24 May 2011

Avoiding the Gotchas

Pitfalls in the execution of documents

I am strongly against the law introducing traps for the unwary by insisting on formalities you couldn’t comply with without detailed knowledge of the law. I’m also against documents being invalidated by minor errors in execution, which leads to injustice for innocent parties.
One such trap is section 44(6) of the Companies Act 2006, which did not exist in the 1985 Act. It says that if a document is executed by several companies, each signatory must sign separately for each company. A completely pointless formality, in my view. If, say, a pension scheme deed has to be executed by all 58 companies in a group, all with the same directors, why shouldn’t it be expressed to be executed by all of them and signed just once by each director?
In Williams v Redcard Ltd the Court of Appeal refused to extend this principle, holding that there was no reason why an individual could not sign both for the company and in a personal capacity, and that it was not necessary for the document to specify that the signatory was acting for the company. Good news so far, though the trap remains when you are dealing with several companies.
But the real worry in the case is the assumption that section 44 was relevant at all. The section 44 formalities (signature by two directors, or one director with a witness) apply to documents executed “by" the company. Usually this applies to deeds; most other forms of contract are simply signed or agreed by a director (or some other authorised person) as an authorised agent “on behalf of” the company, which is permitted by section 43(1)(b). No formalities at all are required to agree most contracts as agent on behalf of a company. The contract in the case was a contract for sale of land, so it had to be in writing and signed by or on behalf of the parties[1], but it did not have to be a deed. Property contracts are often signed just by one signatory on behalf of the company. Yet it was somehow assumed that the contract was not signed "on behalf of" the company by the two directors who signed it, and needed to satisfy the section 44 formalities for execution "by" the comapny.
The reasoning is unclear, but the assumption seems to have been that there must be some clear indication that a person is signing “for and on behalf of” the company before it is accepted that it has been signed by an agent. That creates all sorts of traps for contracts entered into informally. Let’s hope that it is not applied further.

1 comment:

  1. A slightly related point: the High Court in Green v Ireland http://www.bailii.org/ew/cases/EWHC/Ch/2011/1305.html accepted that by inserting their names at the end of the emails sent by each of them,the parties had 'signed' them, which could create a contract for the sale of an interest in land. The terms were set out in one email and appended to the reply in the email chain, so taht they were a single document signed by both parties. So it is possible to create land contracts by email and by mistake.


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