Powers of attorney: the requirements
A power of attorney can only be given by deed and the following formalities must be satisfied:
- the deed must be in writing;
- it must be made clear that it is intended to be a deed (this can be done by using wording such as “by way of deed…” at the start of the instrument and “executed as a deed” at the end);
- the deed must be validly executed as a deed by the principal (in the case of an individual, this means that it must be signed by the principal in the presence of a witness who then attests the principal’s signature); and
- the deed must be delivered, at which point it will bind the principal (under common law, a deed is delivered when a party indicates an intention to be bound by it). Delivery is usually addressed in the deed by using wording such as “This deed is delivered on the date at the start of this deed”.
If a document containing a power of attorney does not satisfy these requirements for a deed, it will not be valid. This means that the attorney will have no authority to bind the principal. If the power of attorney does satisfy the requirements, the principal will not be bound by any acts of the attorney which fall outside the scope of the power.
Powers of attorney are often used to complete transactions where a party will be absent from the completion meeting. In Katara Hospitality v Guez  EWHC 3063 (Comm), three shareholders had agreed to sell shares in a company. Two of the shareholders were unable to attend the completion meeting so their US lawyer arranged for them to sign powers of attorney in favour of the third shareholder. The documents were described as powers of attorney and their signatures were appropriately witnessed. But the word ‘deed’ was not used anywhere in the documents.
At the completion meeting, the attending shareholder, relying on the two powers of attorney, signed a guarantee on the absent shareholders’ behalf. At a later point, the beneficiary of the guarantee made a claim under it, at which point the absent shareholders claimed that they were not liable as the powers of attorney were not valid.
The High Court agreed. It was not convinced that the shareholders, or their US lawyer, understood the English law requirements for a power of attorney and that it must be executed as a deed to be valid. The document was simply described as a power of attorney and this was not sufficient for the court to infer that the parties intended the document to be classed as such.
Agency and scope
A power of attorney which fails to meet the strict requirements may still result in an agency arrangement, where the attorney is appointed as agent of the principal. An agent in this scenario will have authority to act on behalf of the principal if the act falls within the scope of the authority conferred on the agent.
The High Court reached this conclusion as the document could still take effect in writing. The shareholder who attended the completion meeting was appointed as agent of the absent principals. But the execution of a guarantee, which was a new document, prepared and agreed at the completion meeting, was not within the scope of authority granted to the agent.
The powers gave the agent the authority to sign documents “in connection with completion” of the transaction. The powers of attorney were sent to the buyer’s solicitor along with a statement that they were to be used “in the event there are any changes that require documents to be re-signed”. When the powers of attorney were executed by the absent shareholders, the guarantee was not in their contemplation as at that point it did not form part of the completion documents. It was not a document which required “re-signing” but was a completely new document, negotiated and agreed at the completion meeting. It was held that the agent was not authorised to sign the guarantee on behalf of the other shareholders.
Importance of execution
This decision confirms that simply describing a document as a ‘power of attorney’ will not be sufficient to create a legally binding power. Each of the individual requirements for the creation of a deed must be satisfied.
It also reminds us of the importance of checking what the deed actually allows the attorney to do.
If you are asked to rely on another party signing via a power of attorney, you must confirm that the power has been properly granted and that the act being contemplated is within the attorney’s authority. If this is not the case, any documents signed or executed under that power of attorney are likely to be invalid and not legally binding.
This post was written by Harvinder Kandola
For further information please contact:
Harvinder Kandola, Solicitor, Banking Unit
T: 0121 202 1464