UK: Executing Documents with Foreign Companies

Last Updated: 25 February 2002

The word ‘globalisation’ means many things to many people but what does it mean for the construction and engineering industry? This article examines the issues which may arise in relation to the valid execution of documents when a UK Company enters into agreements with a foreign Company, which are governed by English law.

Reasons for execution by deed

UK companies (registered under the UK Companies Acts) in the construction and engineering industry are familiar with the execution of documents as deeds. The primary advantage is that a document executed by deed (formerly known as a contract ‘under seal’ which has now been abolished1) ) affords the parties a longer limitation of liability period of 12 years2. Ordinary contracts afford only six years.

A further advantage is that a deed also allows for the creation of binding obligations without the need for consideration, unlike ordinary contracts.

Formalities for the execution of a deed by a UK company

When an agreement is governed by English law (either de facto or by the choice of the parties) the requirements for the valid execution of a deed are straightforward3.

The document must be:

a) In writing;

b) Clear on the face of it that the parties intend it to be a deed;

c) Signed by two authorised persons4 of the Company and expressed to be executed by the Company; and

d) Expressed to be delivered as a deed.

The requirements for the valid execution of deeds by foreign entities under English law

The Companies Act of 1989 - together with supplementary legislation5 - provides for a foreign Company to execute a deed in one of two ways:

1. By writing under its common seal or in any manner of execution permitted by the laws of the territory in which the Company is incorporated. That is, in accordance with the legal requirements of the jurisdiction where the Company is registered. Such a document has the same effect as if executed under the common seal of a Company incorporated in England and Wales; or

2. By expressing it to be executed by the Company under the signature(s) of the persons who are authorised to sign documents on behalf of the Company, in accordance with its domestic law. "A person or persons who, in accordance with the laws of the territory in which the Company is incorporated, is or are acting under the authority (express or implied) of that Company"6.

Note that whilst execution by writing under a Company’s seal is no longer the sole prescribed method of execution as a deed it remains a valid option. Where this route is chosen, a Company Seal in the form governed by S350(1) of the Companies Act 1985 must be used, which effectively excludes its consideration as a means of executing documents as deeds, as many foreign Companies do not possess such seals.

Furthermore, since execution is ‘by the Company’ it is arguable that the deed need not be witnessed. The Regulations specify that the authority to act on behalf of the Company may be express or implied.

Consequences of failing to comply with the execution requirements

A document which is not executed with the necessary formality is defective, and is accordingly not a deed. It is not clear whether or not such a document might be enforceable as a simple contract, and this is likely to remain a question for the courts to decide on a case-by-case basis7. What is clear is that the advantages afforded by a deed are denied to those parties who do not validly execute their agreements as deeds.

Practical considerations

(i) The authority of the signatories. A common problem that arises under both of these options is establishing the authority of the signatories. Even if a foreign Company executes a document in accordance with the legislation, it will still be necessary to check that the individuals signing or attesting the seal are duly authorised in accordance with the laws of the country of incorporation, and with the Company’s constitution. For example, US Companies in particular often refer to "Director" as an appointment, but it is devoid of legal meaning in the sense of the term as used in English law. Directors in English law are persons appointed (usually in terms of the Articles of Association) to manage the Company. As such, they are endowed with specific powers (such as the power to bind the Company) and duties (such as, among others, the obligation not to profit from their position as director, and to exercise their powers in the bona fide interests of the Company as a whole). A "Director" so-called may not in fact have been so appointed; it may be mere nomenclature, and the signatory’s power to act on behalf of the Company must be clearly established.

The solution is to get a letter of representation from the Company being represented which attests to the individual’s capacity as a director in law. This documentation does not itself need to be executed as a deed. A copy of the Company’s constitution may also be helpful, but when dealing with foreign-language companies, procuring an official translation of memoranda and articles can be more costly, both in time and money, than it is worth.

(ii) Determining Foreign Legal Requirements. Where option (b) is favoured, the obvious problem to be overcome is determining what the foreign legal requirements are. A legal opinion ought to be obtained from lawyers in the jurisdiction in which the Company is incorporated, in particular, to check if those signing have authority, and to ensure that the execution complies with the formalities which exist under the relevant local law and on separate issues such as corporate capacity.

(iii) Definition of ‘Company’. A further complication arises from the ironic absence of any definition of "Company" in the Companies Act, or in the Regulations. The resulting difficulty is that not every corporation incorporated outside Britain is a Company, and so some corporate entities might be denied the benefit of the Regulations, and may instead be obliged to rely on the law as it stood before the Regulations8. Drawing this distinction is not always straightforward. In practice, a corporate entity analogous to a UK Company is usually recognised as coming within the Regulations, but UK Companies should obtain a legal opinion from the relevant jurisdiction verifying the corporate nature of the party they are dealing with.

Where doubt as to a foreign entity’s corporate nature exists, the law as it stood before the Regulations entered into force leaves such a corporation two options when wishing to execute a deed in accordance with English law: (i) execution under seal (if it has one), or (ii) appointment of a Power of Attorney.

A Power of Attorney is a deed under which one person gives power to another person to act on his or her behalf. A single person may execute a deed on behalf of a foreign Company when acting under that Company’s express or implied authority9 , as long as the document is expressed to be executed by the Company.

When dealing with an Attorney acting on behalf of a foreign Company, it is vital to verify that the Power of Attorney itself is validly executed10.

Conclusion

Contracting with foreign companies in the global commercial arena gives rise to a number of legal and fiscal issues for UK companies. Questions of taxation and the application of local laws to contracts are among those issues which ought to be addressed. This paper has addressed only the valid execution of legal documents, but this is of fundamental importance if parties are to secure the valuable benefit of a twelve year limitation of liability period.

Footnotes

1 By the Law of Property (Miscellaneous Provisions) Act 1989

2 Sections 8(1) and 8(2) of the Limitations Act 1980

3 Under the Law of Property (Miscellaneous Provisions) Act 1989

4 Either two directors, or a director and the Company secretary

5 Section 130(6) of the Companies Act 1989 provided for regulations to be made extending Sections 36 and 36(A) to apply to foreign companies. The Foreign Companies (Execution of Documents) Regulations 1994 came into force on 16th May 1994. These were amended by the Foreign Companies (Execution of Documents) (Amendments) Regulations 1995 which came into force on 1 August 1995

6 Regulation 5

7 The Law Commission report no. 253 The Execution of Deeds and Documents by or on Behalf of Bodies Corporate (1998) at p.20 decided against the formulation of a specific rule for the reasons given there.

8 Again, the Law Commission has addressed this question by recommending an expansion of the ambit of the Regulations. The Law Commission report no. 253 The Execution of Deeds and Documents by or on Behalf of Bodies Corporate (1998) at p.50

9 S36A(4) of the Companies Act as modified by the Regulations

10 A topic beyond the scope of this article

© Herbert Smith 2002

The content of this article does not constitute legal advice and should not be relied on as such. Specific advice should be sought about your specific circumstances.

For more information on this or other Herbert Smith publications, please email us.

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