If your company is incorporated outside of the UK and is considering entering into an English law contract, or indeed if you are based in the UK but seeking to contract with an overseas company under English law, it is important to ensure that basic formalities are observed to avoid later arguments.
Here are some points to consider:-
1. Are the parties properly described in the contract?
The identities of the parties should be clear from the contract. As well as setting out the full legal name of the company it is important to ensure that its registered address, country of incorporation and registration number in the relevant company registry are included. If you are contracting with an overseas company UK Companies House provides a list of overseas registries around the world which can help you do a basic check here. If the overseas company is registered as such at UK Companies House the establishment name and number may be used.
2. Is the contract in the correct form?
It should be noted that English law does not generally require a contract either to be in writing (paper or electronic form) or signed to be enforceable. However, in most cases there will be some form of written agreement or correspondence and there are some important exceptions to this rule where the contractual terms must be in writing, such as the assignment of intellectual property rights and contracts involving rights in land.
Furthermore, certain types of contracts must be entered into in the form of a written "deed", notably contracts where there is no consideration (payment or other value) given, those relating to transfers of rights in land, charges/security over property and powers of attorney.
Deeds require a higher level of formality than other contracts – in addition to being correctly executed (see next paragraph) a deed must be clear from the face of the contract that it is intended to be executed as a deed and there must evidence of an intention to deliver the deed to the other parties and be bound by it.
3. Is it being executed correctly?
The Companies Act 2006 sets out the basic requirements to be met for a contract to be correctly executed by or on behalf of a company incorporated in the UK under English law (companies incorporated in Scotland also require to have regard to The Requirements of Writing (Scotland) Act 1995). The Overseas Companies (Execution of Documents and Registration of Charges) Regulations 2009 amend these rules to apply to overseas companies.
In short, an English law governed contract (including a deed) may be executed by or on behalf of an overseas company (i) by applying their common seal (if they have one), (ii) in any manner permitted by the laws of the company's place of incorporation applying to such contracts, or (iii) by a person who under the laws of the company's place of incorporation has authority from the company to do so and the contract states this to be the case.
This means, for example, that if a French company is entering into an English law contract the laws of France need to be considered when confirming who has authority to bind the French company and can execute it on its behalf.
For important contracts you may wish to see a board minute or equivalent approving the contract and obtain a legal opinion from a lawyer qualified in the relevant jurisdiction to provide comfort that the company is able to enter into the contract, is executing it correctly and that it will be valid and enforceable against the overseas company under its relevant jurisdiction.
Care also needs to be taken that any UK parties have observed the rules applying to them. Simple contracts may be executed on behalf of a UK company by anyone having authority to do so, however deeds require to be executed by the company acting by a director or attorney in the presence of a witness, or by two directors.
For convenience the parties may sign in counterpart (each executing their own copy and exchanging it with the other parties). Once the contract has been fully executed and delivered it should be dated.
4. Does the contract require to be registered?
If the contract involves assets located in England such as land, shares or registered intellectual property, additional formalities may be required to ensure the contract is fully effective. For example, a transfer of rights in land will need to be registered in the Land Registry and an assignment of a registered trade mark should be registered with the UK Intellectual Property Office. In these circumstances the relevant registry's additional requirements must be checked and specific legal advice taken.
5. Process agents
If disputes under an English law contract are to be settled in the English courts (rather than arbitration or other dispute resolution method) the parties without an address in the UK should be required to appoint an agent for service in the UK under the terms of the contract. The agent will often be a law firm or UK-based group company of the overseas company. This makes it simpler for the parties to initiate proceedings in the event of dispute.
6. Taxes
Finally, remember to take advice on the tax implications of the contract, particularly if it involves the transfer of UK assets.
At Brodies we can advise on all aspects of English law contracts, including providing legal opinions. If you would like to discuss any point in this article please contact your usual Brodies contact or a member of the Brodies corporate team.
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