Execution of documents by virtual means
Overview
This practice note should be considered in conjunction with the:
- cover statement (7 May 2020)
- practice note on execution of a document using an electronic signature (21 July 2016)
This document remains in the form issued on 16 February 2010.
R (on the application of Mercury Tax Group and another) v HMRC [2008] EWHC 2721 (Mercury) has led to discussion about the effectiveness in English law of using:
- pre-signed signature pages, and
- virtual signings and closings where signature pages are exchanged by e-mail
This practice note gives suggestions on good practice in light of the Mercury case and suggests different options for virtual signings/closings. The options suggested are not exhaustive as it is not implied that virtual signings and closings cannot or should not be conducted in other ways.
It is considered that:
- the Court of Appeal decision in Koenigsblatt v Sweet [1923] 2 Ch 314 (Koenigsblatt) remains the leading authority on the applicability of the principles of authority and ratification to the creation of legally binding written agreements
- the first instance decision in Mercury should be viewed as limited to its particular facts
- the decision in Koenigsblatt should prevail where there is inconsistency between the two
This practice note is intended to assist parties who nevertheless wish to take a cautious approach, in the light of Mercury, where it is more convenient to have a virtual signing or closing and wet ink documents are not required for registration.This is an evolving area of law and you should keep abreast of any relevant developments.
This practice note is the Law Society’s view of good practice in this area, and is not legal advice. For more information see the legal status.
Introduction
Who should read this practice note?
Solicitors who deal with execution of documents at virtual signings or closings where some or all of the signatories involved are not physically present at the same meeting.What's the issue?
R (on the application of Mercury Tax Group and another) v HMRC [2008] EWHC 2721 (Mercury) has led to discussion about the effectiveness in English law of using:
- pre-signed signature pages, and
- virtual signings and closings where signature pages are exchanged by e-mail
This practice note gives suggestions on good practice in light of the Mercury case and suggests different options for virtual signings/closings. The options suggested are not exhaustive as it is not implied that virtual signings and closings cannot or should not be conducted in other ways.
It is considered that:
- the Court of Appeal decision in Koenigsblatt v Sweet [1923] 2 Ch 314 (Koenigsblatt) remains the leading authority on the applicability of the principles of authority and ratification to the creation of legally binding written agreements
- the first instance decision in Mercury should be viewed as limited to its particular facts
- the decision in Koenigsblatt should prevail where there is inconsistency between the two
This practice note is intended to assist parties who nevertheless wish to take a cautious approach, in the light of Mercury, where it is more convenient to have a virtual signing or closing and wet ink documents are not required for registration. This is an evolving area of law and you should keep abreast of any relevant developments.
Summary of options
Your options depend on the type of document in question, because of statutory and legal arrangements surrounding the formality of their creation. The options can be summarised as:
- returning by e-mail the entire document and the signed signature page
- returning by e-mail only the signed signature page
- creating a pre-signed signature page in advance of finalising the document
|
Type of Document |
Option 1- Return entire PDF/Word document plus signature page |
Option 2 - Return signature page only |
Option 3 - Advance pre-signed signature pages |
|
Deeds |
Yes |
No |
No |
|
Real estate contracts |
Yes |
No |
No |
|
Guarantees (stand-alone or contained in simple contracts) |
Yes |
Yes |
Yes |
|
Simple contracts (not incorporating any of the above) |
Yes |
Yes |
Yes |
Statutory and other legal requirements
Deeds
The judge in Mercury took the view that section 1(3) of the Law of Property (Miscellaneous Provisions) Act 1989 (LPMPA) requires a deed to be executed by an individual in its final version.
Section 1(3) LPMPA provides:
"An instrument is validly executed as a deed by an individual if, and only if -
(a) it is signed-
(i) by him in the presence of a witness who attests the signature; or
(ii) at his direction and in his presence and the presence of two witnesses who each attest the signature; and
(b) it is delivered as a deed by him or a person authorised to do so on his behalf."
The judge's approach in Mercury could also apply to the execution of a deed by a company. See section 74A Law of Property Act 1925 and sections 44 and 46 Companies Act 2006 which also use the word "it" in relation to the document being executed.
Whilst a different view of the judge's interpretation in Mercury of section 1(3) LPMPA may be taken, it is recognised that this is a question of statutory interpretation that was not addressed in Koenigsblatt.
If you wish to take a prudent approach in relation to the execution of deeds (whether by an individual or on behalf of a company) at a virtual signing or closing, you should use option 1.
Real estate contracts
For real estate contracts section 2 of the LPMPA provides:
"(1) A contract for the sale or other disposition of an interest in land can only be made in writing and only by incorporating all the terms which the parties have expressly agreed in one document or, where contracts are exchanged, in each.
(2) The terms may be incorporated in a document either by being set out in it or by reference to some other document.
(3) The document incorporating the terms or, where contracts are exchanged, one of the documents incorporating them (but not necessarily the same one) must be signed by or on behalf of each party to the contract."
Some contracts for the sale or other disposition of an interest in land may be included in a contract that is primarily about something else, e.g. an asset sale agreement may include:
- (i) an agreement to transfer properties, along with other assets, or
- (ii) an agreement to share a site temporarily, by granting a lease on closing
Another example would be a mortgage, trust deed, mortgage debenture or other security document creating any security interest in real estate that might be acquired in the future.
By analogy, the judge's approach in relation to section 1(3) LPMPA could apply also to section 2 LPMPA.
For this reason, you should use option 1 where you decide to execute a real estate contract or contracts containing real estate provisions 'virtually', rather than by using traditional methods of executing 'wet ink' signatures.
Informing other parties
Many real estate contracts will be subject to an exchange using the Law Society formulae for exchanging contracts by telephone. In such cases you should:
- make clear to the other party that the contract in your possession does not have traditional 'wet ink' signature and
- obtain prior approval to its use from all relevant parties
'Wet-ink' originals for registration purposes
You should also take account of any need for the future availability of documents with 'wet ink' signatures for registration purposes.
Examples include transfers, leases, charges or other deeds that have to be registered at the Land Registry or Companies Registry in order to take effect or to have legal protection. In such cases, appropriate undertakings may be required, to ensure that such documents with 'wet-ink' signatures are available for those purposes.
However, where the parties are unwilling to rely on the other parties' undertakings or contractual obligations to produce 'wet-ink' signed originals, a virtual signing or closing may not be appropriate.
In particular, a virtual signing or closing is very unlikely to be suitable for property documents that require registration, because solicitors responsible for carrying out the relevant registration will require the other parties' solicitors, on closing, to undertake to send them the 'wet-ink' signed parts of the documents. Those solicitors should give such undertakings only when they are actually holding the 'wet-ink' signed documents, not when they have merely seen electronic images of them.
Guarantees
Section 4 of the Statute of Frauds 1677 requires a guarantee (or a memorandum or note thereof) to be in writing and signed by or on behalf of the guarantor. Guarantees include undertakings by a party to procure that other parties such as subsidiaries perform their obligations.
Signature, for this purpose, has a relatively wide meaning. In N Mehta v J Pereira Fernandes SA [2006] EWHC 813 (Ch) (Mehta), the judge said that an e-mail can be a sufficient memorandum or note of the guarantee, for purposes of section 4.
This is true as long as the e-mail:
- shows an intention to contract as opposed to being a mere statement of expectation and
- contains the name of the guarantor, with the intention that it constitutes a signature (which is contained within the body of the e-mail, as in Orton v Collins [2007] 1 WLR 2953, and not just information in an email header inserted automatically, as in Mehta)
Attaching a signature page to a final approved version of a document with the specific authority of the signatory is a signature within the wider meaning and test above.
Guarantees executed as a deed
If your guarantee is to be executed as a deed, you should follow the steps described in 3.1 above.
Guarantees included in simple contracts
Frequently, guarantees are included in simple contracts such as credit agreements; in such cases, you may follow any of the three options.
However, option 3 is only available where there is clear evidence that the signatories or their lawyers or someone else authorised by the signatory have authorised the attachment of their signatures to the final version of the relevant guarantee. This can include an exchange of e-mails.
Legal opinions on a guarantee
If you are issuing a legal opinion in relation to a guarantee, you should consider the distinction between a guarantee and a memorandum or note thereof.
When using option 2 or 3, the legal opinion could refer to the guarantee as a 'legally binding guarantee', rather than a 'contract of guarantee'.
Simple contracts
A simple contract which does not include a contract for the sale or other disposition of land or a guarantee can generally be formed without any signature, for example by an exchange of e-mails, provided the essential elements of a contract are present.
The judge's remarks in Mercury about the need for a "discrete physical entity/existing authoritative version of the contractual document" seem to relate to an understanding in that case that a party is not bound until it has signed a final version of the contract, if the contract provides for signature.
You may follow options 1, 2 or 3 for simple contracts, signed at a virtual signing or closing.
However, each option has a different level of risk which you should balance against any potential evidential problems.
For option 3, the use of pre-signed signature pages, you should have clear evidence, such as an exchange of e-mails, that the signatories, their lawyers or someone else authorised by the signatory have authorised the attachment of their signatures to the final version of the relevant contract. This will avoid any evidential concerns and show an intention to be legally bound, as well as ensuring the certainty of contractual terms.
Signatories - availability and authorisation
Where a contracting party cannot attend the signing/closing meeting in person, you should ensure that such party is aware of the need for someone suitably authorised to be available remotely such as online, at the time of the virtual signing/closing.
This authorised person would be available in order to:
- receive or otherwise be made aware of the content of and approve final versions of the documents
- sign the relevant documents under options 1 and 2
- authorise the release of the pre-signed signature pages under option 3
For options 1 and 2, you should ensure that signatories have access to a PDF scanner.
Deciding which option to follow
You should choose which option to follow at your own discretion and according to the facts of each transaction.
Before choosing one of the options, you should:
- have prior approval and co-operation of all the parties
- consider relevant regulatory and tax implications, such as stamp duty, before deciding
- avoid conflict with procedures or restrictions particular to certain documents, such as notarisation or escrow conditions.
Factors you may consider include:
- countries of incorporation of the parties
- each party's domestic rules and internal procedures for execution of contracts
- the content of board resolutions
- whether individual contracts must take effect in a particular sequence
- whether a legal opinion is being issued on a party's due execution of the documents.
Performing option 1
This option is to return the entire PDF or MS Word document plus a signed signature page. It applies to deeds, real estate contracts, guarantees and simple contracts.
For option 1, you should perform the following steps:
- Ensure all parties' lawyers have agreed to the proposed arrangements for the virtual signing/closing before execution
- Ensure the final execution copies of the documents are e-mailed as a PDF or Word attachment to all absent parties and/or their lawyers, as agreed. You may attach a separate PDF or Word document containing the relevant signature page for convenience
- Each absent signatory prints and signs the signature page only (there is no need to print off the full document)
- Each absent party then returns a single e-mail to their lawyer or to the lawyers co-ordinating the signing/closing, as agreed, and attaches both the final version of the PDF or Word document and a PDF copy of the signed signature page. For a deed, you must either make clear when delivery is to take place or that it has not been delivered merely because it has been signed and the steps set out above followed
- At or shortly after signing/closing, you may wish 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 PDF or Word final version of the document and the PDF of the signed signature page will constitute an original signed document and equate to the "same physical document" referred to in Mercury.
You may create one or more additional originals by printing off the final execution copy of the document and attaching it to the PDF copy of the signed signature page.
Performing option 2
This option is to print off and sign only the signature page from the final document. It is available for guarantees (other than those executed as deeds) and simple contracts.
For option 2, you should perform the following steps:
- Ensure all parties' lawyers have agreed to the proposed arrangements for the virtual signing/closing before execution
- Ensure the final execution copies of the documents are emailed as a PDF or Word attachment to all absent parties and/or their lawyers, as agreed. You may attach a separate PDF or Word document containing the relevant signature page for convenience
- Each absent signatory prints and signs the signature page only (there is no need to print off the full document)
- Each absent party then e-mails its signed signature page as a PDF attachment to their lawyers or to the lawyers' co-ordinating the signing/closing, giving authority to attach it to the final approved version of the document. The degree of formality you require for this authority will depend on the circumstances. Where the authority is to a firm that is not acting for the party represented by the signatory, a greater degree of formality may be appropriate
- You may evidence the final execution of the final document at or shortly after signing/closing by providing a final version of the document, together with copies of the executed signature pages. This may be circulated by one of the law firms
A print-off of the executed version of the document together with the attached signed signature page will constitute an original signed document.
The only difference between options 1 and 2 is step 4.
Performing option 3
This option is to use a pre-signed signature page. It is an alternative option for guarantees (other than those executed as deeds) and simple contracts.
For option 3, you should perform the following steps:
- Ensure all parties' lawyers have agreed to the proposed arrangements for the virtual signing/closing before execution
- Allow enough time before signing/closing for the law firm co-ordinating the signing/closing to e-mail 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 signing/closing or their lawyers. Each signature page should clearly identify the document to which it relates such as 'Credit Agreement - signature page'
- The signature page is 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 (as a PDF attachment) or by courier, to be held to the order of the signatory or their lawyers, until authority is given for it to be attached to the document to be signed
- When each document has been finalised, the law firm co-ordinating the signing/closing, should e-mail 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 authorising the relevant law firm to attach the pre-signed signature page to the final version and to date and release the document. The degree of formality required for this authority to be given will depend on the circumstances. Where the authority is to a firm that is not acting for the party represented by the signatory, a greater degree of formality may be appropriate
- The final approved version of the document with the pre-signed signature pages, that have been attached with the prior approval of the parties or their lawyers, will constitute an original signed document
More information
Legal and other requirements
Case law and rulings
- R (on the application of Mercury Tax Group and another) v HMRC [2008] EWHC 2721
- Koenigsblatt v Sweet [1923] 2Ch 314
- N Mehta v J Pereira Fernandes SA [2006] EWHC 813 (Ch)
- Orton v Collins [2007] 1WLR 2953
Acts and statutes
Further products and support
Practice Advice Service
We provide support for solicitors on a wide range of areas of practice. The Practice Advice Service can be contacted on 0870 606 2522 from 9am to 5pm on weekdays.
City of London Paper
This paper is based upon a more detailed paper that can be found on the City of London Law Society website.
Execution of Documents, 4th Edition
This Law Society guide covers deeds, contracts, powers of attorney, and documents used in litigation. The new edition includes expanded information on notarisation, electronic signatures, and covers changes in regulatory reform and the Companies Act 2006.
Execution of Documents (4th edition)
Companies House Guidance on document signatures
Guidance information is available at the Companies House website.
Acknowledgements
The Society acknowledges the contributions of the Joint Working Party of the Law Society Company Law Committee and the City of London Law Society Company Law Committee and Financial Law Committee in developing this practice note. The Society also acknowledges the contribution of the Conveyancing and Land Law Committee in the production of this practice note.Practice notes represent the Law Society’s view of good practice in a particular area. They are not intended to be the only standard of good practice that solicitors can follow. You are not required to follow them but doing so will make it easier to account to oversight bodies for your actions.
Practice notes are not legal advice, and do not necessarily provide a defence to complaints of misconduct or poor service. While we have taken care to ensure that they are accurate, up to date and useful, we will not accept any legal liability in relation to them.
For queries or comments on this practice note contact our Practice Advice Service.
SRA Principles
There are seven mandatory principles in the SRA Standards and Regulations which apply to all aspects of practice. The principles apply to all authorised individuals (solicitors, registered European lawyers and registered foreign lawyers), authorised firms and their managers and employees, and to the delivery of regulated services within licensed bodies.
Must – a requirement in legislation or a requirement of a principle, rule, regulation or other mandatory provision in the SRA Standards and Regulations. You must comply, unless there are specific exemptions or defences provided for in relevant legislation or regulations.
Should – outside of a regulatory context, good practice, in our view, for most situations. In the case of the SRA Standards and Regulations, a non-mandatory provision, such as may be set out in notes or guidance.
These may not be the only means of complying with legislative or regulatory requirements and there may be situations where the suggested route is not the best route to meet the needs of a particular client. However, if you do not follow the suggested route, you should be able to justify to oversight bodies why your alternative approach is appropriate, either for your practice, or in the particular retainer.
May – an option for meeting your obligations or running your practice. Other options may be available and which option you choose is determined by the nature of the individual practice, client or retainer. You may be required to justify why this was an appropriate option to oversight bodies.