The recent case of Briggs and others v. Gleeds (Head Office) and others [2014] EWHC 1178(Ch) serves as a reminder of the potential dangers of failing to comply with the statutory rules on how parties to a deed should execute (i.e. sign) it.

Some background

Under English law, a deed is a written instrument created with the necessary formality which passes or confirms an interest, right or property, or which creates or confirms an obligation binding on some person.

Deeds are necessary in various circumstances, for example when creating a trust, transferring a legal interest in land or granting a power of attorney. Even where there is no legal need to use a deed, parties may choose to do so. Typically this will be either to overcome any concerns about the lack of contractual consideration or to get the benefit of the longer limitation period that applies to claims under deeds.

There are three elements to the formality necessary for a document to be valid deed. One of these is valid execution. (The other two are that it must be clear on its face that it is a deed and that it must have been "delivered" by the party being bound.)

Execution formalities

How a party to a deed executes it depends on the nature of that person. There are separate rules for different types of legal person. For example:

  • an individual must comply with section 1 of the Law of Property (Miscellaneous Provisions) Act 1989;
  • a UK incorporated company must comply with section 44 of the Companies Act 2006 (unless it is using its company seal, in which case the terms of its constitution on affixing the seal will be relevant);
  • a non-UK company must comply with the Overseas Companies (Execution of Documents and Registration of Charges) Regulations 2009;
  • a UK LLP must comply with the Limited Liability Partnerships (Application of Companies Act 2006) Regulations 2009;
  • a UK partnership must comply with the Partnership Act 1890 and each partner required to execute for the partnership must comply with the execution rules applicable to it. For example a partner who is an individual must follow the rules that apply to individuals and a partner that is a UK company must follow the rules that apply to UK companies. (Whether all partners need to execute will depend on what delegations are in place.)  

Other rules will apply to other types of entity.

The Gleeds case

This litigation related to the retirement benefits scheme which the Gleeds group runs for the benefit of its employees. The scheme was established by a trust deed. Between 1991 and 2008 the parties entered some 30 further deeds relating to the scheme. The purpose of some of these was to reduce benefits and so make significant cost savings for the scheme.

However, in 2010 the trustees discovered that the principal Gleeds employer under the scheme had not properly executed these further deeds. The scheme administrator had prepared the execution blocks on the deeds as if the principal Gleeds employer were a UK company whereas in fact it was a UK partnership. The specific problem was that the signatures of the individuals who had signed the deeds as partners of Gleeds had not been attested by a witness. This contravened section 1 of the Law of Property (Miscellaneous Provisions) Act 1989. This section provides that for an individual to validly execute a document as a deed he must sign it "in the presence of a witness who attests the signature".

The High Court held that the deeds were of no effect because they had not been executed in accordance with the statutory rules. Financially, this decision may increase the Gleeds scheme's deficit on an ongoing basis by £45 million.

Gleeds had tried to argue that the members of the scheme should, under the rules of estoppel, be prevented from arguing that there had been improper execution. However, the High Court rejected this. It held that estoppel (an evidential rule which prevents a person from denying or contradicting something) could not operate as it was obvious from the face of the deeds that they did not comply with the relevant statutory rules.

A key element of the court's decision is that it was obvious just by looking at the documents that Gleeds had not executed them properly. The court contrasted the deeds in the Gleeds case with the deed in the earlier case of Shah v. Shah [2001] EWCA Civ 527. There the defendant had signed the deed in question and there was a witness countersignature which stated that the defendant had signed in the witness's presence. In fact, unknown to the claimant, the witness had not been present and had added his countersignature later. The court held that, in those circumstances, the rules of estoppel did prevent the defendant from arguing that he had improperly executed the deed.

Comment

The Gleeds decision highlights the potential risks of failing to comply with the strict rules on the formalities for executing deeds. Any party to a deed should check that the parties (including itself) have complied with the relevant execution formalities to avoid the risk of the deed being ineffective against some or all of them.

The Gleeds case concerned traditional hard copy deeds. Another area that has exercised lawyers in recent times is how the rules on deeds, which predate the era of electronic communications, apply where parties wish to create a original deed in soft copy rather than hard copy. (For example, because they are geographically apart and need to complete their transaction to a tight timetable.) Here, the issue is not how each party executes, which remains the same, but how to ensure that an electronic version of a deed can have the status of an original. This is a difficult area and the Law Society and others have produced detailed best practice guidance on the necessary steps. Parties to a deed being created this way need to be aware of this guidance and to understand that it will involve yet more complexity.