Powers of Attorney and Corporate Transactions

The recent Judgment of the High Court in Katara Hospitality (a company incorporated in Qatar) v (1) Gerard Guez and (2) Jacqueline Rose [2018] EWHC 3063 (“Katara Hospitality”) highlights the importance of ensuring the proper and valid execution of an instrument and also serves as a timely reminder of the importance of ensuring that the scope of an instrument is expressly set out if it is to be successfully relied upon.

Background

The case concerned the enforceability of a guarantee which was entered into in support of two agreements for the acquisition of a shareholding in a French Company.

Initially completion of the transaction was anticipated by the 14 September 2008, however the conditions to completion were not satisfied in time and completion was pushed back from October to November 2008.  The November date came and went and following further delay caused by additional negotiations a signing meeting was scheduled for the 28 December 2008.

Neither Mr Guez or Ms Rose were present at the signing meeting on the 28 December.  It was contended that Mr Guez and Ms Rose had entered into a power of attorney appointing Mr Visan as their attorney.  At the signing meeting, Mr Vizan had agreed a price reduction and purportedly agreed a personal guarantee to be entered into by Mr Visan, each of Mr Guez and Ms Rose under which, each seller agreed to pay to the investor the difference between the revised purchase price and amounts paid out in dividends and distributions to the shareholders for the 8 year period immediately prior to completion.

The investor had cause to call in the guarantee and it was their assertion that:

• The guarantee was validly executed as a deed;
• In the absence of the guarantee being validly executed as a deed, there was a contract pursuant to which the defendants had agreed to the assurances set out in the deed;
• That the extent of the powers of attorney and the scope of the attorney was sufficient to bind the defendants to the variation of the commercial terms and the entering into of the guarantee; and
• Power of attorneys from each of Mr Guez and Ms Rose had been entered into authorising Mr Visan to enter into the deed of guarantee on his and their behalf;

The Court considered each of the points in turn.

The defendants asserted that the powers of attorney were not valid deeds as they failed to comply with S1(2) of the Law of Property (Miscellaneous Provisions) Act 1989 in that for an instrument to be made a deed, it must make it clear on its face that it is intended to be a deed.  On the evidence, the Judge ruled that expressing that an attorney is “appointed as [a] true and lawful attorney” and the fact that other documents were entered into as deeds as part of the transaction were not sufficient to satisfy the requirements of the 1989 Act.

It was held therefore that Mr Visan’s appointment took effect as an appointment in writing only and therefore as the power of attorney was not entered in to as a deed, the attorney could not then enter into any subsequent deed on behalf of the principal by virtue of S1 of the Power of Attorney Act 1971.  However, as the claimant’s primary case was that the deed was relied on as a contract, it did not necessarily follow that the guarantee fell away…

The defendants asserted that the guarantee in any event only conferred specific authority on Mr Visan to sign documentation in connection with the share sale and only to act for their benefit.  In considering the wording “…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 held that broad construction could not be given to wording in a power of attorney – that construction has to be interpreted in a way that limits the application to steps in connection with the purpose for which the authority is given.

The Court also had regard to the factual context, in interpreting the language of the power of attorney and the Court made the point that broad language in a power of attorney should not be construed as authorising an attorney to enter in to new liabilities which were not contemplated by the principal at the time the power was entered into.

The guarantee had been signed by each of Mr Visan, Mr Guez and Ms Rose, but on the evidence, the Court found that only one of the signatures had been witnessed.  On the evidence, the Court held that the document could not be construed as imposing several liability on the parties and therefore, the obligations were joint.  The Court dismissed an argument that the guarantee could therefore be enforceable against the only signatory whose signature was witnessed as the joint obligation ran to the core of guarantee and to do would result in a re-writing of the contract between the parties expressing an intention different to that which was intended.

Conclusion

The Judgment of the Court given in November 2018, highlights a number of points when considering the use of powers of attorney to execute documentation in corporate transactions:

• The construction of the power of attorney document must be carefully considered to ensure that S1(2) of The Law of Property (Miscellaneous Provisions) Act 1989 are complied with if the power is to be validly executed as a Deed or of the attorney needs to enter into deeds as part of their appointment;
• The appointment documentation must be drafted to ensure it specifically authorises the acts required – broad wording will be narrowly construed; and
• As with all documentation, care must be taken to ensure that all Deeds and documents are validly executed and attested.

In giving her judgment, The Honourable Mrs Justice Moulder in considering the evidence gave weight to the fact that commercial negotiations had been concluded on 18 December which was on or around the date that the power of attorneys were entered into.  The lawyer acting for the principals had stated that they were drafted to cover any “last minute changes” requiring the completion documents to be “re-signed”.  The Judge agreed with the view of the defendants that this meant that the powers of attorney conferred a power to act in connection with the completion of the sale contemplated as at the time the powers of attorney were entered into and the wording could not be inferred as to be so broad that it allowed the attorney to negotiate further terms.

Powers of Attorney are seen as an invaluable tool when facilitating many types of commercial and corporate transactions, quite often transactions and arrangements move at pace and terms can often be agreed and changed late in the process – this case highlights the need to ensure continual review of any power of attorney documentation to ensure that it is clear that any subsequent alterations or amendments are covered by the scope of that appointment document.