UK: Execution Of Documents At A "Virtual" Signing Or Closing

Last Updated: 17 September 2009
Article by Edward Davis and Sue Millar

In R (on the Application of Mercury Tax Group Limited and another) v HMRC [2008] EWHC 2721 (Admin) the Court held that the final form of a deed was invalid where the signature pages on an incomplete draft had been transferred to execute a later amended version. In the light of this judgment, a joint working party comprising The Law Society Company Law Committee and The City of London Law Society Company Law and Financial Law Committees ("the JWP") has produced guidance on the best practice for executing documents at a "virtual" signing or closing.

The first Claimant ("Mercury") operated a tax avoidance scheme for a number of clients known as the "gilt strip" scheme ("the Scheme"). The First Defendant ("HMRC") suspected that the Scheme had been dishonestly implemented and obtained search warrants in relation to a number of premises associated with Mercury or its clients. It was HMRC's case that there were reasonable grounds to suspect that there were serious flaws in the way in which the Scheme was implemented and that Mercury was aware of those flaws but sought dishonestly to conceal them. One of the flaws alleged by HMRC was that clients participating in the Scheme had signed incomplete drafts of three key documents and that Mercury had later transferred the signature pages from those drafts to the final version of the documents, which contained a number of substantial differences from the drafts that the clients had signed.

Mercury argued that the procedure it had followed (namely obtaining a client's signature to a draft document but subsequently transferring it to the final version) was ordinary office practice and wholly unobjectionable. The Court found that the documents in question had not been validly executed for the following reasons:

1 It was not clear that the evidence established that the clients had implicitly authorised or ratified some of the changes between the draft and final versions of two of the documents, which the Judge considered were fundamental;

2 The Court had not been referred to any authority which dealt with the taking of a signature page from one document and its recycling for use in another;

3 The parties must be taken to have regarded signature as an essential element in the effectiveness of the documents: that was to be inferred from their form. In such a case, the Court believed that the common understanding was that the document to be signed exists as a discrete physical entity at the moment of signature. The requirement that a party sign an actual existing authoritative version of the contractual document gives some, albeit not total, protection against fraud or mistake;

4 Each of the three documents in question was intended to be a deed. The language of section 1(3) of the Law of Property (Miscellaneous Provisions) Act 1989 necessarily involved that the signature and attestation must form part of the same physical document (i.e. the deed should be executed by a party in its final version);

5 There was no evidence, nor was the Judge aware, of any general practice of signature pages being detached from an incomplete draft document and attached to a later, significantly different, version. The logistical problems that can arise in trying to get a document signed by multiple parties could be, and commonly were, met by deeds or other contracts being signed by different parties on different occasions or by the use of counterparts.

In the light of the concern caused by the Mercury decision, the JWP has produced guidance on a non-exhaustive range of options available to parties when executing documents governed by English law in circumstances where it is not easy or possible to get all of the proposed signatories physically present for a signing or closing meeting ("the Guidance").

The Guidance suggests that where the document to be executed at a "virtual" signing or closing is a deed, a real estate contract or a contract containing real estate provisions, a prudent approach would be for each absent signatory or their lawyer (as agreed) to (i) receive by email the agreed final execution copies of the documents (ii) print and sign the signature page only and (iii) return by email to its lawyers or to the lawyers co-ordinating the signing/closing (as agreed) (a) the final version of the document and (b) a PDF copy of the signed signature page. At or shortly after signing/closing, to evidence the execution of the final document, a final version of the document, together with copies of the executed signature pages, may be circulated by one of the law firms.

The Guidance suggests two further alternatives for the "virtual" execution of simple contracts (i.e. contracts that are not deeds or real estate contracts):

1 Each absent party may follow the steps outlined for deeds above, but at step (iii) return only the signed signature page as a PDF attachment to their lawyers or to the lawyers coordinating the signing/closing (as agreed), with authority to attach it to the final approved version of the document.

2 In sufficient time before signing/closing, the law firm coordinating the signing/closing can email (or circulate hard copies of) the signature pages relating to the documents still being negotiated to each person who will not be present at the closing, or to their lawyers. The signature page can be executed by each of the signatories and returned to their lawyers or to the law firm co-ordinating the signing/closing (as agreed) by email or by courier, to be held to the order of the signatories (or their lawyers) until authority is given for it to be attached to the document to be signed. Once each document has been finalised, the law firm co-ordinating the signing/closing should email the final version of the document to each absent party and/or their lawyers and obtain confirmation from them (or their lawyers) that they have agreed the final version of the document and authorise the relevant law firm to attach the pre-signed signature page to the final version and to date and release the document.

The Guidance makes clear that each transaction should be approached according to its own facts and additional issues may need to be considered in each case, including each party's domestic rules and internal procedures for the execution of contracts.

Practical implications

Although the Guidance confirms that the Mercury case should be viewed as limited to its particular facts, the case serves as a cautionary tale for banks and their advisers to ensure that more regard is had to formal execution procedures than has recently been the case. Banks should plan ahead and consider what procedures may need to be put into place well in advance of completion where documents are to be signed by absent parties who will not attend a formal signing/closing meeting.

This article was originally written for Stephenson Harwood's quarterly publication, Finance Litigation Legal Eye. If you would like to receive this publication, please contact Stephenson Harwood (

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

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