In Integral Petroleum SA v SCU-Finanz AG the Court of Appeal found that an agreement between two overseas companies had not been properly authorised or executed by one of the parties and was not binding.
The case illustrates the dangers of cutting corners by not taking basic legal advice in the relevant jurisdiction. It can be tempting to assume that everything will be fine if the overseas party signs in the same way as an English party would; or that what was done when you dealt with a different counterparty in the same overseas jurisdiction will do just as well this time.
The case also usefully clarifies the meaning of UK regulations governing how overseas companies may validly execute documents governed by English law.
The failed agreement
The purported agreement was a supply contract for oil products between two Swiss-incorporated companies and was governed by English law. The supplier made no deliveries and the customer took proceedings in the English court for breach of contract. The supplier’s defence was that the contract had never become binding on it. The supplier’s entry in the Swiss Register of Commerce provided as a matter of public record that the joint signatures of two representatives of the company (known asprokurists) were required in order to bind the company. In fact, only one prokurist had signed the contract.
The Court of Appeal confirmed that, as a matter of English law, the question of how a person can bind an overseas company to a contract must be decided in accordance with the company’s law of incorporation – in this case, Swiss law. Under Swiss law, a third party dealing with a Swiss company is generally entitled to rely on the signature of a single prokurist – but not if the company has chosen to restrict the prokurist’s authority by entering in the Swiss Register of Commerce that joint signatories are required.
The fact that a single signature would have been enough to bind an English company (or a Swiss company that had not adopted a joint signatories restriction) was irrelevant. The prokurist had had no authority acting on her own to bind the supplier.
The Execution Regulations
In dealing with one of the customer’s arguments, the Court of Appeal explained an important aspect of regulation 4 of the Overseas Companies (Execution of Documents and Registration of Charges) Regulations 2009.
Regulation 4 sets out the English law requirements for the execution of documents by overseas companies. Under the regulation, an overseas company will be taken to have validly executed the document for English law purposes if it has done so in a manner provided for in the regulation. One way the overseas company could do this would be to have the document (which must be expressed to be executed by the company) signed by someone acting under the company’s authority in accordance with the company’s law of incorporation.
The regulation provides, in favour of a purchaser in good faith for valuable consideration, that a document is deemed to have been duly executed by an overseas company if it purports to be signed by a person who, in accordance with the company’s law of incorporation, is acting under the authority (express or implied) of the company. The customer argued that it was such a purchaser and that, as the single prokurist had purported to sign as a person who had had authority to sign, the contract must be treated as if it had been duly executed by the supplier.
On that reading, counterparties would be entitled to trust the signatory’s own assurance that he or she was duly authorised without having to go to the trouble of finding out what the relevant legal requirements were. Convenient though that would be for counterparties, the court rejected the argument and said that, for this purpose, a document could only purport to be signed under authority if it appeared to comply with the relevant legal requirements – which in this case meant the document’s appearing to have been signed by two prokurists.
Counterparties dealing in good faith with UK companies are protected by section 40 of the Companies Act 2006, so that a restriction in the articles of association requiring all contracts to be signed by two directors, say, would not necessarily prevent the counterparty from enforcing the contract if only one director had signed it. Section 40 does not apply to overseas companies.
Where a contract is governed by English law, a counterparty dealing with a company might be able invoke the English rule of the apparent (or ostensible) authority of the company’s signatory – in other words, that the counterparty did not know of the signatory’s lack of actual authority and that the company had held the signatory out as having authority to sign. This rule can apply even if the company is an overseas company. In the case, there was no evidence of ostensible authority, so this point was not fully examined.
From the practical viewpoint – whether you are dealing with a UK or an overseas company – the better course is to satisfy yourself as far as possible that whoever is signing the document on behalf of the company has been actually authorised to do so. Where an overseas company is involved, it is usually important to obtain a legal opinion, or at least engage local lawyers to advise, on whether the company has taken all the legal steps necessary to enter into the contract and on the applicable requirements for proper execution (as well as other highly significant issues, such as the company’s existence).