The irrevocable mandate granted by way of security is an exceptional institute. It contains remnants of a mandate, whereby a person (a mandator) delegates legal authority to another (a mandatary) to execute certain legal acts. However, it also contains remnants of an assignment of a right or a contractual accord of an interest. It is considered exceptional in nature because, notwithstanding its dual nature, it can neither be defined as a pure mandate, nor as security in the normal sense.
Why can it not be defined as a pure mandate?
As a general rule, mandates are revocable in nature. This means that the mandator is entitled to revoke the authority he confers by way of certain pre-determined statutory provisions embedded in legislation, or by virtue of mechanics interposed within the mandates themselves. On the other hand, the irrevocable mandate granted by way of security, (as its name suggests) cannot be revoked. The irrevocable nature of the institute is however best described as relative irrevocability rather than absolute irrevocability. This is because the mandator is legally restricted from revoking such conferment only at its sole discretion. Thus, the mandator can revoke the mandate with the consent of the mandatary. Unless and until the mandatary concurs to terminate the mandate, and the interest of the mandatary subsists, the mandate continues in full force and effect. It is therefore more accurately said that, the irrevocable mandate granted by way of security may not be easily revoked by the mandator conferring it.
Why can it not be defined as security in the normal sense?
The irrevocable mandate granted by way of security is not a security in the normal sense, as unlike a property disposition, it does not actually transfer any rights in rem but permits a mandatary to accomplish certain tasks on behalf of the mandator without any need to refer to the latter in completing the same. The institute is considered to be ‘granted by way of security’ because a mandator agrees to confer irrevocable authority unto a mandatary to secure some benefit to the mandatary or a third party who need not be the mandatory himself. An irrevocable mandate seeks to ensure or guarantee the satisfaction of the mandatary’s interests or the interests of third parties. Unique to this institute is that, because it is ‘granted by way of security’, the relationship which exists between mandator and mandatary latches onto an underlying debtor-creditor relationship of an entirely separate transaction. As such, the
mandator is also a debtor under a separate transaction and the mandatary is his creditor in that same transaction, or is employed to act on behalf of a third party who is creditor in that separate transaction.
The dual nature of the irrevocable mandate granted by way of security has invoked confusion on the manner in which to characterise the institute. It is however opined that, irrespective of the scopes for which authority is conferred, even if it is conferred for security like purposes, whenever a party is granted the power to execute acts having legal effect on behalf of another, the law of agency or representation applies.
This article is based on the Adv LLM Thesis the author (Dr. Janine Camilleri Mizzi) submitted in fulfilment of the requirements of the Master of Laws: Advanced Studies Programme in International Civil and Commercial Law degree, Leiden Law School (Leiden University).