Indeed I do – why you must take care over the preparation and execution of deeds

Date: Tuesday, October 22nd, 2019 by Michaela Hickson.

Whilst we live in a progressively technological world, where e-signatures, video calls and social media notifications are fully enshrined in daily activity, it is essential to remember that legal documents carry a solemnity and consequent requirements for formality that contain traps for the unwary.  This was very much in evidence in the recent case of Katara Hospitality v Guez, which provides useful insights into deeds, powers of attorney (POA) and personal guarantees.

Katara involved a completion meeting in Qatar, concerning the sale of shares in a well-known hospitality business. In the old days, such meetings would involve many participants filling the room, but on this occasion neither the defendants nor their lawyers were present. Nowadays, empty chairs are not an unusual aspect of the finalisation of deals and arrangements were put in place here for V (founder of the business and authorised person) to sign on the defendants’ behalf. The deal had essentially been agreed and V was appointed as an attorney for the defendants under two POA, which were to be completed as deeds. So far, so normal.

It was established by the court that the POAs were there for V to re-sign the deal documents if there were any late minute changes, but they did not authorise V to enter into a transaction on different commercial terms to those agreed. The POAs were drafted by a US lawyer, described as Powers of Attorney and contained language of a type that might be seen in a deed, but they were not expressed to be by way of deed, nor (importantly) were they executed as deeds.

On the day of the completion, things took a new turn. The claimant wanted the defendants and V to enter into personal guarantees, to cover the potential liability for the difference between the purchase price and the value of dividends received by the claimant over some eight years post completion.

The personal guarantee (PG) was drafted on the day and executed as a deed by V for himself and as attorney for the defendants, but only the signature of the second defendant was witnessed. (Readers’ apprehension levels may now be rising). As a significant aside, the PG was silent on whether the liability of the guarantors was joint, several or joint and several. The presumption under English law is that in such circumstances, there will be joint liability. As things unfolded, there was a difference of some 65 million euros between the purchase price and value of dividends post completion. The claimant, in reliance on the POA’s and PG, sued the defendants to recover the difference.

The validity of deeds is governed by section 1(2) Law of Property (Miscellaneous Provisions) Act 1989, which provides that: “An instrument shall not be a deed unless—(a)  it makes it clear on its face that it is intended to be a deed by the person making it or, as the case may be, by the parties to it (whether by describing itself as a deed or expressing itself to be executed or signed as a deed or otherwise); and (b) it is validly executed as a deed…”

The court was not satisfied that the POAs met the “face value” requirement of section 1(2)(a) of the LPMPA, nor that they were validly executed as a deed under section 1(2)(b). They were therefore invalid appointments as POA’s under the Power of Attorney Act 1971, although they might take effect as an appointment in writing. The courts will interpret such appointments more liberally.

The court went on to decide that in any event, the PG was not contemplated when the POAs were signed and the defendants’ authority was limited to enabling V as the authorised person to re-sign documents agreed by the defendants. Furthermore, as the final dagger blow, only one signature on the PG’s was witnessed and as joint liability was presumed, no party to the PG could be liable and accordingly the claimant’s substantial claim would fail against all guarantors.

The brutal consequences of Katara are a timely reminder, for those seeking to rely on the validity of deeds, of the need to make sure that they meet the face value and execution tests of the LPMPA 1989. For powers of attorney, make sure that the attorney’s authority is clearly expressed and that any actions taken sit squarely within the four corners of that document. For personal guarantees, remember that in the absence of election between joint, several and joint and several liability, the presumption is joint liability, so any mistakes in the preparation and execution of them may lead to no remedy at all.