What do a medieval bank, a litigious merchant and PCC/Series LLCs have in common?

Nigel Feetham is a senior partner at Hassans (a Gibraltar law firm) and Visiting Professor at Nottingham Law School, Nottingham Trent University.  Nigel is also the author and co-author of a number of books, including “Protected Cell Companies: a Guide to their Implementation and Use” which was recently cited by the judge in Pac Re 5-AT v. AmTrust N.A., Inc., No. CV-14-131-BLG-CSO, 2015 U.S. Dist. LEXIS 65541 (D. MT, May 13, 2015). He has consulted widely for clients internationally on cell captives.

To the uninformed observer the answer would be nothing, but an unlikely clue is to be found in a surviving report of fifteenth century litigation from the archives of Bruges.

In my book “Protected Cell Companies: a Guide to their Implementation and Use” (Spiramus Press, 2010, 2nd edition, N Feetham and G Jones), the Medici Bank (the Medieval bank owned by the famous Florentine family) is mentioned only tangentially as an early historical example of innovation in a business structure intended to segregate assets and liabilities.  In this article I propose to explain this in more detail in the light of this fascinating contemporary court record.

A scholar who studied the activities of the Medici Bank is the late professor Raymond de Roover in his impressive book “The Rise and Decline of the Medici Bank” (1966). In his book the author goes on to explain the legal status and organisational structure of the Medici Bank. He explains that the Medici banking structure innovation was that “the Medici banking house did not operate as a single unit [single partnership] but as a combination of partnerships all controlled by a ‘parent’ firm which included as partners the Medici and one or two outsiders”.

Professor de Roover is at pains to point out that each branch was a separate business – a medieval partnership, often called a ‘company’ but which is not to be confused with a modern company.

At the top of the Medici banking structure was what the author refers to as the ‘parent’ (another partnership), and each ‘subsidiary’ was a separate ‘branch’ (but, again, not to be confused with modern legal terminology) with its own capital, its own accounts and its own manager. Professor de Roover also points out that the organisation of the Medici Bank closely resembles a ‘holding company’, but with the proviso that it has to be understood that the Medici Bank was a combination of partnerships rather than of corporations or joint-stock companies, a form of organisation unknown in the Medieval Ages.

As the ‘holding company’ structure was a partnership (not a company in the modern sense) the Medici partners as ‘parent’ would have remained liable for the debts of the various branches and the Medici used a form of limited partnership under the laws of Florence (known as the accomanda or accomandita) when they were unwilling to assume responsibility for the debts of foreign branches. Under this structure the Medici Bank in Florence (a general partnership) would serve as the limited partner and the local manager in a foreign city would be the junior general partner. Another way of looking at this is that the Medici banking enterprise comprised multiple separate businesses within a larger business (not unlike a Protected Cell Company or Series LLC).

It should also be noted that the Medici Bank was not just a local banking concern; at its peak it had branches across the principal trading cities of Italy (which in the fifteenth century was not a unified country) and Europe, including Rome, Pisa, Venice, Milan, London and Bruges. Nor were the activities of the Medici Bank strictly banking in the modern sense; they also included manufacturing, commodity and other trading activities.

The reason why I am most interested in the Medici Bank is because its organisational structure for its foreign branches would have raised the same question from a pre-modern law perspective as today’s segregated business forms (Series LLC and the PCC): Could the liabilities of a foreign branch attach to the assets of another branch?

Commentators have often noted the lack of substantive case-law relating to the PCC and Series LLC as a reason for caution.  Yet here we have an innovative business structure being used in Medieval and Renaissance Europe to conduct the revived business of the age in a legal environment far removed from the clarity and certainty of our own modern system of law.


Of course, in carrying on increased commercial activities outside Florence, the Medici Bank was bound to run into legal disputes.  Indeed they did.  In his book, Professor de Roover recounts such a dispute which he cites as the case of Ruffini v Portinari, a lawsuit brought in the municipal court of Bruges on July 30, 1455, reported by the Bruges archivist, historian and lawyer Louis Gilliodts-Van Severen in his work in Cartulaire de I’Estaple, II, 36-37, No. 958 (1904).

He states the facts to be as follows. A Milanese, Damiano Ruffini, sued the Bruges branch of the Medici Bank for damages because of defective packing of nine bales of wool bought by the plaintiff from Simone Nori, manager of the London branch. Tommaso Portinari, as acting manager of the Bruges branch, denied all responsibility because the bales had not been sold by the Medici of Bruges and pointed out that Ruffini, if he had any claims, should bring action against the Medici of London. To this argument the plaintiff replied that the two branches were part of the same company and had one master. Thereupon Tommaso Portinari declared under oath that, while it was true that both branches had the same master, they were nonetheless separate partnerships, that one was not answerable for the other, and that the wool had been sold to Ruffini for account of the Medici of London, not of Bruges. The court, in its sentence, found for the defendant and dismissed the plea of the plaintiff with the reservation that it upheld his right to sue Simone Nori and the Medici company in London.

Portinari was not lying when stating under oath that the London branch was separate from the Bruges branch.  Although ‘separate’ here is not to be mistaken with the more modern concept of separate legal personality, this did not persuade the court to decide against the Medici Bank. Importantly, as in the case of a PCC and Series LLC, that legal separation necessitated accounting for, and maintaining, assets and liabilities separate.

It is therefore not surprising that in 1475 Agnolo Tani (the former bank manager of the Bruges branch who still had a share in the partnership) can be seen writing a report to demonstrate that the Bruges branch was not to be liable for the debts of the London branch (then in a perilous financial situation) repeating “perché la ragione di Londra era ragione da parte” (the London business is separate).

The court ruling that the Bruges branch was not legally responsible for the liabilities of the London branch, could well be the first court decision relating to the question of legal separation of assets and liabilities in various partnerships within the same business in different jurisdictions. It is easy to forget that this case dates back to 1455 when commercial law was still in its infancy.

Below, I have included a translation obtained by the present writer, albeit with the obvious caveat that the term ‘company’ is intended to mean ‘partnership’ and caution readers that some words in the original language are too archaic for a concrete definition today.

The case is particularly interesting for present purposes because the plaintiff’s argument is not dissimilar to the argument that a plaintiff could be expected to advance in the typical PCC or Series LLC dispute; in essence, that the cell or series are cells or series of the same entity, controlled by the same management and assets and liabilities should not be legally separated regardless of the intended legal structure. Likewise, the defendant’s evidence that the Bruges branch was legally and commercially separate from the London branch, is essentially what a PCC or Series LLC defendant would be expected to argue in foreign court proceedings; in other words, although the cell or series is not a separate de jure legal entity, each cell or series conducts its business activities as a de facto separate legal entity, with their assets and liabilities segregated from each other, even if they remain part of the larger PCC or LLC, and therefore not entirely independent from it.

Interestingly, it would not be the first time that an old case could come to the aid of a modern PCC defendant; in “Protected Cell Companies: a Guide to their Implementation and Use” we also cite the 1797 English case of Melan v The Duke de Fitzjames (1797) 1 Bos and Pul 138 and the US judgment of Judge Ware in 1831 in The Rebecca, Case No 11,619, District Court, D. Maine as providing possible assistance.

Whilst the Medici relied on an expectation that their banking structure would afford them legal protection if ever challenged by a litigious merchant or depositor, they could not have known where the law stood in the event of litigation before a foreign court.  It should be undeniable, however, that the legal case in favour of a PCC (therefore by implication, Series LLC), which entities are today widely used in international business transactions (principally for captive insurance) is significantly stronger given that the laws of many jurisdictions now contain PCC legislation (or similar statutory regime) and especially so with the globalisation of commerce and with well-established legal principles of comity.

It is certainly debatable what jurisprudential value the Medici banking case would have today, but still it cannot be ignored.  It is also court decisions like this that gave impetus to the revival of commerce in the Medieval Ages, which formed the cradle of modern capitalism. A court looking at a PCC dispute today and applying modern commercial reality could therefore draw some inspiration from it.

Translation from French into English

Cartulaire de I’Estaple, II, 36-37, No. 958 (1904)

  1. – 1455, 30 July.

Regarding and concerning the question and dispute existing between Damian Ruffin, merchant of Milan, petitioner on the one hand; and Thomas Portunari, merchant of Florence, as governor of the company named the company of Pierre de Medicis, Geroche de Piglis and co. in Bruges, defendant, on the other;

The said Damian stating that previously, he had purchased in the said city of Bruges from the said company nine sacks of English wool, for which he had paid in full and been entirely happy with; the said company had promised him that in the event of any faults in the packing of the said wool, it would make it good. And as a great fault had been found with the said packing, the said Damian requested restitution and compensation from the said company.

Upon which, the said Thomas stated that he was by no means bound to respond to the said Damian regarding the said request, as the said material had nothing at all to do with him or with the said company; and the said company had not sold him the said wool; but it was true that Thomas had sent the request of the said Damian to England, to Simon de Nory, resident in London, and recommended to him the said Damian for the purchase of the said wool; and the said wool was purchased from the said Simon, from whom he should request the said compensation, and not from him.

The said Damian responded to this that he had purchased the said wool in Bruges from the said company, responding in this regard to the oath of the said Thomas, and stating and maintaining that the said company and the company of the said Simon in England were one and the same company, and had the same master.

The said Thomas responded to this that although the said two companies do have the same master, each nonetheless carries out its own business, and the one is by no means obliged on behalf of the other. Altogether a number of other reasons were alleged on both sides.

The said full chamber of aldermen of Bruges stated, ordered and declared that the said Thomas must swear his oath, and hereby declare whether or not the said company of Bruges, or he on its behalf, had sold the said wool or not. And the said Thomas, by his solemnly established oath, said that neither he nor the said company of Bruges had by any means sold the said wool to the said Damian; but the said sale was carried out for and on behalf of Simon de Nory of London; and that the said company of Bruges had nothing to do with it.

The said full chamber of aldermen of Bruges declared and judged that the said Damian must drop his said request to the said company and Thomas, reserving the right for the said Damian to take action against the said Simon de Nory and the said company of London if law and reason so wish.

Filed on 30 July a˚ LV.

Register of civil sentences, in-fol., 1453-60, fol. 91 verso, no.2.

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