debate over the identity of the fragmented State.8 Increasingly, the State as a singular entity, as sole attributor of power, solemnly devoted to the general public interest, has changed. On the one hand, the State has shifted parts of its general power to independent public agencies, and on the other hand the State is taken part in power sharing agreements, with other States and with private actors. As a result, the State is now a plurality of legal persons, many of which are to achieve specific ends and serve specific interests. And besides the State, private stakeholders are increasingly present in the processes of rule making. This happens partially through self-regulation, but also through direct influence and sector representation in public bodies. Runciman explained the discussion over the unique character of the legal person(s) of the State, by way of analogy with a theatre play.9 In the play, every actor wears a mask to act a certain role.10 The mask signifies legal personality, which can be attributed or taken by the State. The State also does this to human beings, e.g. by denying legal personality to mentally ill. In the most pure form of the Hobbessian play, the State can be viewed as the director of the play, the distributor of the masks. The State does only give one mask to each actor and there are no masks for group persons. In the modern version of the play, it has turned into an improvised play. The economic reality has caused the State to acknowledge group masks.11 The actors may start and fill in their role autonomously, and may collectively take up a mask as they wish. Whilst the State does not distribute the masks anymore, it does still prescribe the minimum requirements to the masks. If a group of actors wants to use a mask collectively (wants to obtain legal personality for their group), they will have to Legal Approaches of Purposes: the Case of Independent Agencies meet the requirements as set by the State. One of the minimum requirements is a description in the statutes of the role or purposes that the actors envisage for their group. Other than the State and human beings, a group is only allowed to engage in activities for the defined statutory purposes. The group will be free to interpret that role of the character freely, but once the outer burdens of the role are overstepped the mask is not recognised as such anymore, and the individual actors act in their own personal capacity. 8 Lindseth P. Agents without Principles? Delegation in an Age of Diffuse and Fragmented Governance. Hartford: February 2004, p7. 9 Runciman D. Pluralism and the personality of the state. Cambridge: 1997, p223 and further. 10 The Latin word persona comes from the Etruscan word phersu, which means ‘mask’. The mask became the word used to refer to the actor, thereby symbolising how the mask identifies the person. 11 That this development is still ongoing can be seen in the movement towards recognition of group and corporate criminal liability by Western countries. Recently, e.g., Portugal, Slovakia and Romania Part One introduced corporate criminal liability in their legal systems. See: Eurojust. Eurojust & Human Trafficking. The Hague: 2005, p26. 7
  8. 8. The current dogmatic problems over independent agencies can be put in this perspective as well. The independent agencies possess independent legal personality, and therefore have a mask to act on their own in the play. It is unclear who is behind the mask, whether that are individual human beings, or whether it is the State acting with different masks. In any case, it is clear that these entities are established for specified purposes, with a particular role to play. The State must define their role in the play, because power is exercised by a separated legal person in the play. That power may, other than with the State itself, only be exercised for a defined end. By the same token, where the State gives power to legal persons that comprise of private and public actors collectively or subjects its power to an international legal person, the purpose of that legal person should be defined. This is because of the underlying premise of the Hobbesian system: where power is exercised in society by an actor other than the State, this can only be done for an end to which the State has consented. It has been asserted that the present confusion over the identity of the State, now that it also operates through separate legal entities, and authorises self-regulation more and more, is a bit of a return to medieval feudalism.12 In particular, the independent market regulators, which operate with special representative organs of producers, are regarded as the re-emergence of craftsman associations.13 As in medieval times, the State is now sharing its sovereignty with other entities: interest organisations (unions, NGO’s, etc) and transnational organisations. Private persons are endowed with public authority, while operating outside the direct democratic realm.14 The most extreme example of shifting public power is the case in which EU law requires a legally independent market regulator to be established, distinct from the State, because the State itself participates in the market as a shareholder of a public utility company, so to ensure that the State is not acting contrary to the public interest (the free market principles).15 12 McLean J. Op.cit. n4, p131, and Ankersmit, F. Privatisering bedreiging voor democratie, in: NRC Legal Approaches of Purposes: the Case of Independent Agencies Handelsblad. Rotterdam: 20 October 2005. 13 See for example the ENISA ‘Stakeholders Group’. In the Netherlands, the Kohnstamm Commission wrote: The [agencies] concentrate on the exercise of their tasks and relations with the concerned stakeholders. This does not fit with the general principles of democracy and law. The [agencies] experience political discussion and parliamentary questions as irrelevant and an expression of distrust. Translation by author. Werkgroep Verzelfstandigde Overheidsorganisaties op Rijksniveau [Kohnstamm Commission]. Een herkenbare overheid: investeren in de overheid, Interdepartementaal Beleidsonderzoek 2003-2004 nr. 1. Available at: www.andereoverheid.nl. Compare: Freeman J. The Private Role in Public Governance, in: New York Law Review 75(3), p543 and Metzger G.E. Privatization as Delegation, in: Columbia Law Review 103(6), p1501. Both follow to a certain extent the school of Critical Legal Studies in posing that there is no more fundamental difference between public and private actors acting in public interest. 14 That private individual personify the independent agencies as such, is not only the case in the U.S.; also in the recent discussion in the Netherlands over the Equal Treatment Commission, discussion arose over the personal qualifications and background of the individuals in that commission: Cliteur quoted in: Algemeen Dagblad. Rotterdam: 18 October 2006. 15 See on the dichotomy of the State as market participant and regulator, and the consequences for independent market regulators: Lassere B. L'Autorité de régulation des télécommunications (ART), in: Part One L'Actualité juridique - Droit administratif 3 (1997). Available at: www.lex-electronica.org/articles/v4- 1/lasserre.html. 8
  9. 9. These new constructions of government, sometimes referred to as ‘governance’, may not be problematic at all. But the transferral of power from the State to independent agencies and (transnational) networks needs to be conditional, and a clear definition of their role – including its purposes – should be part of that framework of conditions. That approach guarantees that ultimately the fundamental premise of Hobbes still applies: no power is exercised in society without consent of the State. General functions of purpose provisions The character or identity of an organisation is greatly determined by its purpose, besides its physical make-up and financial position, e.g. It should be born in mind that the creation of agencies is part of a development within public administration towards functional decentralisation. The chosen term for this development already signals that the description of the function of an agency is a key element of the concept. The mirror concept of functional decentralisation is functional centralisation, which takes place towards transnational agencies and networks. Again, the purpose is the criterion which brings together agencies from different jurisdictions or is the raison d’être for a new transnational agency. Clarity over this part of the character of an organisation has at least, conceptually, three functions, which work in two dimensions. The functions are communication, direction and correction, and the dimensions are related to the forum and the moment in time. Communication function The clarity over the purpose has a communication function, since it gives certainty and a common framework of expectations for all relevant stakeholders. Internally to employees, managers and shareholders, and externally to the State, third parties, the public, etc. Internally, the purpose is important, because organisations are group persons: a collective undertaking. To refer again to the model of society as a theatre play: the actors behind the mask must understand which role they have, in order to be able to act collectively. Noteworthy is that, with hardly any exception, all organisations included in the Legal Approaches of Purposes: the Case of Independent Agencies survey, have a section on their website where its overall objective and mission is stated. And in most of the cases, the words for these sections are simply taken from the legal description in the constituent documents. Especially for ‘first contact’ with an organisation the description of the purpose enables the counter party to understand the basics of the identity of the organisation. In commercial life, for example, the register of the Chambers of Commerce provides all basic characteristics, including the purpose. Clear communication of the (limited) purpose of a public organisation can prevent the public to have unrealistic high expectations. For example, the EU agencies often operate with a limited mandate. Subtle but precise communication over the purpose of the organisation can be read in either the name (‘European Monitoring Centre on Racism and Xenophobia’, which communicates its relatively passive role) or the catchphrase (Eurojust: ‘European Judicial Cooperation Unit’, which reflect that the participating authorities remain autonomous). Part One 9
  10. 10. Notorious examples of mislead expectations over purposes of organisations can be found in the realm of international law. The problem occurs for humanitarian missions in particular, which function as temporary organisations, on the basis of the founding act of the sponsoring international organisation and their Status of Mission or Status of Forces Agreements. Miscommunication or misunderstanding over the complicated legal mandates which limit the actions of such missions often causes local populations to be disappointed in the foreign assistance. Direction function The direction and correction function have a stronger legal connotation than the communication function. Internally, the direction function increases in importance for organisations with narrow mandates: international organisations and their missions, charities, and independent public organisations, are established for very specific ends. The definition of the purpose for an organisation determines which role it is going to play. During the start- up phase, more concrete defined tasks can be derived from the purpose of the organisation, and the required assets and processes can be defined. Most private law corporate bodies operate under very wide purpose provisions that will not give much guidance internally. The function of direction is of particular importance for the public organisations. Because of the legality principle, public organisations cannot take up any role, without a proper legal basis. Not only the substance of a decision needs a proper legal basis, also the path leading towards that decision must have a statutory basis. This is described as organisational-functional legitimacy.16 Any concrete activity of or purpose given to an organisation can therefore not exceed the original legal basis. An illustrative case in this respect was the ENISA-case for the European Court of Justice (ECJ). The European Network and Information Security Agency (ENISA) is established on the basis of Article 95 TEC, which offers a basis for the harmonisation of national laws. ENISA is charged with activities related to network and information security, like risk analysis, awareness raising, and issuing recommendations. The question to be answered by the Court was whether the establishment of ENISA was Legal Approaches of Purposes: the Case of Independent Agencies indeed an act that harmonised the laws of the Member States. In order to answer that question the Court examined whether the objectives and tasks of the organisation were closely enough related to actual process of harmonisation. The ECJ confirmed that European agencies are a means to an end (harmonisation i.c.), and not an aim in itself, when it ruled the following: The establishment of ENISA cannot be separated from its tasks, but it is a means to the end. The ENISA Regulation thus pursues only a single aim, which is to be derived above all from the provisions on the tasks of ENISA.17 The judgment pinpoints the entire existence of the organisation on the purpose of harmonisation. Harmonisation is the single aim of the organisation to which all its tasks and competences are subordinate. This judgment emphasises once again for 16 The term Organisatorisch-funktionelle Legitimation was introduced by Waechter; quoted in: Schroten K. De overheidsstichting op het niveau van de centrale overheid. Deventer: Tjeenk Willink 2000, p61. Part One 17 ECJ. ENISA-case: UK vs. Parliament and Council. Judgment of 2 May 2006. C-217/04 ECR 2006 I- 03771, para21. 10
  11. 11. all EU agencies that their actions shall be directed by the purposes mentioned in their legal basis, which is ultimately to be found in the EU treaty. The positive side of the coin is that the management of public organisations itself can therefore go back to their statutory basis to reconsider its mission or the fulfilment thereof: the purpose provision functions as a tool for analysing its performance. Whereas the purpose of an organisation may play an important role at the start-up phase, the definition of purpose may also cause an organisation to wind up or down size its activities. Especially where a clear end state or measurable targets are defined as part of the purpose, a moment is defined where the raison d’être of the organisation will seize to exist. If the organisation chooses to change its focus of activities, to avert its own redundancy, for example, there may be a need to change the purpose as defined in its basic document. An example of this is the Dutch Central Organ for the reception of Asylum seekers (COA). Since the numbers of asylum seekers sharply dropped, the organisation is actively seeking new ‘markets’ to offer its reception and housing services. However, its statutory purpose is explicitly restricted to asylum seeker-related activities.18 Externally, clarity over the purpose of an organisation serves processes of co- operation. Although the field of activities may be similar between two organisations, the purposes may be very different. Correction function Finally, the definition of the purposes of an organisation functions as a correction mechanism. The definition of the purpose of an organisation protects the stakeholders who confer assets (shareholders, creditors), power (the State) and time (employees) on the organisation. All these stakeholders are equipped with an enforceable right that their assets, power or time will not be exerted for another purpose than what they placed it for with the organisation. In fact, the purpose functions here as a protection of the interests of stakeholders. To a varying degree each organisation is purpose bound: limited in its activities by its purpose. Legal Approaches of Purposes: the Case of Independent Agencies In the start-up phase, the State may refuse legal personality to an organisation if it deems its purposes illegal. When an organisation goes bankrupt, in most Western legal systems, the executor can render any previous act by the organisation void if the act was contrary to the purpose of the organisation. But also personal liability of directors, or financial consequences in case of public independent bodies may be attached to transgression of the object. Private law: the transgression of object theory Within private law two major categories of legal personalities can be distinguished, in relation to purpose descriptions in the articles of association. On the one hand there are the business corporations in corporate law, and on the other, there is the diverse mix of non-profit organisations19. For both categories holds that in all Western legal 18 Based on conversation with COA employees in November 2006. Part One 19 The word ‘non-profit’ refers herein to non-commercial organisations that are not established with the principle aim to pay (parts of their) profits to shareholders, or similar constructions. 11
  12. 12. systems legal persons are registered, and upon registration a purpose must have been determined in its founding documents. Purpose theory in its purest form In corporate law, the description of the purpose had originally an important role in the creation of legal persons by groups of individuals. In its ultimate form, the corporation was seen as nothing more than Zweckvermögen: the belongings of the corporation belonged to the purpose, not to private individuals.20 Both in civil law and common law countries, transgression of the object of a company fell under the ultra vires doctrine, which has a purely corrective function. Any act by a corporation beyond the defined purpose of the corporation was void or voidable. Especially in the United States this doctrine was applied strictly, until the beginning of the 20th century. The doctrine had an internal dimension (the management could be sanctioned on grounds of default) and an external dimension (contractual obligations with third parties could be affected by voidness). On top of that, the executor could ex post declare any act void, if this act was performed ultra vires. The external dimension in particular shows the weight that is given to the restrictive effect of purpose provisions: contracts with third parties may be declared void if they do not fit the purpose of the corporation.21 Development till date However, in the course of time, and for both practical reasons and reasons of principle, the doctrine lost its much of its relevance. When with time the restrictions upon the creation of incorporated bodies relaxed, the main function of the purpose description became the protection of the interests of shareholders and creditors. Protection of good faith with third parties and an ever wider definition of the aims of corporations, made that from the side of courts as well as from the side from the corporations (shareholders) itself, the restricting effects of the doctrine were limited. The interest of certainty in business transactions prevails nowadays over the interest of pinpointing a company to its original purpose. US Company law has abolished its external effect entirely, but also in most European countries the external effect is limited to cases in which the counter party was not acting in good faith. Legal Approaches of Purposes: the Case of Independent Agencies While the external effect of ultra vires was abolished in many countries, the first two EEC Directives concerning corporate law recognised that the concept of the purpose for a corporation is not completely meaningless for practice. These directives still demand that upon establishment of a corporation a purpose is defined. The directives left the possibility open for the Member States to uphold an ultra vires doctrine with external effect.22 In the Netherlands, for example, the purpose provisions can still be used by several stakeholders. The circle of stakeholders that may invoke ultra vires is large: 20 Machen A.W. Corporate Personality. 24 Harvard Law Review 4 (1911), p256. 21 See: Blanco Fernandez J.M. Doeloverschrijding bij BV en NV [Book review], in: RM Themis 2003(1), p42. He refers to the importance of the possibility to have the purpose of the organisation taken into account where contractual obligations were obviously disadvantageous to the organisation. Part One 22 The First Council Directive 68/151/EEC of 9 March 1968 on corporate law, article 9.1, and the Second Council Directive 77/91/EEC of 13 December 1976 on corporate law, article 2(b). 12
  13. 13. contractors, shareholders and employees may invoke ultra vires in inquiry (‘enquête’) procedures, liability of management can be invoked on grounds of transgression of object, and executors may invalidate previous acts on such grounds. However, it must be said that only in the bankruptcy procedures the legal concept appears from time to time. The external effect is limited to cases in which the other party was not acting in good faith.23 Two developments limited the practical meaning of purpose provisions. On the one hand, courts have changed the concept into a ‘benefit test’: whether the contested act was in the ‘general interest’ of the corporation, more than whether the actual dealing fits the purpose provision.24 On the other hand, the wordings of purposes are chosen as wide as possible, so to prevent any uncertainty over the authority to act of a corporation. Whereas the meaning of the concept of purpose for private parties is reduced, the State has shown an increasing interest in the corrective function of purpose recently. EU States have agreed to pay more attention to the use of legal personalities for illegal purposes upon the moment of registration. This renewed attention also covers the purpose of the corporation, and aims to filter out organisations that are established to support racketeering, terrorism or debt avoidance practices.25 In the context of purposes of legal persons, the previous category of corporations can be distinguished from a second category of non-profit organisations. The difference in purpose with the first category is one that may not always be directly obvious from the statutory purpose. Sociologically seen, the purpose of a commercial enterprise is profit maximisation, while non-profit organisations is to support or strive for an issue of public concern. Yet, in the bye-laws of both types similar wordings can be found, because both types sometimes only mention their prospected activities or area of activities. However, the legal classification (as private corporation or charity) creates a theoretical watershed between the different purposes, mainly through the explicit exclusion of profit pay out in the case of charities. While for the commercial corporations in principle the purpose – what to achieve – is clear (disagreements are mostly concerned with how to achieve profit maximisation), the purposes of non-profit organisations are of a different and immense diverse Legal Approaches of Purposes: the Case of Independent Agencies nature. Generally spoken, the purpose provisions have their corrective effect through a similar system as with the corporations (i.e. responsibility of management, voidance of legal acts and annulment in bankruptcy procedures). But the character of the non- profit organisation as a goal organisation appears from, for example, the legal burdens on the change of the purpose of the organisation. In the Netherlands a foundation is only allowed to change its purpose, if the deed of foundation explicitly provides for this.26 23 A good example can be found in: Rechtbank Rotterdam. Judgment of 24 February 2000. Jurisprudentie Ondernemingsrecht 2000/76, paras 6.3.1.-6.4.1. 24 E.g. the Playland judgment of the Dutch High Court. NJ 1997/149, para3.4. For an analysis of this case law, see : Belder J.C. Concernfinanciering en doeloverschrijding, in: Vennootschap & Onderneming 2003(4), p42. 25 See e.g.: Ministerie van Justitie. Beleidsregels preventief toezicht op vennootschappen 2005 [trans: Policy regulation preventative control on corporations 2005], p10. See also the case law mentioned Part One herein, n27, infra. 26 Schroten K. Op.cit. n16, p26. 13
  14. 14. Another important difference with commercial corporations is that the State has more rights to intervene. For example, the Dutch State may, through a court order, replace the board of a foundation in case of transgression of the statutory purposes (2:298.1(a) Dutch Civil Code). That the State has a stronger position with regards to non-profit organisations in scrutinising the pursue of the purpose, is not surprising in the light of the historical discussion whether such organisations compete with the State as sources of authority (see p6). The practice of forbidding non-profit organisations that undermine the authority of the State is still alive in Western democracies. A recent example can be found in the prohibition of a Muslim organisation that run their own courts and had its own government as part of an underground Caliphate state in Germany and other countries.27 Public law: purpose provisions as part of accountability In the discussion over the position, function and personality of independent agencies and networks, often a key role is played by the concept of ‘accountability’. Accountability can be described as a system comprised of four factors:28 - an actor (who is held accountable), - a forum (which calls the actor to account), - an act (over which the actor gives account), and - an obligation (by which the conduct of the actor is measured). Weber introduced the strict functional approach of organisations, as purely a means for achieving an aim. In his theory all public organisations, as part of the bureaucracy, were strictly subordinate to parliament, in the purest form of a principle- agent system: the Parliament as principle of the Minister and the Minister as principle of the bureaucracy.29 Accountability for the existence of an independent agency Delegation of policy and executive authority to independent entities, and subjecting authority to transnational networks, has caused that the number of acts over which the State (strictu sensu) can be held accountable has been limited. Whether the reason for placing (the executive) power at arm’s length is either independence, increased expertise or efficiency, in all cases, the result is that the scope of Legal Approaches of Purposes: the Case of Independent Agencies democratic accountability is restrained. For example, the Minister cannot be held accountable anymore for advisory opinions by an equality board, or the actual distribution of grants by an arts council. However, the act that the Minister can still be held accountable for, is the primary act or decision to place the execution of power at arm’s length: the decision to establish the independent organisation and delegate powers to it. This also includes, as a mirror, the power to end the delegation, and to wind up an independent agency. 27 The Hizb ut-Tahrir movements, which pursue the establishment of a pan-Islamic caliphate, operates in most Western countries through plain legal persons. For example, in Germany, the foundations related to this movement were forbidden. However, in the Netherlands, the government – being aware of its purposes – decided not to forbid the Dutch branch ‘Stichting Dienaar aan Islam’. See: Bundesverfassungsgericht, judgment of 2 October 2003, 1 BvR 536/03, and: [Netherlands] Official Reports of the Lower House Annex 2001/2002, no. 603, p1271. 28 Bovens M. Analysing and Assessing Public Accountability. A Conceptual Approach. January 2006. Available at: www.connex-network.org/eurogov/. 29 Strikwerda J. Organisatie & Verandering, deel 1. 2002. p3. Notice that the neither the US style Part One presidential system, nor the Dutch style parliamentary system can be summarised in such simple terms. 14
  15. 15. A legal act of establishing or winding up an independent agency and delegating powers to it, is not fundamentally different from any other act. Organisations are seen as a means to achieve a certain economic or social goals, and thereby the same framework of accountability applies to such a decision. The act of establishment of an independent agency is benchmarked by the purpose it was given. Likewise in private law, foundations are wound up once the purpose is achieved, or it appears to be impossible to achieve the purpose. A similar line of thought applies to the participation in transnational networks. Whenever it is decided to participate in a transnational network, the Minister can be held responsible for the initial act of participation, and the use of the power to pull out of it. If an independent agency participates in a network, the statutory purpose and activities of the network in practice can be tested against the statutory purpose of the agency itself. By way of analogy: in private law, members of an association, may demand management to pull out of a federative association if the purpose of that association does not fit the purposes of the primary association anymore. 30 At the time of writing, in many EU Member States parliaments question their government over the set up of a new EU agency on fundamental rights, which would be the focal point in a network of national agencies.31 Allegedly, the function of the new agency would have too much resemblance with the Council of Europe, and serve no valuable purposes, and not withstand the subsidiarity test. It should be noticed, however, that little attention is paid to the establishment of and participation in more informal networks. This irregardless of numerous academic analyses that conclude that these transnational networks of agencies fulfil very real functions in practice. For example, the European network in which equality bodies co-operate – Equinet (formerly: Euroneb) – is operating very much in the margin of attention. There is no constituent document available for this network, let alone any formal statement of their intended purposes.32 By way of the very informal structure, and, as a consequence of that, the lack of a clearly expressed purpose and role for this network, it seems to evade political and public scrutiny.33 It may be argued that no legitimacy issues will arise as long as no binding powers are attributed (in terms of decisions in individual cases, or rule-setting), since all participating agencies bear responsibility for activities of the network. Notwithstanding that, it remains arguable that a legal basis is necessary since the Legal Approaches of Purposes: the Case of Independent Agencies networks are presented as separate entities, there are public assets involved, and their work – of whatever nature – possesses a certain public authority. 30 Similar issues as to the participation in federative associations, can be seen in the context of private law: see, for example, on the statutory limits in the deed of foundation to such co-operation: Sangers G.J.H. Bestuurlijke controle van federatieve verbanden, in: Galle R.C.J. (ed). Handboek bestuur en management van de grote vereniging. Den Haag: Elsevier (2002), chap27, p3. For example: Rechtbank Utrecht. MGT Alkmaar vs. Jongeren Federatie MGT. Judgment of 19 april 2006. Jurisprudentie Ondernemingsrecht 2006(177), with annotation of Blanco Fernandez J.M. 31 Proposal for the new EU Agency on Fundamental Rights: COM(2005) 280. For the discussion in the Dutch parliament, and an overview of the debate in parliaments of the other Member States, see: fiche 4.3.87 on http://europapoort.eerstekamer.nl [mainly in Dutch]. 32 Answer of Mrs. Palmer of the secretariat of Equinet on 28 November 2006. 33 Bigmani argues strongly in favour of giving a legal basis for these informal networks, so to give them a face to the public and strengthen the basis of their accountability: Bigmani F. Transgovernmental Part One Networks vs. Democracy: The Case of the European Information Privacy Network, in: Michigan Journal of 26 International Law, p860. 15

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