Why do lawyers ask for documents to be signed, scanned and emailed in such a prescriptive way?

“Virtual closings” where, in place of a traditional physical signing meeting, documents and signatures are exchanged in PDF form have become a market standard approach in recent years. However, it is important to remember that adopting the correct processes is necessary to ensure proper execution and protect the interests of the parties.

Setting the scene

The deal is done, the documentation agreed, all that remains is execution of the documents.

The parties agree that, rather than holding a physical signing/completion meeting, completion will take place by way of “virtual closing”.

A detailed email is sent to signatories. The email attaches the documents for signing along with a set of procedural instructions including printing certain pages and scanning certain pages or the whole document and returning an email with specific wording. If there is any departure by a party from the procedure, no matter how slight, coordinating counsel will follow up to insist that this is rectified.

Why is the process so prescriptive?

It is now over 10 years since the first instance case of “R (on the application of Mercury Tax Group and another) v HMRC” – aka “Mercury” was heard in the UK but it has had a lasting effect on “virtual closing” processes.

The case related to the judicial review of the issue of warrants to enter premises and was not specifically relating to “virtual closing” processes. However, part of the Mercury judgment held that the “recycling” of signature pages, where previously executed signature pages on a draft deed were attached/transferred to a subsequently finalised deed, did not result in a complete and amended final version.

Whilst the “recycling” point was specific to deeds and not directly touching on “virtual closings”, the judgment also contained two specific comments. Firstly, in respect of deeds it stated that “signature and attestation must form part of the same physical document” when the deed is signed.

Secondly, and in respect of any document, it stated that “the common understanding is that the document to be signed exists as a discrete physical entity … at the moment of signing” and that signing “an actual existing authoritative version of the contractual document gives some, albeit not total, protection against fraud or mistake” – i.e. the best approach is to sign a complete copy of the document in order that the parties can be sure what they have signed.

These statements caused a degree of alarm as to how practices in relation to signing by exchange of PDF scans would be viewed given the statements were broad and not limited to the facts of the case. They could be interpreted as applicable to signing by the exchange of PDF pages and, given the potential ramifications of documents being held not to be validly executed (and potentially not to exist in binding form), an approach to deal with this needed to be adopted.

With a view to addressing the issues raised, both the English and Irish Law Societies published guidance on undertaking “virtual closings” and this guidance is reflected in signing instructions circulated today.

Given the potential ramifications of the statements in the judgment, Mercury remains too significant a case to ignore. This is the case even though:

  • it was a first instance decision of an English court and has not been affirmed by a higher court; and
  • the statements in the Mercury judgment have been distinguished and not adopted in subsequent cases (in both England and Ireland).

In any event, the steps now set out in signing instruction emails amount to an improved practice in terms of signings. They also provide an evidentiary chain as to the process of signing that, looking back on the matter in the future, will help establish what occurred at the time of signing/closing.

What do we recommend?

If practical, a physical meeting to execute documentation would be preferable. It allows for last minute issues to be addressed and settled without further delay. However, given the international nature of business, a “virtual closing” can overcome logistical difficulties or delays (e.g. if signatories are travelling or based in different jurisdictions). A “virtual closing” also avoids the requirement for parties to spend time travelling to, and attending, a signing in circumstances where this is impractical due to demands on the time of the parties.

If a “virtual closing” is used, we would also recommend that:

  • signatories make themselves familiar with the requirements in the signing email and follow them to the letter. A brief conversation with legal advisers on implementation of the instructions can avoid the need to repeat signing (losing time and the benefit of a non-physical signing); and
  • the proposed timing for the signing to take place is a time when signatories will have full access to required facilities (printers, scanners, email) and any required assistance in relation to those facilities. Even if there is no all parties signing meeting, clients may find it helpful to physically meet with their counsel to coordinate signatures and scans before these are circulated to the wider transaction group.

Considerations when closing virtually

  • Follow the signing instructions - depending on the complexity of the transaction and the signing instructions (usually a factor of the number of different types of documents to be signed and the number of signatories) it is not uncommon for there to be multiple exchanges of emails between signatories and coordinating counsel until they are satisfied the process has been fully followed. It may seem obvious but, following signing instructions to the letter can help avoid this.
  • Communications difficulties - whilst we live in a connected world, email systems and internet connectivity can and do fail at the most inopportune times. Will there be a back-up signing/closing date or a fallback to fax communication (assuming a fax machine is available)?
  • Time zones - depending on where in the world signatories will be located at the time of the “virtual closing”, time differences can affect the signing due to availability of signatories for any follow-ups or in terms of any key time by which signing/completion has to take place. Signatories may make themselves available for a short period for the “virtual closing” but then be unavailable if any subsequent issue requiring their input, refreshed signature or confirmation arises.
  • Post-signing follow-ups - even utilising a “virtual closing” process, the requirement to circulate “wet-ink” originals will remain and should be referred to in the signing instructions. As the wet-ink originals may be required for filing or registration (be it domestically or in another jurisdiction) signatories must remain aware of these requirements.

Conclusion

In today’s connected and increasingly busy world the “virtual closing” plays a necessary part in concluding transactions in a timely and efficient manner. However, this intention can be frustrated if by reason of the prescribed steps not being followed there need to be extensive follow-ups, the closing is delayed or there is doubt on proper execution of documents.

When undertaking a “virtual closing” the adage of “measure twice, cut once” should be adopted. The instructions provided by counsel should be read at least twice before starting to print, sign and scan. Even where the process proposed seems unnecessarily formulaic, the points raised by “Mercury” are the reason behind the process and the approach is adopted to ensure a valid signing and closing taking account of those points. In the event that there are any doubts as to the instructions or process, the best approach is to pick up the phone and speak to your legal counsel. They will have experienced a wide range of different permutations of the signing process and a brief discussion may well shortcut an arduous process of re-signing, re-scanning and further email exchanges.