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Cross-border contracts – why the formalities matter

A recent Court of Appeal decision* shows why complying with formal signature requirements is vitally important when companies make cross-border contracts.

The dispute

The claimant (C) and the defendant (D) were both Swiss companies engaged in oil trading.  C brought a claim in England for circa US$1m against D for breach of a supply contract between them.  The contract was in writing, signed on behalf of both parties, and expressly subject to English law and jurisdiction.

D failed to serve a defence and C obtained judgment in default.  D applied to set it aside.  D argued that it had a complete defence because under Swiss law only its two registered “prokurists” (the equivalents of the directors of a UK company) had authority to bind D contractually, and neither of them had signed the contract in question.  C accepted that this was the position under Swiss law, but argued that English law applied.  (Under which D was bound if the person who signed had actual or implied authority to do so.)

The decision

The Court of Appeal found in favour of D.  The question was one of capacity.  That was determined by the law governing D’s corporate constitution (i.e. Swiss law), and the relevant requirements had not been met.  D was not bound by the contract despite the express provision that English law would govern the contract itself.  The default judgment was therefore set aside and D was permitted to defend the claim.

Where does this leave C?

Not in a great place.  It will have its own costs and a good chunk of D’s costs to pay.  Unless it can come up with some other legal basis on which it could succeed, it will either have to:

(a) appeal to the UK Supreme Court – which first means persuading that court to grant permission, and then waiting for up to two years for a hearing; or

(b) abandon the claim.

What are the practical implications of this?

Where a foreign producer (P) proposes to enter into an important contract with a UK company, e.g. an agency, distribution or franchise agreement, the method of signature chosen should give maximum assurance that P will not face any argument of this kind.

Conversely, where a UK agent or distributor is proposing to contract with an overseas producer company, any formal signature requirements applicable to P should be checked out and complied with.

There’s not much point in going to the trouble and expense of negotiating and signing off an important contract, if the other party will not actually be bound by it.  And an important part of your business would be based upon on a dangerously false premise, if that were the case.

*Integral Petroleum SA v SCU-Finanz AG (EWCA, 26 February 2015)

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