Microsoft Ireland Operations Ltd v Arabic Computer Systems and Another

• Jurisdiction: Ireland
• Judge: Mr. Justice Robert Haughton
• Judgment Date: 22 September 2023
• Neutral Citation: [2023] IECA 225
• Court: Court of Appeal (Ireland)
• Docket Number: Court of Appeal Record Number: 2020/270

Between/

Microsoft Ireland Operations Limited

Plaintiff/Respondent

and

Arabic Computer Systems

First Named Defendant/Appellant

and

National Technology Group

Second Named Defendant/Appellant

[2023] IECA 225

Whelan J.

Faherty J.

Haughton J.

Court of Appeal Record Number: 2020/270

High Court Record Number: 2018/1057 S

THE COURT OF APPEAL

Putative law – Ostensible authority – Ratification – Appellants appealing from High Court judgment – Whether in determining questions of apparent or ostensible authority, or of ratification, the Court should apply the putative law of the disputed contract as distinct from the law of country of incorporation of the company whose agent’s acts are under consideration

Facts: The High Court (Barniville J), on 20 October 2020, concluded that questions of apparent or ostensible authority, and related issues such as estoppel and ratification, arising in relation to the formation of international contracts should be determined by reference to the putative law of the agreements at issue, which in light of express choice of law clauses in each of three agreements at issue was Irish law, as distinct from the law of the country of incorporation of the defendant/appellant companies, Arabic Computer Systems and National Technology Group, being the law of the Kingdom of Saudi Arabia, as contended for by the appellants. The appellants appealed to the Court of Appeal on the sole ground that the trial judge erred in concluding that: “in determining questions of apparent or ostensible authority, or of ratification, the Court should apply the putative law of the disputed contract as distinct from the law of country of incorporation of the company whose agent’s acts are under consideration”. The appellants’ core position before the Court of Appeal, as it was in the High Court, was that the choice of the putative or proper law of the disputed contract, while supported by several English authorities, was circular and illogical, and was not supported by certain English academic writers. The appellants posed the rhetorical question: ‘can what they assert is the unauthorised and legally ineffective act of entering into a contract governed by Irish Law, make Irish law applicable in analysing questions of ostensible authority and ratification?’ Mr Lewis S.C., counsel for the appellants, argued that this question had never been definitively answered in Ireland’s jurisdiction, and that because of the illogicality of the rule: (a) the Court of Appeal should depart from the English authorities; and (b) it should hold instead that the law of the country of incorporation of a company should govern questions of ostensible authority and ratification.

Held by Haughton J that the putative proper law approach, while not perfect or entirely logical, had much to recommend it: firstly, it recognised the importance to a third party contractor, such as the plaintiff/respondent, Microsoft Ireland Operations, dealing with agents, of being able to assume that the agents have authority that covers everything that would be covered by the authority of an agent appointed under the law applicable to the contract made between the agent and third party; secondly, it provided the certainty and uniformity that is desirable in a rule of private international law that seeks to identify the law by reference to which issues of ostensible authority and ratification are to be determined; thirdly, it was well established in English jurisprudence, and had withstood the test of time, a direct challenge in Habas Sinai Ve Tibbi Gazlar Istihsal Endustrisi AS v VSC Steel Company Ltd [2013] EWHC 4071, and academic criticism; fourthly, the rule recognised the choice of law of the third party and agent in the contract documents; fifthly, no logic, precedent or academic commentary supported the appellants’ alternative proposition that the law of the seat of incorporation of the appellants should apply to the issues of ostensible authority and ratification. Haughton J held that Irish law was the law by reference to which the issues of ostensible authority and ratification arising in the proceedings should be determined.

Haughton J dismissed the appeal. He proposed that the respondent do recover their costs of the appeal from the appellants jointly and severally, such costs to be adjudicated by a legal costs accountant in default of agreement.

Appeal dismissed.

UNAPPROVED

JUDGMENT of Mr. Justice Robert Haughton delivered on the 22nd day of September 2023

1 . The following appeal arises out of the judgment of Barniville J. delivered on 20 October 2020 and concerns a single ground of appeal raising a net issue of private international law that does not seem to have been previously decided in this jurisdiction, although it has been the subject of many English decisions and much academic commentary.

2 . The trial judge concluded that questions of apparent or ostensible authority, and related issues such as estoppel and ratification, arising in relation to the formation of international contracts should be determined by reference to the putative law of the agreements at issue, which in light of express choice of law clauses in each of three agreements at issue was Irish law, as distinct from the law of the country of incorporation of the defendant/appellant companies being the law of the Kingdom of Saudi Arabia, as contended for by the appellants.

3 . Before addressing the appeal it is appropriate to record the outcome of a preliminary matter that arose at the hearing before this court, and for that purpose it is necessary to refer to what occurred in the High Court.

4 . The trial judge's conclusion on the issue under appeal was reached as part of his reasoning for refusing an application by defendants/appellants under O. 12, r.26 RSC seeking to set aside service of the proceedings on the defendants in Saudi Arabia, or alternatively, discharging the order of the High Court (McDonald J.) granted ex parte on 21 August, 2018 permitting service on them outside the jurisdiction pursuant to O.11, r.1(e)(iii) RSC on the basis that the action was to enforce a contract “(iii) by its terms or by implication to be governed by Irish Law…”. However the trial judge's conclusion on the issue does not form part of his order as such.

5 . The appellants had contended in the High Court that the persons who signed the agreements between Microsoft Ireland Operations Limited (“Microsoft Ireland”) on the one side and Arabic Computer Systems (“ACS”) and National Technology Group (“NTG”), both companies incorporated in Saudi Arabia (NTG being the parent of ACS), on the other side, were not authorised so to do, and that as a consequence the contracts were null and void. They further contended that ACS did not contract with Microsoft Ireland, but maintained that its contractual arrangements were with Microsoft Arabia, a Microsoft Ireland subsidiary registered under the laws of Saudi Arabia. Microsoft Ireland responded that if the signatories did not have actual authority, they did have apparent or ostensible authority to sign on behalf of ACS and NTG, and further the agreements were thereafter ratified.

6 . In the High Court the parties agreed that the test under O.11, r.1(e) RSC required the applicant for service outside the jurisdiction to show a “good arguable case”, but the defendants contended that this test required Microsoft Ireland to show that it had “the better of the argument”. A significant part of the judgment was concerned with the trial judge's rejection of that contention, and he concluded:

“117… I prefer to approach the test on the basis that it is a flexible test which is not conditional upon the relative merits of the case on jurisdiction and which can be satisfied by the plaintiff establishing a sound and plausible case on the facts and on the evidence that the claim falls within one of the paragraphs or sub-rules of O.11, r.1 RSC, even though the case is contested by the defendant…”

That aspect of the High Court judgment has not been appealed.

7 . The trial judge then proceeded to consider what law should govern the issue of apparent/ostensible authority of an agent to enter into a contract with a third party on behalf of its principal where that contract contains a choice of law clause, and also what law should govern the issue of ratification raised by Microsoft Ireland. He decided that Irish law as the choice of law in the contracts was the law by reference to which these issues should be decided, and I will refer later in this judgment to his reasoning.

8 . The trial judge then applied Irish law to the facts and concluded, in para.199, that Microsoft Ireland had established “a good arguable case” (he also held that in any event in his view it had “the better of the argument”) that the three agreements at issue were valid and enforceable and had been signed on behalf of ACS by persons with apparent or ostensible authority to do so, adding –

“…I am also satisfied that Microsoft Ireland has put forward sufficient evidence on affidavit and has advance sufficient arguments to demonstrate that its case on apparent or ostensible authority is, both on the law and on the facts, reasonably capable of being proven at trial.”

In paras. 201 and 202 the trial judge expressed the view that Microsoft Ireland had also demonstrated on the affidavit evidence a “good arguable case”, and indeed “the better of the argument”, that the agreements were ratified by ACS and binding on the defendants.

9 . At the commencement of the hearing of this appeal the court queried whether it should hear the appeal given that the Notice of Appeal did not seek to set aside the order High Court or remove the proceedings from the jurisdiction of the Irish High Court, and expressed the concern that it would be open at the trial of the action for the appellants to argue de novo that the law of the seat of...