Importance of formalities for signing contracts with overseas companies
INTEGRAL PETROLEUM v SCU-FINANZ (CA) [2015]
The Court of Appeal (CA) ruled that a contract between two Swiss companies and governed by English law was not binding as it was not signed by two authorised representatives on behalf of one of the companies, as required under the laws of Switzerland.
Facts:
- Integral Petroleum (I) and SCU-Finanz (S), both incorporated in Switzerland, entered into a supply contract to be governed by English law under the jurisdiction of the English courts.
- There were two officers of S who were registered with the Swiss Register of Commerce as ‘prokurists’, meaning the representatives of the company who are authorised to enter into legal transactions on behalf of the company. The entry in that Register made it clear that the power of the two prokurists’ signature was joint. However, the contract was only signed by one of the prokurists.
- I brought a claim against S in the High Court for breach of the contract alleging S had failed to meet its delivery obligations. S defended this claim partly by saying that the agreement was not valid due to the lack of two prokurist signatures as required under Swiss law. It said the sole signatory did not have capacity to bind the company and so S was not bound by the agreement. I argued that the contract was valid notwithstanding the absence of a second signature.
- In the High Court, the judge agreed with S and ruled that the contract was not binding. I appealed to the CA.
- The main topic for the CA to decide was which system of law should be applied to determine how the consequence of the missing signature should be characterised – as a validity or a capacity issue.
Decision:
- The CA dismissed I’s appeal. It looked at the ways the issue of the single signature could be determined:
- Validity - if the issue was a matter of formal validity, then the governing law clause set out in the contract could be applied, under EU Rome I Regulation (No 593/2008). This states that a contract is valid if it satisfies the formal requirements of the law which governs it. Under English law, this would mean that one signatory would have been sufficient.
- Capacity - if it was a matter of capacity and authority to bind the company, these are excluded from the scope of Rome I and English common law conflicts principles would then be applicable. These provide that the laws of the company’s place of incorporation apply to issues of the company’s capacity and who is authorised to act on its behalf.
- After considering these options, the CA found that the issue could not be regarded as relating to the validity of the contract but related to capacity and authority to bind S.
- On this basis, whether the contract was validly signed on behalf of S was to be decided according to the laws of Switzerland, and not under English law as per the contract’s governing law clause. The CA said that under Swiss law the sole prokurist who signed on behalf of S had no actual authority to bind S on her own and it could not be assumed that the second prokurist would be prepared to sign. Consequently, the signature of a single prokurist was not sufficient to commit S and it was not bound by its contract with I.
Points to note:
- This is perhaps an unexpected outcome showing that an English law and jurisdiction clause will not necessarily mean that English law will be applied.
- To what extent this case was influenced by the fact that these were two Swiss companies who might have been expected to know what Swiss law required is not clear, but it may possibly have been a factor.
- If followed, this decision is a major concern. For most international commercial agreements it is completely impractical to expect contracting parties to check the legal requirements of the other party’s place of incorporation regarding representation and signature if they want to ensure the other party has validly entered into a contract and will be bound by its terms.
- Some kind of contractual warranty or representation regarding the validity and binding nature of the contract signatory and method of signature should perhaps be included. However, hopefully should a similar case arise in the future, a Court would take a more pragmatic approach and try to find some basis for not allowing a party to take advantage of its own failure.