Introduction
It is becoming less and less common for parties to a transaction to meet up in the same room to complete or close a deal. Nowadays, the parties will often choose to transmit documents by email or fax (with an undertaking to exchange original signed documents after completion has taken place).
In theory, these virtual completions should not pose too much of a problem. However, in practice, completion can be a fluid process with the final terms of the documentation being negotiated/amended at the last minute. Often final form documentation will be agreed just a few minutes before parties sign. It has also been common to see pre-signed execution pages, being appended to later versions of the documentation (often referred to as recycling!).
Parties are obviously keen to make sure they have binding documents but want to maintain the efficiencies/advantages of modern technology.
How documents are completed
The documents in a corporate transaction are usually signed/executed by the respective parties ahead of completion. They will then usually be exchanged with the other side’s solicitors but expressed as being “held to our order pending completion”. Once both the parties are happy that everything is in order (including the satisfaction of any condition precedents) the solicitors will then agree to the release / delivery of their parties signed documents and completion will occur.
If one or more parties have signed earlier versions of the documents, say with one party signing a document where the signature page is numbered page 8 and the other party has signed a signature page numbered page 10 there is a risk that the whole agreement will be in doubt.
Mercury case
The High Court visited the issue of recycled signature pages in the case of R (on the application of Mercury Tax Group and another) v HMRC [2008] EWHC 2721 (“Mercury”). In the case, Mercury Tax Group Limited had set up a tax reduction scheme for its clients. HMRC obtained warrants to search the premise of Mercury Tax Group Limited and seize certain documents relating to the tax scheme. When applying for the warrant, one of the arguments that HMRC submitted was that the signature pages to the documents had been recycled by Mercury Tax Group Limited from earlier drafts, thereby making the arrangements invalid.
The court held that signature pages should form part of the same physical document for a deed to be valid. This means, for example, that it is not possible for signature pages from older versions of documents to be recycled by reattaching them to a final version of a deed.
The distinction between a deed and an ordinary contract/agreement is important. Certain types of instrument, for example, those creating an estate in land, a power of attorney or a mortgage or charge must be expressed to be executed as deeds. Otherwise, there are certain advantages to executing documents as a deeds. For example (a) the limitation period (being the amount of time following a breach within which the non-breaching party can sue) is 12 years rather than 6 years and (b) presumption that parties to the contract have received consideration (an essential part of a normal English agreement).
Guidelines
The Mercury case caused great concern over completion formalities and The Law Society has now published guidance setting out practices that may be adopted by parties wishing to take a cautious approach following the Mercury case. In summary, these are as follows:
For deeds/real estate contracts:
- Parties should pre-agree the completion process.
- When the documents have been agreed, final versions of the documents are emailed/faxed (either as MS Word of PDF attachments) to all parties who are absent from the completion meeting. For convenience, a separate version of the signature page(s) could also be emailed to all parties along with agreements.
- Each absent party prints and signs the signature page only (there being no need to print the whole of the document although the signatory will need to review the whole document to check that it accords with agreed terms).
- Each absent party then emails to their lawyer or the person co-ordinating the completion a scanned copy of the signed signature page(s) together with the whole document to which the signature page is to be attached. It will also need to be made clear when delivery/completion is to take place. For example, “I attach a scanned copy of the signature page executed by me together with a full copy of the final document. Please hold the document to my order pending my confirmation on the phone that this transaction is to complete”.
- A final version of the whole documents together with the parties signature pages should then be distributed to all parties at or shortly after completion.
Guarantees (not executed as deeds) and other agreements:
- The same procedure as for deeds / real estate contract should be followed but it shall only be necessary for each absent party to print and sign the signature page only, then to scan and returns the signature page only to their lawyer or the person co-ordinating the completion with authority to attach the signature page to the whole document.
Recommendation
It would be prudent to complete all documents in the manner recommended for deeds and real estate contracts. This would save any confusion occurring with the risk that a deed or real estate contract is not completed correctly (because someone mistook it as a guarantee (not executed as a deed) or a simple contract) potentially invalidating the document.
It should be noted that the above is not the only valid practice that may be followed in light of the Mercury case. However, it is the most cautious approach which should also be relatively easy to implement in practice.
The corporate team at Fox Williams LLP specialise in advising on sub £200 million corporate transactions. If you would like to contact a member of the team, please speak to either Paul Taylor on 020 7614 2512 or James Daughtrey on 020 7614 2597.
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