Transactions in recent years have grown ever more complex, often involving multiple agreements between parties in a number of different locations and time zones. The desire for completions (or "closings") of such transactions to take place as conveniently as possible for all parties has led to the development of various practices for the ‘virtual’ execution of documents. These have included the electronic exchange of execution pages via email and/or fax and the appending of pre-signed execution pages to finalised documents.
The recent case of R (on the application of Mercury Tax Group and another) v HMRC  EWHC 2721 (the "Mercury case") has cast doubt over the validity of these practices, especially where the documents involve deeds. The judge, Underhill J., commented in relation to the execution of a deed that "the signature and attestation must form part of the same physical document". He went on to observe generally that "I believe that the common understanding is that the document to be signed exists as a discrete physical entity (whether in a single version or in a series of counterparts) at the moment of signing…...the requirement that a party sign an actual existing authoritative version of the contractual document givessome, albeit not total, protection against fraud or mistake".
Businesses and legal practitioners alike have been concerned that a strict interpretation of these words could necessitate formal completion meetings to be held, involving considerable expense and inconvenience for the parties. The full implications have been considered by various commentators , leading to the publication of an informative guidance paper on the execution of documents at a virtual signing or closing .
Recommended best practice
The consensus among commentators suggest that the most prudent way of executing documents at a virtual closing, taking into account the Mercury case, is as follows:
- final execution versions of the documents are emailed by the co-ordinating lawyers to all parties who are executing the documents remotely (and/or their lawyers). These documents can be sent in word or pdf format (the latter being preferable as there is no scope for the text of the documents to be changed at the recipient's end before signature);
- each signatory prints off and signs the execution page of each document (which should be clearly identified as such, for example headed "Sale and purchase agreement – execution page");
- each signatory sends one email back to the coordinating lawyers attaching:
- the final execution version of each document (in word/pdf); and
- the duly signed execution page for each document; and
- the co-ordinating lawyers distribute as soon as possible after closing a final version of each document containing all the execution pages.
As an alternative to the steps at 2 and 3 above, the relevant signatories could print off the entire document, sign it and send a copy of the entire signed document back to the coordinating lawyers. From a practical perspective however, this is a more time consuming process.
This procedure should be agreed by the parties' lawyers to the transaction in advance and, where deeds are involved, the agreed process should confirm when the deeds will be considered to have been delivered.
It is not recommended that the best practice procedure is relaxed for the execution of deeds or real estate contracts. However, many commentators have argued that the Mercury case judgment was specific to the facts under consideration and need not be applied universally to all documents which require ‘virtual’ signatures. Consequently, there is scope for certain parts of the above procedure to be relaxed for ‘simple’ contracts and guarantees which do not need to be executed as a deed in one of the following ways:
- the full execution version of the document may be omitted from the email sent by the signatory to the coordinating lawyers at step 3 above, providing that the email contains an authority for the co-ordinating lawyers to append the attached signature page to the relevant document; or
- the execution page may be signed in advance of the documents being finalised and held by the lawyers of the signatory (or the co-ordinating lawyers) until the documents have been finalised and each party (or its lawyers) has confirmed that the document is in agreed form. At this stage, the signatory should give his lawyers (or the co-ordinating lawyers) authority to attach the execution page to the final document.
Transactions are often implemented by documents falling into a number of categories (i.e. deeds, simple contracts, real estate contracts, etc). Consequently, to avoid having to adopt different procedures for the signing of documents at a virtual closing, we suggest that the recommended best practice procedure outlined above is adopted at all times. This also has the advantage of avoiding technical arguments regarding the extent to which the Mercury case applies in the case of different categories of documents.
Powers of attorney
A common reason for signatories wanting to sign documents remotely at a closing is their forced absence due to travel arrangements which coincide with the date of signing. Where there is a real risk of this, consideration should be given to the relevant person or company granting a power of attorney enabling an appropriate person who it is known will be present at the closing meeting to finalise and sign, or just to sign, the documents on behalf of the principal. Care will be needed in such cases to ensure that the powers of attorney are appropriately drafted to encompass all documents and steps required to be signed and taken by the principal concerned and that they contain appropriate powers of delegation to fit the circumstances (for example, where the transaction documents themselves involve the granting of a power of attorney, as indeed they might in order for a buyer to exercise voting rights attaching to shares acquired in a corporate acquisition pending their stamping and registration in statutory books). In all cases, thought should be given in advance to the mechanics of the signing process for the closing of transactions and agreement reached between the parties' lawyers at an appropriate stage as to the method by which the transaction will be completed.