Watch out for the formalities when executing deeds
The litigation in Bioconstruct GmbH v Steven Winspear [2020] EWHC 7 (QB) earlier this year established that a development finance deed had not been properly executed after the end of a long day’s negotiation because, although the prospective guarantor had initialled pages containing amendments, in the “incredible rush to get the document signed” it was not noticed that he had not signed the signature page in his capacity as a guarantor. Instead, he had signed only on behalf of a company that was not a party to the proceedings, in a section of the document that clearly indicated that he was signing on its behalf.
The judge found that there was no evidence as to the capacity in which the relevant initials had been applied – ie whether they had been inserted by the guarantor on his own behalf or on behalf of the company for whom he had signed. Furthermore, none of the parties had intended that initials should serve as a signature; the presence of the signature boxes at the end of the document indicated that the intention was that each party would sign in the relevant box at the end of the document.
The deed was also invalid because it included pre-signed signature pages. The pages in question had been detached from a previous draft and were attached to the final version of the document on completion. And, as we know from the decision in R (on the application of Mercury Tax Group) v HMRC [2008] EWHC 2721 (Admin), [2009] STC 743, recycling signature pages in this way invalidates a document. For effective execution, the parties must sign the actual document itself.
The litigation in Bioconstruct GmbH v Steven Winspear [2020] EWHC 7 (QB) earlier this year established that a development finance deed had not been properly executed after the end of a long day’s negotiation because, although the prospective guarantor had initialled pages containing amendments, in the “incredible rush to get the document signed” it was not noticed that he had not signed the signature page in his capacity as a guarantor. Instead, he had signed only on behalf of a company that was not a party to the proceedings, in a section of the document that clearly indicated that he was signing on its behalf.
The judge found that there was no evidence as to the capacity in which the relevant initials had been applied – ie whether they had been inserted by the guarantor on his own behalf or on behalf of the company for whom he had signed. Furthermore, none of the parties had intended that initials should serve as a signature; the presence of the signature boxes at the end of the document indicated that the intention was that each party would sign in the relevant box at the end of the document.
The deed was also invalid because it included pre-signed signature pages. The pages in question had been detached from a previous draft and were attached to the final version of the document on completion. And, as we know from the decision in R (on the application of Mercury Tax Group) v HMRC [2008] EWHC 2721 (Admin), [2009] STC 743, recycling signature pages in this way invalidates a document. For effective execution, the parties must sign the actual document itself.
Unusually, following circulation of the draft judgment, Bioconstruct asked the judge for permission to amend its particulars of claim to enable it to plead a claim in deceit against the guarantor as a result of which it had been unable to recover outstanding loan monies, contractual interest and costs – even though the trial was done and dusted: Bioconstruct GmbH v Winspear [2020] EWHC 2390 (QB). Specifically, it alleged that the guarantor had represented, in correspondence and by his conduct, that he intended to be bound by the guarantee, even though that was not his intention, because he wanted Bioconstruct to advance money to support the construction of a biogas energy plant near Hartlepool as he would profit indirectly from the transaction.
Bioconstruct explained that it had not been in a position to make an allegation of deceit before seeing the draft judgment, containing findings of fact on which it now relied. But the judge ruled that the prospects of a claim in deceit succeeding were, at best, very weak and that it would not be just and proportionate, or in accordance with the overriding objective of dealing with cases justly, to allow Bioconstruct’s application.
The judge’s decision does not preclude the possibility of fresh proceedings between the parties, but Bioconstruct would have to overcome potential arguments about abuse of process first. The moral of the story would appear to be to avoid shortcuts that could invalidate documents when executing them, and to make sure that all those who need to sign a document have done so correctly, and in the right places, as well as that their signatures have been properly witnessed, where necessary.
Allyson Colby is a property law consultant
