Will that Resolution really bind the company?

Custom and practice have always been important when it comes to interpreting laws in the Sultanate. In some circumstances, custom may even be law itself. But care is needed to avoid the trap of loose assumptions that could have alarming consequences. For instance, it is often assumed that a validly passed resolution of the board of directors or shareholders of a joint stock company authorising an individual to sign an agreement on behalf of the company is sufficient to bind the company upon the individual so signing. The same for a power of attorney. In particular, lawyers and other professionals from common law backgrounds will tend to assume this to be the case. But in the Omani civil law context this assumption may be wrong.

Commercial Register Law

The Commercial Companies Law provides the essential requirements for the passing of board and shareholder resolutions. But, in addition, the Commercial Register Law requires companies to register certain information on the Commercial Register. This is maintained by the Ministry of Commerce & Industry. Entries on the Commercial Register serve as conclusive proof as to the correctness of this information. The information includes the name of each person authorised to sign on behalf of the business and the extent of that person's authority. Any change in this information must be registered within a month of the change.

The requirements also provide that a specimen signature of each person authorised to sign must be filed. This should indicate whether the individual has authority to sign alone or together with others and whether this authority is unlimited or limited to a specific amount or a specific transaction. The form on which these signatures are provided is commonly known as the "specimen signature card" or "authorised signatories card". These requirements are compulsory, not voluntary. Failure to comply can be penalised by fines. Further, if false information is provided, the penalties include fines and/or imprisonment.

Authorised Signatories

So, the following key question arises: what are the consequences if the counterparty to an agreement entered into by a company relies on a board or shareholders' resolution (or a power of attorney) for the authority of an individual to sign for the company but it is not consistent with the information on the Commercial Register and subsequently the company seeks to argue that the individual was not authorised to sign the agreement?

For instance, the name of the individual may not appear as an authorised signatory on the Commercial Register at all, or it may be subject to the following conditions or limitations: only authorised to sign jointly with another authorised signatory, or only for a value below a specified amount, or only in relation to a specific transaction.

What would be the effect in the above example? Of course, the counterparty will assert a variety of arguments as to why the agreement is binding. These may include: apparent authority, estoppel, bad faith and so on. However, there is a risk that a court or arbitrator may find that, under Omani law, the agreement was not signed by an authorised signatory within his/her authorised powers and therefore is invalid and consequently unenforceable.

Cases before the Omani courts strongly suggest a cautious approach (these are the cases we are aware of—there may be more). For example, if a counterparty seeks to argue "apparent authority", the courts have rejected the argument on the basis that it should check the information on the Commercial Register before relying on anything else (e.g. a resolution or power of attorney). Moreover, if the individual is an authorised signatory on the Commercial Register, then the counterparty is considered to be "on notice" as to his/her actual signing authority, irrespective of whether or not it has checked.

The courts have also held that an officer of a company was not authorised to sign despite being on the executive committee to the board because his name did not appear as an authorised signatory on the Commercial Register.

Limited liability companies do not have boards of directors. However, they must still comply with the Commercial Register Law and these same issues arise when third parties seek to rely on partners' resolutions.

So the message is: safety first. Decisions of the Omani courts do not provide binding precedent under Omani law and are not therefore an infallible guide. In order to avoid uncertainty, rely on the Commercial Register and be safe, not sorry.