“However, as few contracts will now be made without legal advice, compliance with the requirement that the document must be signed is unlikely to be in issue very often.”

Mummery LJ then comments, perhaps wryly, “Perhaps they were too sanguine.”

The facts of the case are simple.  Individuals owned leases in properties.  The company of which they were directors owned the freehold.  The leases and the freehold were being sold. The ‘Seller’ was defined to include the individuals and the company. The individuals signed once and did not refer to the fact that they were signing also as directors on behalf of the Company. The issue before the Court was whether two persons who signed once were signing as individuals and also as two directors.  If they were also signing as two directors, section 44 Companies Act was satisfied. Section 44 allows for signing by a company by two directors. The case concerned the interpretation of section 44(4).

The Court held that, on the facts, it was clear that the two individuals were signing as individuals and also as directors so section 44 was complied with. I must stress that this decision was based on the particular facts.  From the document, it was clear that the individuals were signing on their own account and also on account of the company.

The tip, of course, is not to find yourself in this position.  As Mummery LJ said at 30:

“From a practical point of view it may just be worth stating the obvious: 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.”

And take care!  Section 44(6) Companies Act was not relevant in this case.  It provides:

‘(6) Where a document is to be signed by a person on behalf of more than one company, it is not duly signed by that person for the purposes of this section unless he signs it separately in each capacity.’

There is much to be aware of when signing or executing documents.  For example, the interrelationship between section 44 and 43 was discussed by the Court of Appeal in Hilmi & Associates Ltd v 20 Pembridge Villas Freehold Ltd [2010] EWCA Civ 314.

As evidenced by Court of Appeal and other cases, getting it wrong is easier than you might think.

This is the case of Silver Queen Maritime Ltd v Persia Petroleum Services Plc [2010] EWHC 2867 (QB).

In short, the parties to a dispute agreed to settle for £8.1 million and the solicitor had his client company execute as a deed, the Settlement Agreement.  The deed was undated.

On 21 July, he sent it attached to an email to the other side stating “Please find attached PPS’ [his client’s] signed copy of the Settlement Agreement. We look forward to receiving a completed Agreement with your clients’ signatures on it as soon as possible.”

The solicitor’s client contacted him urgently the next day stating that it did not want to go ahead with the settlement due to matters that had been undisclosed.  The solicitor therefore sent an email, on 22 July at 0815, stating that his client was withdrawing immediately from the settlement.  At this stage, the other side had not signed the deed.

Later the same day, the solicitors for the other side sent an email attaching the executed Settlement Agreement.

In sending out the undated, executed Settlement Agreement, the solicitor believed that a binding contract would only come into effect when both sides had signed the document. His witness statement argued that legal settlements are never made by one party sending out a signed copy of a deed to another.  The intention was that a contract will only come into effect when it is signed by the other party and when any further formalities (such as dating the agreement) have been complied with.

This may well have been the intention of the solicitor but, as the Court stated: “It is, however, the objective intention of the parties which must be discerned”.

Lindbloom J held that the Settlement Agreement was binding. The attempt to recall it had been to no avail. The solicitor had delivered the deed “in escrow”.

In order for a deed to be a deed, it is necessary to satisfy three requirements: the face value requirement; due execution; and delivery.  The deed will become effective as a deed once it is delivered.

Delivery in escrow means that the deed has been delivered – and will become effective and irrevocable – when a condition is satisfied.  In Silver Queen, the only conditions that needed to be fulfilled were signing of the deed and returning it.  The other side did just that.

The solicitor could have taken a number of steps to preserve his client’s position.  He could have sent a letter to the client saying that signing the document would not constitute delivery and that delivery would take place only when the deed was dated.  In which case, he should have, when forwarding the deed on to the other side, expressly stated that delivery was not to take place until the deed had been dated by both parties. Alternatively, he could have inserted a suspensory clause in the deed to the effect that it was not delivered until it was dated.  If he wished to deliver in escrow, he could have stated clearly what the conditions were.  A condition could, for example, have included an agreement to exchange by phone.

So the deed had been delivered in escrow.  And once delivered, even in escrow, it cannot be revoked unless there is an express power of revocation.

• The “cash flow test” which asks if the company is able to pay its debts (section 123(1)(e) of the Insolvency Act 1986) and

• The “balance sheet test” which applies when the value of a company’s liabilities exceeds its assets (section 123(2))

Section 123(2) provides that a company is

“deemed unable to pay its debts if it is proved to the satisfaction of the court that the value of the company’s assets is less than the amount of its liabilities, taking into account its contingent and prospective liabilities.”

Surely, therefore, for the purposes of the “balance sheet test”, one simply has to ascertain whether liabilities exceed assets as reflected in the balance sheet?  Not so.  The Court of Appeal has roundly rejected this approach.

BNY Corporate Trustee Services Limited v Eurosail-UK 2007-3BL Plc & others [2011] EWCA Civ 227, is the first decided case, or at least cited case, on the interpretation of the words now contained in section 123(2).  The case itself involved the incorporation of section 123(2) into a contract clause dealing with events of default.

The Court of Appeal has held that the balance sheet test applies when the company has reached the “point of no return”.  The balance sheet test does not amount to ‘a mechanical “assets-based”, basis for seeking to wind up a company’. Section 123(2) can only be relied on by a future or contingent creditor of a company which has reached “the end of the road”, or ‘in respect of which the shutters should be “put-up”..’

This decision will come as a relief for companies whose assets on the balance sheet might fall below the value of its liabilities.  However,  a test based solely on the values of assets and liabilities in the balance sheet would have the virtue of conceptual and practical simplicity. Lord Neuberger MR accepted that the correct ‘balance sheet test’ may be “imprecise, judgement-based and fact specific”.

So, while we now have clarification of the “balance sheet test” of section 123(2), there remains uncertainty as to when that test might be satisfied.

The Court of Appeal in Axa Sun Life Services plc v Campbell Martin Ltd and others [2011] EWCA Civ 133 has recently held that the wording of an entire agreement clause did not exclude such representations.

The case is also significant as the Court held that the entire agreement part of the clause (stating that the agreement constitutes the whole agreement) may be subject to the reasonableness test in UCTA.  It appears from the judgment, however, that such a clause is likely to pass the reasonableness test.

There have been a number of recent decisions and cases on the construction of entire agreement clauses.

An entire agreement clause should seek clearly to cover three, and possibly four, areas.

A clause should:

(1) provide that the agreement is the whole agreement between the parties;

(2) make it clear that there is no reliance on pre-contractual statements (save as set out in the agreement); and

(3) state that the clause is not intended to exclude or limit liability for fraud.

A party may also seek to include a provision to the effect that remedies are only contractual.

In Axa  Sun Life Services, step (2) was not dealt with.  Such was the decision in the recent case of BSkyB v HP Enterprise Services UK Ltd [2010] in which Ramsay J found that a somewhat lengthy entire agreement clause also missed out step (2).

In BSkyB, the judge referred to an earlier dictum of Jacob J in Thomas Witter Ltd. v. TBP Industries Ltd:

“In other words, if a clause is to have the effect of excluding or reducing remedies for damaging untrue statements then the party seeking that protection cannot be mealy-mouthed in his clause.”

There is a surprising amount of law and dicta on this important clause.  And it may not be enough even if your drafting is glaringly clear. In Thomas Witter Ltd, Mr. Justice Jacob held that even a clause which goes on to provide for an acknowledgement that a party has not been induced to enter into a contract by any other than scheduled representations does not exclude liability in misrepresentation arising out of some other representation, if that party can succeed evidentially in proving, despite that acknowledgment, that he was induced by it.

There have been a significant number of decisions on so-called ‘boiler plate’ clauses. We deal with the legal and drafting issues relating to such clauses in our courses on Boilerplate Clauses and also in our courses on contract law and drafting.

Under the Act, fines may be unlimited and are expected to be much greater than fines imposed for offences under health and safety provisions. The Sentencing Guidelines on Corporate Manslaughter make it clear that fines in the millions of pounds would not be unreasonable and suggests a starting point of £500,000. The fine imposed on Cotswold Geotechnical Holdings was £385,000, payable over 10 years due to the company’s parlous financial position. The company had only eight employees. It is likely that significantly greater fines will be imposed on larger companies.

For some six years, we have been delivering monthly updates on corporate and commercial law to leading firms in London.

Due to the positive feedback and the success of these sessions, we have decided to offer this service to other clients. We have also decided to run similar update sessions on Real Estate and Environmental Law.

These sessions run for one hour and take place from 9am to 10am. We find that this is a very convenient time for busy practitioners and attendance has proved very good.

These update sessions are usually attended by lawyers at all levels, from partners to trainees.

The emphasis is to encourage questions and contributions from delegates, enabling them to share their experience and to assess the significance of developments to their practice.

The cost of a session is £675 plus VAT.   This will include all materials.  You will also be able to use the materials for any further in-house training.

For further information, use the Contact page.

For some six years, we have been delivering monthly updates on corporate and commercial law to leading firms in London.

Due to the positive feedback and the success of these sessions, we have decided to offer this service to other clients. We have also decided to run similar update sessions on Real Estate and Environmental Law.

These sessions run for one hour and take place from 9am to 10am. We find that this is a very convenient time for busy practitioners and attendance has proved very good.

These update sessions are usually attended by lawyers at all levels within the corporate and commercial departments, from partners to trainees.

The emphasis is to encourage questions and contributions from delegates, enabling them to share their experience and to assess the significance of developments to their practice.

The cost of a session is £675 plus VAT.   This will include all materials.  You will also be able to use the materials for any further in-house training.

For further information, use the Contact page.