CONFLICT OF LAWS: COMPANIES

This is English conflict of laws rules on corporations (that is, companies and other legal persons). It covers the rules determining the domicile and residence of a corporation, and the system of law which governs its status, internal management and capacity to enter into transactions, in cases with a foreign element. The rules on cross-border corporate insolvency are discussed separately in Conflict of Laws: insolvency.

Domicile and residence: There are two different sets of definitions of domicile and residence of corporations: the first at common law for general purposes, and the second under EU Regulations for the purposes of the jurisdiction of the court and the law applicable to certain claims.

Under the common law definition, a corporation is domiciled in the country under whose law it is created. (This rule arose by analogy with the common law domicile of origin for individuals, which was determined by their place of birth). Thus, a company incorporated in France is regarded by the English courts as having a French domicile, regardless of where French law would consider it domiciled. Within the UK, a company incorporated under the Companies Act 2006 and registered in England has an English domicile, while one registered in Scotland has a Scottish domicile. The domicile of a corporation is separate from the domicile of its members.

The residence of a corporation is relevant for determining its liability for UK taxation. All companies incorporated in the UK are resident there, at least for taxation purposes. Under English conflict of laws rules, foreign-incorporated companies have their residence in the place where the central management and control of the company's business is found. This is irrespective of what the law of the foreign state would say about the company's residence. This will usually lead to only one place of residence, although in exceptional cases there can be more (for instance as found in Swedish Central Railway Co Ltd v Thompson [1925] A.C. 495.)

When determining whether the English court had jurisdiction over a company, the relevant definition of the company's domicile is found not in the common law rules, but rather in Regulation 1215/2012 on jurisdiction and the recognition and enforcement of judgments in civil and commercial matters (recast version), art.63 (the "Brussels Regulation") (for proceedings started before 10 January 2015, art. 60 of the original version, Regulation 44/2001, in identical terms). Under the Regulation, companies and other legal persons are domiciled in the place of their "statutory seat", central administration or principal place of business. For UK (and Irish and Cypriot), companies, "statutory seat" means the registered office or, where there is no such office, the place of incorporation or, where there is no such place, the place under whose law of which the company was formed. Under this test, a company can be domiciled in several states at the same time. The domicile of companies for the purposes of jurisdiction as between different parts of the UK is determined in a similar way by the Civil Jurisdiction and Judgments Act 1982, s.42.

Certain applicable law rules depend on a company's "habitual residence", including some of those in Regulation 593/2008 on the law applicable to contractual obligations ("the Rome I Regulation") and Regulation 864/2007 on the law applicable to non-contractual obligations ("the Rome II Regulation"). In those cases, habitual residence means the place where the company has its central administration: art.19 and art.23 respectively.

Service of documents on overseas companies in England: Service of English court proceedings can be effected on overseas companies (that is, those incorporated outside the UK) which have branches or places of business in England, under rules found in the Companies Act 2006 Pt 34 and the Overseas Companies Regulations 2009/1801. An overseas company must register particulars in England and give particulars of persons who are authorised to accept service of document on behalf of the company, or a statement that there is no such person. Under the Companies Act 2006 s.1139(2) proceedings can be served on an overseas company whose particulars are registered by either (i) leaving it at or posting it to the registered address in the UK of a person who is authorised to accept service, or (ii) leaving it at or posting it to the company's place of business in the UK. In cases outside the Brussels Regulation, the English court will have jurisdiction over a foreign company served with proceedings in England.

The question of whether a foreign company is present in England (or another country) via a representative was extensively considered by the Court of Appeal in Adams v Cape Industries Plc [1990] Ch. 433. The principal test is whether the representative has the power to contract in England on behalf of the foreign company. Additional factors includes whether a purported representative of the company has a fixed place of business in England, whether he was remunerated by the company for acting for it and in what way, the degree of control the company exercised over him, whether the representative made contracts in the name of the company and whether he needed specific authority to do in order to bind the company.

Status: The status of a foreign corporation depends on the law under which it is formed. The English court will recognise its existence and dissolution as determined by the foreign law. Companies registered in foreign states are thus recognised in English law and can both sue and be sued as companies in England (subject to the rules on jurisdiction). A company in the process of being wound up under a foreign law can still sue and be sued in England, in the same way as English companies. But, once the winding-up process has ended and the company is dissolved under the foreign law, then it is also regarded as "dead" by the English court.

Whether a foreign company has been amalgamated into another is also determined by the law of its place of incorporation. If that law provides for universal succession of all assets and liabilities of the original company, then this will be recognised by the English court. However, liabilities of the new company can only be discharged by law of the place of incorporation if that law governs those liabilities.

It is usually simple to determine the law of the place of incorporation and thus the status of the foreign corporation. But, in the case of states unrecognised by the UK Government, the Foreign Corporations Act 1991 applies. Under s.1, where the unrecognised state has laws applied by a settled court system, questions of the legal personality of the corporation will be determined by those laws. Where two rival states claim sovereignty over a territory, the English court will apply a realistic view of which laws are actually applied in the territory.

Capacity: A corporation's capacity to enter into transactions is determined both by its constitution (interpreted according to the law of the place of incorporation) and by the law governing the transaction. The corporation will be limited by restrictions in either one of these legal systems. For instance, a corporation which cannot hold land under its constitution (or under the law of the place of incorporation) has no power to do so anywhere in the world, even in a country where local corporations can do so. Similarly, a corporation which can hold land under its constitution cannot do so in a country where ownership by companies or by foreign persons is not permitted.

It was held by a majority of the Court of Appeal (Aikens and Pill L.J.J.) in Haugesund Kommune v Depfa ACS Bank [2010] EWCA Civ 579; [2012] Q.B. 549 that "capacity" was to be given a broad, "internationalist" meaning, and referred to the legal ability of a corporation to exercise rights, such as to enter into contracts (in that case, Norwegian local authorities were prevented from entering into interest swap contracts). A lack of substantive power to do something was equivalent to a lack of capacity. Those powers were determined not just by the corporation's charter and articles of association, but by all sources of law in the place of incorporation, including statutes and other rules of law. The consequences of a lack of capacity or power on the transaction are determined by the law governing the transaction. Dissenting on this issue, Etherton L.J. considered that the concept of capacity should be confined to its narrower meaning in English law, which is related only to the question of whether an act is ultra vires the company, and should not be equated with the substantive power to do an act.

This was further discussed by the Court of Appeal in Integral Petroleum SA v SCU-Finanz AG [2015] EWCA Civ 144; [2015] Bus. L.R. 640, which held that where the law of the company's place of incorporation imposed requirements on how the company entered into contracts (in that case, Swiss law required two registered signatures for a contract to be binding), the issue of a breach of those requirements was governed by the law of the place of incorporation, and not by the law governing the contract. The Court held that this defect was not a matter of "formal invalidity" of the contract (which, under art.11 of the Rome I Regulation, is governed by the law of the contract) but rather a lack of authority of a single signatory to bind the company to the contract in the first place. A recent illustration is found in Banco Santander Totta SA v Companhia de Carris de Ferro de Lisboa SA [2016] EWHC 465 (Comm); [2016] 4 W.L.R. 49, in which a Portuguese transport authority entered into a swap contracts with Portuguese bank governed by English law but later argued that they lacked the capacity to do so. The court applied Haugesund and determined the issue as a matter of Portuguese law (outside the scope of the contracts and thus English law), holding that the authority had capacity since the contracts could have helped them to operate a transport system at a profit.

Execution of documents: The Companies Act 2006 ss.43, 44 and 46 govern the formalities of the making of contracts and the execution documents and deeds by English companies. They also apply to overseas companies doing business under English law, with the modifications specified in Overseas Companies (Execution of Documents and Registration of Charges) Regulations 2009/1917 reg.4.

Under the modified s.43, an overseas company can make a contract under English law by writing under its common seal, or in any other manner permitted by the law of the place of incorporation. A contract can be made on behalf of an overseas company by a person who, under the law of the place of incorporation, has the express or implied authority of the company.

Under the modified s.44, a document is executed by an overseas company by the affixing of its common seal or by any other manner permitted by the law of the place of incorporation. A document signed by a person who has express or implied authority company under the law of the place of incorporation and is expressed to be executed by the company is treated in the same way as would a document executed by an English company. A document which purports to be signed in accordance with this provision is deemed to be properly executed as regards a purchaser of the company's property in good faith for valuable consideration.

Under the modified s.46, deeds are validly executed by an overseas company if they duly executed by the company and are "delivered as a deed"; that is the person executing it intends to be bound by it. But, delivery in this sense is presumed to occur upon execution unless the contrary is proven.

It appears from the discussion by the Court of Appeal in Integral Petroleum SA v Scu-Finanz AG that these regulations have a limited scope. At para.52, the Court suggested, without forming a concluded view, that the regulations only concerned the formalities of execution (as was said obiter in Habas Sinai Ve Tibbi Gazlar Istihsal Endustrisi v VSC Steel Co Ltd [2013] EWHC 4071 (Comm); [2014] 1 Lloyd's Rep. 479). The Court held that the regulations did not govern the question of whether a document was executed by a person who has authority to bind the company (in that case, only one registered signatory, when the law of incorporation required two).

Internal management: All matters concerning the constitution and internal management of a corporation are determined by the law of the place of incorporation. This covers principally the corporation's membership and powers, the appointment of directors and claims to enforce directors' duties, the question of who may act for the corporation (including the right to bring derivative actions: Konamaneni v Rolls Royce Industrial Power (India) Ltd [2002] 1 W.L.R. 1269), the extent of members' individual liability for debts and the process by which the corporation can transfer assets and liabilities on merger. These matters fall outside the scope of the Rome I and Rome II Regulations: art.1(2)(f) and art.1(2)(d) respectively.

The English court will rarely, if ever, be an appropriate jurisdiction to raise these matters in relation to foreign corporations. In EU cases, Brussels Regulation art.24 (art. 22 in the original version) gives exclusive jurisdiction to the courts of the member state in which the corporation has its statutory seat (discussed above): art.24(2) covers the constitution of companies and the validity of decisions of their organs, while art.24(3) covers the validity of entries in public registers, such as Companies House entries in the UK.

In non-EU cases, the English court will rarely have jurisdiction over these matters and, even if it does, it will often decline to exercise it on the grounds of forum non conveniens. The English court will often give "reflexive effect" to Brussels Regulation, art 24, that is, applying the Regulation by analogy in a case concerning a company domiciled outside the EU in situations where it would apply directly if the company were domiciled in the EU: Ferrexpo AG v Gilson Investments Ltd [2012] EWHC 721 (Comm); [2012] 1 Lloyd's Rep. 588. Similarly, the English court's jurisdiction over the governance of an English company will not be ousted, even if there is an underlying dispute in a foreign court relating to the shares in the company: see, for instance, Zavarco Plc, Re [2015] EWHC 1898 (Ch).