Overseas counterparties – how can they sign and will they be bound?

This article was produced by Olswang LLP, which joined with CMS on 1 May 2017.

After spending many hours negotiating the terms of a contract, it is easy to leave the signing practicalities until the last minute. Yet short cuts when dealing with signing requirements can undermine the entire agreement. The Court of Appeal has recently considered whether an overseas company was bound by a contract signed by only one authorised representative – a case highlighting the importance of obtaining local legal advice when dealing with overseas counterparties, even if the agreement is governed by English law.

In Integral Petroleum S.A. v SCU-Finanz AG [2015], the Court of Appeal concluded that it was the law of the place where the company was incorporated which determined whether a contract was binding on the company when it had been signed by only one of two joint corporate representatives. The Court held that in this instance, the issue was one of authority to contract (and therefore governed by the law of the company’s place of incorporation), contrasting with questions relating to “formal validity”, where different rules meant the governing law of the contract would have applied.

The case is a useful reminder when dealing with an overseas company that:

• even if a contract is governed by English law, the local law under which the parties are incorporated can also affect their contractual relationships and obligations; and
• local advice should therefore be sought. The advice should be specific to the company concerned so that any limitations or requirements which apply to that company over and above the general law will be picked up. In some types of transaction it is standard practice to obtain a formal legal opinion to confirm the due incorporation of the company, its corporate power to enter into the transaction, whether it will be bound by the obligations in the transaction documents and any other matters relevant to the deal.

The case

The case involved a contract between two Swiss oil trading companies for the supply of oil. Although both companies were incorporated in Switzerland, the parties had agreed that the contract would be governed by English law, with exclusive jurisdiction being given to the English High Court. When the supplier failed to perform its obligations under the contract, the purchaser brought an action for breach of contract in the English courts. The supplier claimed that, because it had not entered into the contract in accordance with the law of its place of incorporation (Switzerland), it was not bound by the contract.

It was undisputed that, under Swiss law, contracts may only be validly entered into on behalf of a company by an authorised signatory, known as a “prokurist”. If a company is specifically registered in the Swiss Register of Commerce as having joint authorised signatories, it will only be bound if both of these authorised signatories sign on its behalf. The Swiss Register of Commerce is public, and may therefore be checked by anyone seeking to contract with that party. In this case, the supplier had registered two joint signatories in the Swiss Register of Commerce, meaning that under Swiss law, both needed to sign to successfully bind it. However the contract in question had been signed by one signatory only.

The Court of Appeal considered whether the effect of the missing second signature was a question relating to the “formal validity” of the agreement or went to the issue of authority to enter into the contract. In the first case the question would fall to be governed by English law (as the governing law of the contract) under Article 11 of the Rome I Regulation (Regulation (EC) No 593/2008) ("Rome I"). If the lack of two signatories was a matter of corporate authority however, this would fall outside the scope of Rome I and would instead be determined according to the constitution of the company and the laws of its country of incorporation.

The Court concluded that, in this case, the number of signatories to the contract went to the question of authority to act on behalf of the company, which was to be determined by Swiss rather than English law. The issue was whether the supplier had “validly expressed the will to be legally bound at all”, since a sole prokurist had no authority to bind the company and it could not be assumed that the second prokurist would have signed the contract. The Court found that the supplier’s defence was bound to succeed and that it was not bound by the contract.

The Court of Appeal also considered a separate argument that, because the contract purported to be signed by a representative of the supplier authorised in accordance with the laws of the place of its incorporation, the contract was deemed (in favour of a purchaser in good faith) to be duly executed under the Overseas Companies (Execution of Documents and Registration of Charges) Regulations 2009. The Court concluded that, since Swiss law required the signature of two prokurists and the document did not purport to be signed in this way, such deeming provisions did not apply. The Regulations do not remove the need for parties to check the authority requirements of their overseas counterparties and to check that these requirements are reflected in the agreement.