Education Update - Contracts
Published: 4th June 2009
Virtual signings or closings
A joint working party of The Law Society Company Law Committee and
The City of London Law Society Company Law and Financial Law
Committees has published guidance on the execution of documents at
virtual signings or closings.
The guidance is to be found here.
A contract in writing can be effectively altered after signature (but before signature by the other party), provided that the person making the alteration had the authority of the party in question to do so; although a deed is validly executed only if it is signed in the presence of a witness who attests the signature.
It has become relatively common practice to conduct "virtual" signings and closings of transactions where parties sign transaction documents and then e-mail or fax signature pages to those responsible for compiling the signed transaction documents. The practice avoids the logistical problems that can arise in getting all the parties physically together at signing or closing.
However, the effectiveness of virtual signings in certain circumstances was recently cast into doubt by the High Court in R (on the Application of Mercury Tax Group Limited and another) v HMRC [2008]. The court held that the signature on an incomplete draft deed could not be transferred to execute a complete and amended final version of the deed.
The guidance is approved by leading counsel and concerns the implications of Mercury in relation to the execution of documents. The JWP considers that the Court of Appeal decision in the Koenigsblatt case remains the leading authority in relation to the execution of documents and prevails over Mercury which, as a first instance decision, should be limited to its particular facts i.e. it dealt with a deed.
The JWP considers that it is possible to comply with the requirement for a physically complete document in cases where contracts or deeds are circulated for signature by e-mail. Accordingly, the guidance sets out a non-exhaustive range of options for parties wishing to execute documents for virtual signings or closing.
Lessons in contract drafting - a stray word can cost.
In KG Bominflot Bunkergesellschaft fur Mineralole
MBH & Co KG v Petroplus Marketing AG (2009) the court was
required to determine the claim of the buyer against the seller.
Oil had been bought under a free on board (FOB) contract. The
contract was governed by English law, and at clause 18 stated that
there were no "guarantees, warranties or representations"
as to the fitness or suitability of the oil further than the
specifications stipulated in the contract.
Before the oil was shipped, it was tested and found to meet the stipulated specifications, but once it had reached its destination, after a normal voyage, the buyer alleged that it did not conform to the specifications and claimed that there had been a breach of an implied contract term that the cargo would be of satisfactory quality following a normal voyage pursuant to the Sale of Goods Act 1979 s.14(2), and/or would be reasonably fit for purpose pursuant to s.14(3), and/or it had breached a term to be implied at common law that the oil would be of satisfactory quality and/or in accordance with the contractual specification following a voyage and for a reasonable time thereafter.
The seller denied that the contracts contained the implied terms
asserted, because clause 18 excluded the whole range of such
contractual promises.
The court held that, in the absence of any inconsistent term, there
was to be implied into an FOB contract a term under s.14(2) of the
Act that the goods would be of satisfactory quality not only when
the cargo was delivered onto the vessel but also for a reasonable
time thereafter; such a term was also to be implied at common law
with the additional dimension that the goods should remain in
accordance with any contractual specification for a reasonable
period.
A buyer was entitled to expect to receive goods that would be of satisfactory quality for a sufficient time to enable it to have some use of them or sell them on.In cost and freight contracts, and cost insurance and freight contracts, the time taken to complete a normal voyage would be the basic measure of what would be a reasonable time. However, in an FOB contract, where the seller did not know the destination of the goods, that was not appropriate: a reasonable time would depend on the circumstances of the contract in question, including the fact that it would be likely that the goods would be carried by sea before resale or use, and whether the seller knew that the buyer would be selling the goods on or using them itself. The proposed implied terms were not excluded by clause 18 of the contract. The contract was expressly governed by English law; the parties were accordingly taken to know of the distinction drawn in English law between conditions and warranties, and of the requirement that if liability for breach of a condition was to be excluded, that had to be very clearly spelled out. Nowhere in clause 18 had the word "condition" been used: referring to guarantees, warranties and representations did not cover all the different types of contractual terms, and so the clause could not be construed as extending to conditions.
A lesson on contract drafting in this one, and a reminder to be very careful with liability exclusion clauses.
15% Interest!
The Court of Appeal decision in Taiwan Scott v The
Masters Golf Company concerned a dispute about payment for
substandard golf clubs.
Following a meeting to resolve matters there was an agreement to make payments to settle the matter that were subsequently ignored by the defaulter. The appeal case was concerned with the claim for 15% interest on amounts overdue from 2001.
It was held that interest rates in 2001, when the contract was entered into, were considerably higher than they currently were. The contractual rate of 15% was not exorbitant in 2001 and the initial judge was wrong to deny the contractual rate of interest which had been agreed between two commercial parties.
