Signed, sealed, delivered?

Published: 10th July 2009

Two recent cases are reminders of the need not only to close negotiations out by concluding a signed agreement but also to observe proper formalities in exchanging and completing contracts.

Jackson Distribution
In Jackson Distribution Limited v Tum Yeto Inc, Jackson had sought to act as a distributor of products for Tum Yeto.

There had been:

emails regarding their contractual relationship
verbal confirmation based on these emails that Jackson would be sole distributor in the UK and Ireland
a draft distribution agreement

Receipt of the draft agreement was acknowledged, but it was never debated, discussed or signed.

Tum Yeto served notice to terminate and Jackson claimed that the conduct of the parties demonstrated they had been acting on the terms of the draft distribution agreement.

It was held that the burden of showing that the parties had acted on the terms of a written but unexecuted agreement lay on the claiming party (namely Jackson). There was no evidence Jackson and Tum Yeto had agreed to contract on the terms of the draft distribution agreement. However there was evidence they had agreed to contract on the terms detailed in the earlier emails and therefore it was the emails, rather than the draft agreement, which formed the basis of their contractual relationship. In the absence of signed terms, the court held that the relationship could be terminated on 'reasonable notice' and, having regard to various factors, including the lack of formal arrangement between the parties and the length of relationship, nine months was held to be reasonable.

This case does not create any new law, but is a useful reminder of the need for clients to conclude formal documents if they want the terms of contractual relationships to be clear. Without a signed agreement, the court could only look to the conduct of the parties and what was reasonable in the circumstances regardless of the fact that draft documents were in issue.

Mercury Tax
So, having circulated documents, and finding they are in agreed form, how can you ensure that they have been executed properly, especially when the signatories are not in the same place at the same time?

In the Mercury Tax case (R (on the application of (1) Mercury Tax Group Limited and (2) Darren Neil Masters) v (1) HMRC, (2) the Crown Court, (3) James Michael Preston and (4) David Cook), a signatory signed draft documents. The signature pages were later detached from the drafts and attached to the final agreed version of the documents. However, the final versions differed significantly from the drafts which had been signed, and the signatory had not been advised of the changes made.

It was held "recycling" a signature page from one document to another was ineffective and the document was therefore invalid and unenforceable. Many legal completions have relied on this lack of old school rigour in the way documents are signed and exchanged as a way to more efficiently handle a completion without the need for a full all parties meeting. The case demonstrates the care that must be taken when doing so in the future.

Every transaction will turn on its own facts, but for those cautious advisors co-ordinating completion of documentation (be that solicitor, accountant, financial advisor, bank, institutions, agents, in-house counsel etc) a joint Law Society/City of London Law Society working party has advised that:

It is acceptable for final documents to be completed on the basis of pdf/fax signatures if everyone is happy to proceed on that basis with originals to follow. Being able to demonstrate this agreement in writing will clearly help avoid later dispute;
If signatories cannot attend a meeting when documents are completed, they should be emailed/faxed the final agreed versions of documents;
Documents which need to be executed as deeds (such as guarantees) and all property documents should only be signed when they are in final form. Signatories should not be asked to sign deeds in advance. When returning signature pages, the final version of the document should also be returned; and
In the case of simple contracts/agreements/documents, it is permissible for a signatory to sign papers in advance or return only the signature page. However advisors should ensure they have authority to attach signature pages to final version documents.

If you would like to discuss any of the issues raised in this update please contact either:

Paul Raftery, Corporate Department (Manchester), 0161 214 0500

Ian Hodgkinson, Corporate Department (Liverpool), 0151 236 8989

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