Overseas Companies – Who Should Sign?

Integral Petroleum SA v SCU-Finanz AG [2015] EWCA Civ 144

In a recent case before the Court of Appeal, it was held that an agreement between two Swiss companies had not been properly authorised or executed by one of the parties and was therefore not binding.

This case is a good illustration of the dangers of not undertaking checks on the requirements of execution in foreign jurisdictions.

Background

Integral Petroleum SA (Integral) and SCU-Finanz AG (SCU) are both Swiss companies, in the oil trade business. By a contract dated 18 October 2011 (the Contract), SCU purportedly agreed to sell and Integral purportedly agreed to buy various quantities of oil. The Contract stipulated that it would be governed by English Law and that the English High Court was to have exclusive jurisdiction.

Integral claimed that SCU failed to honour its obligations under the Contract as it did not deliver any products.

The two officers of SCU at the material time were Albert Bass and Marine Vartanyan. Their names were registered and published in the public directory (the Swiss Register of Commerce) as the joint signatories required in order to bind the company (the prokurists).

At the time of entering into the Contract, only one prokurist had signed the Contract.

On 17 July 2013, Integral entered judgment in default of defence in its action for damages for breach of contract against SCU. SCU applied to have the default judgment set aside and it was granted by Popplewell J in March 2014, on the basis that SCU had a defence with real prospects of success.

SCU argued that one of its defences to Integral’s claim was that the Contract was not binding on it, as only one prokurist had signed. Under Swiss law, therefore, the signature of one prokurist alone was not enough to bind the SCU. The lone prokurist therefore had no authority, acting on her own, to bind SCU.

Integral appealed.

The Decision

SCU submitted that the issue to be decided was whether SCU could contract by means of the signature of a single prokurist and that this was a question of the company’s “capacity” governed by its constitution. As such, the relevant conflict of laws rules dictated that the issue was to be governed by SCU’s constitution. SCU opposed Integral’s submission that the issue should be characterised as whether the Contract was invalid for want of a second signature and that this was an issue of the formal validity of the Contract, which would bring Article 11 of the Parliament and Council Regulation (EC) No 593/2008 (the Rome I Regulation) into play, which stated that the issue should be governed by English Law.

Floyd LJ favoured SCU’s submission, finding that the issue was one of the authority of a single prokurist to bind the company, which was a matter for the company’s constitution (as governed by Swiss law) and not governed by the Rome I Regulation (which, even if it did apply, contained an exclusion in relation to this issue nonetheless).

In dealing with one of Integral’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 (the 2009 Regulations).

Regulation 4 of the 2009 Regulations modifies sections 43 and 44 of the Companies Act 2006 and states that one way an overseas company will have been taken to have validly executed a document for English law purposes is if the document (which must be expressed to be executed by the company) is signed by someone acting under the company’s authority in accordance with the company’s law of incorporation.

The 2009 Regulations also provide, 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 of the company. Integral argued that it was such a “purchaser” and that, as the single prokurist had purported to sign as an authoritative representative, the Contract must be treated as having been duly executed by SCU and therefore binding on them.

This argument was rejected by the Court of Appeal, who said that a document could only purport to be signed under authority if it complied with the relevant legal requirement (i.e. Swiss requirements), which in this case, meant being signed by two prokurists.

Floyd LJ therefore dismissed Integral’s appeal.

Comment

It is advisable when dealing with either a UK company or an overseas company, to take steps to satisfy yourself that the person signing on behalf of the company both has the authority to do so and can bind the company. When dealing with an overseas company, it is not advisable to merely assume that the execution formalities are the same as in English law, even if the contract is governed by the law of England and Wales. Where possible, seek local advice or a legal opinion, in order to ensure that the contractual obligations are binding on both parties.

If your business is facing the challenge of a commercial dispute or litigation, we can help. Contact our commercial dispute resolution lawyers today on 01895 207954 or email commercialdisputes@ibblaw.co.uk