Another year, another case on the execution of documents. That, in itself, should be enough to remind us that checking execution formalities at the time of signing is best practice, but the judgment in the Court of Appeal case of Redcard Ltd v Williams ( EWCA Civ 466) goes so far as to spell this out.
The appeal considered whether a contract for the sale of freehold and leasehold interests in a block of flats had been properly executed by the flat management company when it was not expressly stated that two of the five signatories (the leaseholders) were also directors of it and had signed in that capacity as well as for themselves. The court held that the contract had been validly executed by all the parties to it. As a result, we are left with authority which provides that when an individual is a director of a company and is signing a document in both his individual capacity and his capacity as a director
- he need only sign once, and
- there is no need to state that he is doing so in both capacities.
Whilst the judgment makes sense in the circumstances of the case, reconciling the reasoning with the law is not quite so easy. In the case in question, there was a very close link between the persons signing as individuals and the company of which they were also directors and shareholders. That they intended to bind themselves and also the company seems clear, but in other situations the logic may not apply so neatly, because it seems to be at odds with the concept of companies having distinct legal personalities, and directors having to comply with their statutory duties, not least of which is a duty to promote the success of the company. Where the interests of the individual and the company are aligned, as seems likely in this case, the blurring of those established boundaries and duties may not pose a problem, but in more complex scenarios where the interests are not so clear-cut such an approach may not be as appropriate.
It also seems odd that whilst section 44(6) of the Companies Act 2006 specifically provides that where one person acts in more than one capacity by virtue of being a director of more than one company he must execute a document separately in respect of each one, case law now holds that where an individual who is party to a contract along with a company of which he is a director he may only sign once to bind both himself and the company. Presumably, if signing as an individual and as a director of two companies, he would, though, need to sign twice (or even three times?).
As a result, the lesson to take away from the case must be that it remains best practice to ensure at signing that documents have been properly executed and all formalities complied with. Indeed, notwithstanding the judgment, Lord Justice Mummery felt compelled to make this very point by concluding that:
"expensive and long drawn-out litigation about the execution of a document by a company can be avoided by taking more care over compliance with the formalities at the time of execution by, for example, adding words that expressly state the capacity in which an individual is signing a document to which a company is a party" (emphasis added).
Key execution points to consider at signing include:
- check signatories have authority (are they a Companies Act director and/or is there any express board authority? - if so, are there any limitations to such authority and is it still valid?)
- ensure that signatories print their names next to their signature and that the capacity in which they are signing is clearly stated
- where signatories are signing in more than one capacity, have them sign separately in respect of each capacity (this will be required, in any event, where an individual holds multiple directorships and is signing for more than one company (section 44(6), Companies Act 2006)) and state clearly what that capacity is
- if signing under a power of attorney, check the power to make sure it has been properly executed, covers the document being signed and is still valid
- where signatures are being attested, make sure witnesses also print their names and addresses - if there is a dispute, this will help to locate them if need be.