Court of Appeal: ‘Putative’ law of contract is correct law where ostensible authority and ratification are concerned

About this case:

• Citation:
  [2023] IECA 225
• Judgment:
  External link
• Court:
  Court of Appeal
• Judge:
  Mr Justice Robert Haughton

Delivering judgment for the Court of Appeal, Mr Justice Robert Haughton considered that there was “no perfect formula for choosing the law by reference to which an Irish court should determine issues of ostensible authority or ratification involving (alleged) contracts with an international dimension”, but found that the “putative law approach” had much to recommend it.

Background

The plaintiff, an Irish-registered company, sought summary judgment against the defendants, both incorporated in Saudi Arabia, in the sum of $31,539,677.95 on foot of invoices issued under written agreements. The agreements contained a clause stating that they were to be governed by and interpreted in accordance with the laws of Ireland.

In the High Court, the defendants sought to set aside the service of the proceedings on them or to discharge the order of the High Court which granted service outside of the jurisdiction on the defendants.

The defendants contended that the persons who signed the agreements were not authorised by them to do so, and that the agreements were null and void. The defendants also argued that the first defendant did not contract with the plaintiff, but with Microsoft Arabia Co. Ltd.

The plaintiff responded that if the signatories did not have actual authority to bind the companies, they had at least apparent or ostensible authority to do so and the agreements had been ratified.

The plaintiff argued that the issues of ostensible authority and ratification were to be decided by reference to Irish law, being the choice of law in the contracts. The defendants asserted that the correct law was Saudi Arabian law, being the law of the seat of incorporation of the defendants.

High Court

Whilst the parties agreed that the test under Order 11, rule 1(e) of the Rules of the Superior Courts for service outside of the jurisdiction required that the plaintiff show “a good arguable case” against the defendants on the facts, the defendants argued that the plaintiff was also required to show that it had “the better of the argument”, a contention which the Mr Justice David Barniville rejected, and which was not appealed.

The court then considered which law should govern the issue of apparent or ostensible authority of an agent to enter a contract with a third party on behalf of its principal where that contract contains a choice of law clause, and which law should govern the issue of ratification.

Considering the question of actual authority, Mr Justice Barniville quoted with approval from Dicey, Morris and Collins on the Conflict of Laws (15th Ed.) (2012), finding that actual authority of the signatories to bind the defendants must be determined by reference to the law of the place of incorporation of the defendants, i.e. Saudi Arabia.

With regard to the issues of ostensible authority and ratification, the court noted that whilst there was no Irish authority on point, English cases such as Compania Navéra Micro SA v. Shipley International Inc [1982] 2 Lloyd’s Rep 351 and Habas Sinai Ve Tibbi Gazlar Istihsal Endustrisi AS v VSC Steel Company Ltd [2013] EWHC 4071 suggested that those issues should be decided by reference to Irish law as the “putative” proper law of the agreements.

The court noted in this respect that a third party who enters a contract with an allegedly unauthorised agent on the basis of a choice of law clause is reasonably entitled to believe that the law provided for is the one to be applied to questions of apparent or ostensible authority and ratification, with exceptions for good reasons such as unfairness.

The High Court determined that Irish law, being the choice of law in the contracts, was the correct law by which those issues should be decided, and found the plaintiff had a good arguable case, that the defendants had ratified the agreements and the authority of the signatories, and that the defendants were estopped from denying the existence and validity of the agreements by reference to Irish law.

The defendants appealed on a single ground, that Mr Justice Barniville erred in concluding that the court should apply the putative law of the contract instead of the law of the country of incorporation of the defendants.

Court of Appeal

Mr Justice Haughton reflected on the complexity of international commerce and the necessity for conflict of laws rules, noting that parties “will want certainty as to where, by what process, and under what law, disputes are to be resolved”.

The judge further emphasised that for the purpose of determining whether there is ostensible authority, “how the agent is perceived from the outside” is central to the issue, and endorsed the approach in Rule 244 of Dicey: “The issue whether the agent is able to bind the principal to a contract with a third party, or a term of that contract, is governed by the law which would govern that contract, or term, if the agent’s authority were established.”

Mr Justice Haughton considered the authors’ comments on Rule 244, that the rule was one responding to the “requirements of commercial intercourse”, in that “third parties must be able to assume, at least where an agent has no actual authority from its principal, that the agent’s authority covers everything which would be covered by the authority of an agent appointed under the law applicable to the contract made between the agent and the third party”.

Finding that these statements deserved “due weight”, the court noted that Ireland is an open economy which is heavily dependent on international trade and it must respond to the requirements of commercial intercourse, and in Mr Justice Haughton’s view, that was a good reason to adopt a similar approach to that in Dicey’s Rule 244.

Agreeing with counsel for the plaintiff that issues of ratification and ostensible authority are treated similarly in private international law, Mr Justice Haughton pointed out that this is consistent with regarding ratification as a form of estoppel preventing a contracting party from denying the existence of a contract, and viewed that way both issues concern representations which tie a principal into contractual obligations that it is estopped from denying, and it is therefore logical to apply the same governing law to both issues.

Conclusion

Dismissing the appeal and awarding the plaintiff its costs, Mr Justice Haughton concluded that the court “must choose some solution” and that “the putative proper law approach, while not perfect or entirely logical, has much to recommend it”.

Considering that the issue of exceptions to the “putative law” rule did not properly arise for consideration from the notice of appeal, the court commented obiter that whilst creating an exception for unfairness or exceptional circumstances seemed “attractive”, doing so “immediately gives rise to uncertainty”.

Microsoft Ireland Operations Limited v. Arabic Computer Systems & Anor [2023] IECA 225