Background
Shapoorji Pallonji UK Ltd obtained a construction contract for a Barking development. Ion Insurance issued a £3.5 million on-demand bond in favour of the employer, Sherhill (Barking) Ltd. Ion Surety reinsured Ion Insurance and required a cross-company indemnity (CCI) from Shapoorji Pallonji Mideast LLC (SPME), the defendant.
The CCI was signed by Robert O’Leary for SPME, accompanied by a board minute concerning the CCI and parent-company guarantee. After Sherhill demanded payment under the bond and sued, Ion Insurance settled for £3,657,684.29. Ion Surety reimbursed 97.5% under reinsurance arrangements. SPME refused Ion’s demands, contending principally that Mr O’Leary lacked authority to execute the CCI.
The Court’s Holding
Deputy High Court Judge Adrian Williamson KC held that the CCI was binding on SPME. Applying Dubai law to actual authority, the court found that Mr Kakkar, SPME’s manager under its memorandum of association, had delegated authority to Mr Saini, who in turn delegated authority to Mr O’Leary. The board minute, the parties’ contemporaneous correspondence and the absence of explanatory evidence from relevant SPME senior managers supported that conclusion.
In any event, the court held that SPME had clothed Mr O’Leary with apparent authority under English law. Ion reasonably relied on the board resolution, SPME’s accounts and its memorandum of association, and had not been put on inquiry or failed to make reasonable enquiries. Ion Surety had incurred a liability, cost, expense or loss by virtue of the bond through its reinsurance obligation, and validly demanded payment. SPME was liable to Ion Surety for the CCI’s £3.5 million cap.
Key Takeaways
- A company may be bound where authority is inferred from the documentary record, corporate resolutions and the commercial context.
- A mistaken description of a signatory as “Manager” did not prevent the CCI binding SPME where the signatory had actual authority.
- Alternatively, a counterparty may rely on apparent authority where it reasonably relies on company representations and is not put on inquiry.
Why It Matters
The decision illustrates the importance of contemporaneous documents in disputes over authority to execute guarantees and indemnities. A company that supplies a resolution and allows senior personnel to present an executed indemnity to procure a bond may face substantial difficulty later denying the signatory’s authority.
It also confirms that internal arrangements between a surety and its affiliated bond issuer do not create a “black hole” where the indemnity covers liabilities incurred by virtue of the bond and permits protection of a procured surety’s interests.