Isle of Man: When Is A Deal Not A Deal?

Last Updated: 9 February 2016
Article by Tom Brook

Does your business enter into contracts with companies registered in foreign jusrisdictions (such as the Isle of Man, Jersey, Guernsey, the BVI or any other for that matter), if so, then I suggest that you read on.

When you have invested a large amount of time, thought and professional costs in concluding the terms of a highly valuable contract for the benefit of your business, you would want to know that the contract will actually bind the counterparty with whom you have contracted. This is an obvious statement you might think and this is normally something that you would take for granted as being handled by your legal adviser (and so it should be). But what happens if the contract you have entered into is with a corporate entity which is registered/incorporated in a jurisdiction which is different to the governing law of the contract? Your legal adviser, who will be qualified to give you advice on the terms of the contract in question, may not necessarily be qualified to give you advice on the capacity and authority required by the foreaign company to validly enter into the contract. You should insist on obtaining guidance from a lawyer based in that jurisdiction.

This concept is nothing new to those dealing in international contracts on a regular basis, but we received a stark reminder about this issue in February last year in the case of Integral Petroleum SA v SCU-Finanz AG [2015] EWCA Civ 144, 26 February 2015. Without going into the full detail, this case involved a dispute between Integral and SCU-Finanz (both of which happened to be companies incorporated in Switzerland) in respect of a contract for the sale and purchase of oil. The governing law of the contract was English law. It was alleged that SCU-Finanz breached the terms of the contract and this was disputed by Integral, resulting in the case being heard before the English Courts. One of the arguments put forward by Integral in the context of this dispute was that, irrespective of the terms of the contract, it had not executed the contract properly under Swiss law (due to the absence of a second signature which in the circumstance was necessary under Swiss law) and therefore the contract should not be binding on them at all. Unfortunately for Integral the judge in the English Courts agreed with SCU-Finanz, holding that the capacity and authority of SCU-Finanz to enter into a contract was a matter for its constitution, which is governed by Swiss law (i.e. the place of SCU-Finanz's incorporation, and not the laws governing the contract) and because there had not been two signatories, the relevant formalities under Swiss law had not been complied with.

Of course, this case involved an English Law contract entered into by Swiss companies but the concept would apply equally to English law contracts entered into by corporate entities from any jurisdiction, including the entities incorporated in the Isle of Man, Jersey, Guernsey and the BVI.

In the modern globalised market with customers all over the world (and with English law being a popular choice of law to govern many international contracts) this is relevant to many businesses. Do not fall into the trap that Integral fell into and make sure you avoid any unnecessary losses by obtaining advice in all relevant jurisdictions.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

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