The Court of Appeal recently held that an overseas company, executing an English law governed document, would not be bound by that document if it had not been executed in accordance with the law of the overseas company’s constitution. The decision clarifies that the governing law of a contract (which in this case was English law) is not the applicable law when determining whether a document has been correctly executed by a foreign party.

In Integral Petroleum SA v Scu-Finanz AG (SCU) [2015] EWCA Civ 144 the Court of Appeal considered whether a document was binding on SCU, a Swiss company. SCU’s two officers were appointed joint “prokurists” on behalf of the company and both officers’ signatures were required to bind the company. The document had only been signed by one of the officers.

The court’s reasoning was based on characterising the issue to be whether a sole prokurist could bind SCU, not whether the document was “formally valid”. The court’s conclusion meant the matter fell outside the EU regulation on the law applicable to contractual obligations, known as Rome 1 (EU Regulation 593/2008). Rome 1 provides, amongst other things, that “A contract concluded between persons who, or whose agents, are in the same country at the time of its conclusion is formally valid if it satisfies the formal requirements of the law which governs it…or of the law of the country where it is concluded”

It also drew support for its conclusion from Article 1(2) of Rome 1 which excludes from the regulation’s scope questions governed by company law, including legal capacity and whether an agent is able to bind a principal. The court was not prepared to consider the lack of the second signature to be a question of “formal validity”. Instead it felt that the question was properly characterised as whether the sole prokurist’s act could be attributed to the company. It concluded it could not be attributed and therefore the document was not binding on the company. 

The court also considered (obiter) the relevance of the UK’s Overseas Companies (Execution of Documents and Registration of Charges) Regulations 2009 (the 2009 Regulations). The court supported the view that the 2009 Regulations only relate to English law formalities for execution not the capacity or authority of the signatory. In this case the sole signatory did not have authority to bind the company

Impact – the Court of Appeal’s decision emphasises the importance of verifying not just whether a party to a contract has the capacity to contract but also whether the signatory has the party’s actual authority to sign on its behalf. As previously, comfort on this point and whether there are any additional applicable formalities, may be gained by, amongst other things, obtaining a legal opinion or letter of advice from a law firm in the relevant jurisdiction.

Background - Under Swiss law representatives of Swiss companies, known as “prokurists” are broadly deemed to be able to bind the company as regards third parties acting in good faith. An exception to this principle is where the company has prescribed that joint signature is required. An entry in the Swiss Register of Commerce to that effect is considered to be express notice to third parties