Execution Of Documents At A 'Virtual' Signing Or Closing

In R (on the Application of Mercury Tax Group

Limited and another) v HMRC [2008] EWHC 2721 (Admin) the Court

held that the final form of a deed was invalid where the signature

pages on an incomplete draft had been transferred to execute a

later amended version. In the light of this judgment, a joint

working party comprising The Law Society Company Law Committee and

The City of London Law Society Company Law and Financial Law

Committees ("the JWP") has produced guidance on the best

practice for executing documents at a "virtual" signing

or closing.

The first Claimant ("Mercury") operated a tax

avoidance scheme for a number of clients known as the "gilt

strip" scheme ("the Scheme"). The First Defendant

("HMRC") suspected that the Scheme had been dishonestly

implemented and obtained search warrants in relation to a number of

premises associated with Mercury or its clients. It was HMRC's

case that there were reasonable grounds to suspect that there were

serious flaws in the way in which the Scheme was implemented and

that Mercury was aware of those flaws but sought dishonestly to

conceal them. One of the flaws alleged by HMRC was that clients

participating in the Scheme had signed incomplete drafts of three

key documents and that Mercury had later transferred the signature

pages from those drafts to the final version of the documents,

which contained a number of substantial differences from the drafts

that the clients had signed.

Mercury argued that the procedure it had followed (namely

obtaining a client's signature to a draft document but

subsequently transferring it to the final version) was ordinary

office practice and wholly unobjectionable. The Court found that

the documents in question had not been validly executed for the

following reasons:

1 It was not clear that the evidence established that the

clients had implicitly authorised or ratified some of the changes

between the draft and final versions of two of the documents, which

the Judge considered were fundamental;

2 The Court had not been referred to any authority which dealt

with the taking of a signature page from one document and its

recycling for use in another;

3 The parties must be taken to have regarded signature as an

essential element in the effectiveness of the documents: that was

to be inferred from their form. In such a case, the Court believed

that the common understanding was that the document to be signed

exists as a discrete physical entity at the moment of signature.

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