Two Recent Cases Looking At Statutory Formalities For Signing Of Documents

• Published date: 18 January 2024
• Subject Matter: Corporate/Commercial Law, Compliance, Corporate and Company Law, Directors and Officers, Contracts and Commercial Law
• Law Firm: Shearman & Sterling LLP
• Author: Mr Michael Scargill

Two recent English cases illustrate a strict and a more flexible approach by the courts when considering whether the signing of a legal document has complied with, or is rendered ineffective by non-compliance with, prescribed statutory formalities. We first look at the more flexible approach.

Execution of deeds by companies without a common (or company) seal

On 1 November 2023, Eyre J gave his judgment in Lendlease Construction (Europe) Ltd v Aecom Ltd. The signing formality at issue there was the requirement under Companies Act 1985 (and now found in the Companies Act 2006) (CA) that for a deed to be validly executed by a company, unless its common seal is affixed to the deed – very rarely done nowadays – the deed must be signed by two directors or by a director in the presence of a witness who attests her signature.

Signing of a deed by "non-directors"

All that could have gone wrong with the signing of the deed (which was, in fact, a consultancy agreement signed in the form of, i.e., intended to take effect as, a deed) in accordance with these requirements, did go wrong. Thus, the two signatures for Aecom ("A") where placed against the space marked for the fixing of the company seal, instead for the space for the directors to sign in lieu of a company seal, and the two individuals who signed the deed were not de jure (i.e., formally appointed) directors or even de facto (i.e., acting informally as) directors of the A. The individuals were simply employees of the A who had been closely involved in the negotiation of the documents that included the deed that was in dispute.

The issue about whether the consultancy agreement was properly and effectively executed as deed, rather than simply taking effect as a binding contract – which both parties accepted would be the case if the requirements to be executed as a deed were not satisfied – was relevant because A wanted to argue that the claim against it by the counterparty, Lendlease ("L"), was out-of-time, with a six year statutory limitation applying to the claim rather than a 12-year limitation that would apply to a deed. It was clear that the two individuals who signed the deed were not statutory (i.e., de jure) directors of A at the time they signed. It was also not argued that they were de facto directors (or indeed shadow directors).

A's argument that the two individuals (even if they were directors) were not purporting to execute the agreement by signing it but instead were only purporting to witness the sealing of the agreement and, since the company's seal was never affixed to the document, their signing had no legal effect, didn't get very far. It was clear that they had simply signed in the wrong place and that there had never been any intention that the agreement should have A's seal affixed to it. A's stronger argument was that since the two individuals were not directors of A, in any sense of the term, the agreement couldn't have been executed as a deed and so only took effect as a contract. A did not dispute that the individuals had the necessary authority to sign the agreement on behalf of A.

Freeman & Lockyer v Buckhurst Properties (1964)

The judge devoted a large part of his reasoning on this valid execution question to an analysis of the decision in the above 1964 Court of Appeal case ([1964] 2 Q.B. 480) which held that a company was bound by the actions of one of its four directors in entering into an agreement as managing director despite never having been formally appointed to that post under its articles. The court ruled that the counterparty did not have to enquire whether the director had been duly appointed under the company's articles with authority to enter into contracts by himself on behalf of the company. It was sufficient that there was power under the articles to appoint the individual with the "contracting powers" of a managing director.

A argued that the Freeman & Lockyer line of cases only established that the agreement would bind A on the basis of the ostensible authority of the two non-director individuals who signed it – arising from them having been "held out" as having the authority to sign the agreement. Those cases were not relevant to the question whether the agreement could take effect as a deed despite non-compliance with the...