UK: Powers Of Attorney: Decision Highlights Importance Of Proper Execution And Scoping

Last Updated: 27 May 2019
Article by David Collins, Richard Barham, Candice Chapman and Anna Janik

Powers of attorney are often used in a corporate law context, such as at completion meetings where a party is absent and appoints an attorney to execute documents on its behalf.  The High Court has considered the validity and scope of POAs purportedly executed in connection with a share sale.

Facts

The two defendants (along with the founder, Mr Visan) had agreed to sell their shares to the claimant.  The defendants were not attending the completion meeting, so as well as signing what was hoped to be "final form" documentation, they also granted powers of attorney (POAs) to Mr Visan in case (as the defendants' lawyer explained at the time) there were any last minute changes that required documents to be re-signed.

At the completion meeting, Mr Visan agreed to a reduction of the purchase price and also to enter into a personal guarantee on behalf of himself and the defendants in the event that the claimant suffered various financial shortfalls after completion.  The guarantee was a new document introduced at the completion meeting and Mr Visan purported to execute it on behalf of himself and the defendants (as their attorney under the POAs).  Only his signature against the second defendant's name was actually witnessed.

The claimant subsequently brought a claim under the guarantee, but the defendants argued that it was not binding on them. 

Decision

The High Court had to consider various issues, including:

Validity of the powers of attorney: The court firstly considered whether the POAs had been validly executed as deeds as required by English law.  One requirement (amongst others) under English law is that the document must make clear on its face that it is intended to be a deed.  Even though they were described as powers of attorney and contained some formal language, the POAs here did not expressly state that they were, or were executed as, deeds, and no evidence was presented that the defendants or their US advisers knew that a deed was required under English law.

The High Court held therefore that the "face value" requirement had not been satisfied and that the POAs did not take effect as deeds. 

Scope of the powers of attorney: As the POAs were not valid deeds, the claimant further argued that, nevertheless, the documents still constituted informal appointments in writing of Mr Visan to act on the defendants' behalf – and on that basis that the guarantee was a simple contract which Mr Visan had validly executed on behalf of all the sellers on principal/agent grounds.  The court therefore had to decide whether the entry into the guarantee by Mr Visan fell within the scope of authority conferred by the POAs.  As simple appointments in writing, the court was entitled to have regard to the factual matrix against which they had been agreed.

In terms of the express wording used, the POAs stated that Mr Visan was appointed "to represent me, sign in my place and stead, and take other steps for my benefit, in connection with the completion of the sale…"  The court found that the power to "take other steps" had to be limited to steps taken in connection with completion of the sale (the purpose of the authority).  Evidentially, when the POAs were executed the commercial terms were mostly agreed, a completion date had been fixed and there was no apparent risk of a party withdrawing or seeking to re-negotiate.  The language in the POAs could not therefore be interpreted as a power to re-negotiate the commercial terms of the transaction: the guarantee involved an entirely new liability not in contemplation when the POAs were signed.

Therefore the signing of the guarantee fell outside the scope of the POAs.  Furthermore, the court found that even if the signing had been within scope, board minute evidence from the completion meeting suggested that the claimant had only required a personal guarantee from Mr Visan (notwithstanding the inclusion of all three sellers as signatories), so the guarantee could not be said to be "for the benefit" of the defendants (another key phrase of the POA scoping authority).

Validity of guarantee notwithstanding lack of witnessing: On the guarantee, only Mr Visan's signature against the second defendant's name had actually been witnessed, so the court also considered whether, had the POAs been deeds (with sufficiently wide authority), the guarantee would have been binding (as a deed) against that second defendant.

The court noted the presumption in law of joint liability, and that express wording would be needed to confer joint and several liability on the guarantors.  In this case, there was no such express or implied wording – so the lack of witnessing of two parties' signatures meant that the document was not binding on any of them, including the second defendant.

Comment

Whilst putting in place powers of attorney ahead of completion meetings is often carried out at speed and under significant time pressures, this decision illustrates the importance of adhering to substance, form and execution requirements.  It is important to ensure that:

  • the POA fully complies with the strict legal requirements so that it will constitute a valid deed when executed;
  • the scope of the POA is drafted clearly enough to allow for its envisaged purpose, so that it is always clear what actions an attorney is (or is not) authorised to take – if the nature of a transaction changes after a POA has been granted, it may sometimes even be necessary to execute new powers to avoid any uncertainty;
  • the POA (and any other completion documents) are correctly executed – for example, in terms of witnessing as well as compliance with execution formalities for different types of entity and any local law requirements.

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