In the light of the recent Mercury case (R on the application of Mercury Tax Group Limited and others v HMRC [2008] EWHC 2721 (Admin) (13 November 2008), Ian Jamieson of Solomon Harris examines it's ramifications for Cayman Islands firms engaged in transactional work.
1. Background
The Mercury case involved the execution of search warrants for a tax investigation in the UK. The parties involved had attached the executed signature pages from early drafts of a deed to the final version (which was different from the draft originally signed) in order to complete. The court held that as the parties had not executed the final version, the deed in question was invalid.
In this case, there were significant differences between the draft signed and the final version of the document and there was also a question of a potential tax fraud. Notwithstanding this, the ratio of this decision is applicable to all contracts dealing in land and deeds which are governed by English law.
Historically, the practice of using pre-signed signature pages while a contract is being agreed is widespread as a method of saving time, but following Mercury, once a deed or a contract dealing with land had been executed or signed, it will need to be re-executed if further amendments are required and the parties wish to be sure that the document in question will be valid and enforceable. It should be noted that this does not apply to any gaps which need to be inserted upon completion.
The court in Mercury did acknowledge case law which stated that a contract can be amended after signature where such amendments are acknowledged by the parties. This will not however, validate a document in the situation where a signature page has been removed from a materially different version in order to be affixed to a later agreed document.
The current view is that Mercury does not affect simple contracts (other than those relating to land), only deeds and probably does not prevent the execution and delivery of a deed being confirmed electronically by scanning and e-mailing a complete version of the signed and witnessed document in question.
2. Going forward
When dealing with documents governed by English and (by implication) Cayman Islands law, practitioners should avoid:-
- holding pre-signed signature pages and affixing them to finalised versions of documents;
- amalgamating multiple signed counterparts into one document signed by all parties;
- sending signature pages to a client and affixing scanned versions to the agreed documents; and
- changing an executed document (with the consent of all the parties thereto) and then swapping over signed pages from the old to the new version.
Clearly, on most occasions involving English law governed documents, Cayman practitioners will be dealing with English counsel who will be arranging for the execution of the documents in question. On a practical level, it is probably worthwhile mentioning these issues to them should a document need to be re-executed in order to ensure that they are not running the risk of invalidation.
When dealing with Cayman law governed deeds, Cayman practitioners should (where possible) arrange a physical closing where the documents are printed off in their entirety beforehand and executed by the parties involved. If, as is more common, the parties are dealing with a "virtual" closing, then as a matter of best practice, the whole of the documents in question should be e-mailed to the client, with a request that they print off the entire document (with appendices, if any), execute the same and return them to their lawyers.
The various UK Law Societies are preparing some guidance on execution and completion procedures which should clarify best practice in relation to virtual completions, but until such guidance is received, then it would be wise to err on the side of caution when dealing with the execution of such documents.
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.
