News | December 11, 2019

A Good Deed….

Where the parties to a transaction or other arrangement are required by law, or otherwise agree, to record their agreement in a written document, the applicable execution formalities will depend on the type of document concerned. Generally, English law makes a distinction between: (i) deeds; and (ii) simple contracts. Additional execution formalities apply where a document is structured as a deed.

These execution formalities also differ according to the legal personality of the executing party. Different statutory regimes can apply to the execution of deeds by individuals, companies, limited liability partnerships and trustees of pension schemes. If the applicable formalities are not properly observed, this could affect the validity and enforceability of the document concerned.

The Gleeds case[1]

In 2014, the High Court reinforced the “supreme importance” of ensuring documents making changes to a pension scheme are correctly executed. The case involved around 30 deeds relating to a pension scheme that was established in 1974 for employees of partnerships and companies within the Gleeds group. The judge ruled that none of those documents had ben validly executed as a deed. The fault lay in failing to get the partners’ signatures on the deeds witnessed in accordance with the Law of Property (Miscellaneous Provisions) at 1989. The defective deeds purported to make various changes, such as introducing a money purchase section, reducing accrual rates, introducing member contributions, and closing the scheme to future accrual.

The judgement in Gleeds had very serious implications for both the scheme and the sponsoring employer.

Wood v Commercial First Business Limited[2]

In November 2019 the High Court issued another judgement in relation to execution formalities in relation to deeds. In this instance, mortgage deeds were under the judicial microscope but the principle discussed below applies equally to mortgage scheme deeds.

The case arose out of two disputed mortgages relating to a buffalo farm in Somerset. One of the grounds on which the farmer (the borrower) challenged the mortgages was that they had not been properly executed as deeds. A key legal requirement for a deed executed by an individual is that it must be signed by the individual in the presence of an independent witness who attests the signature.

In this case, the farmer sought to challenge the validity and enforceability of the deeds on a number of grounds. This included her arguing that, in order to be valid, both the person executing the deed and the witness must not only sign the deed but they must do so in the presence of the other. The lender on the other hand argued that while the person executing the deed must certainly sign in the presence of the witness, the witness need not sign in the presence of the person executing the deed. The witness was in fact present when the farmer signed in her capacity as a borrower, but the witness signature was added after the event, as it were.

What does the law say?

Section 1(3) of the Law of Property (Miscellaneous Provisions) Act 1989 provides that an instrument is validly executed as a deed by an individual if, and only if, it is signed by the individual in the presence of a witness who attests the signature. The farmer did not dispute that she had executed the mortgage deed in the presence of a witness. However, she contended that to satisfy section 1(3), both the person executing the deed and the witness must sign the deed in each other’s presence.

Was the deed valid?

While the Court accepted that the witness had not signed the mortgage deed in the farmer’s presence, it found that this did not invalidate the deed. The Court held that on the proper interpretation of section 1(3), while it was necessary for the person executing the deed to sign “in the presence of” a witness, by contrast there was no additional requirement for the witness to sign in the presence of the executing party.

The Court considered that those responsible for drafting the relevant legislation could easily have included a requirement that the witness should sign in the presence of the executing party (e.g. by including the same language in relation to the witness), but they didn’t. This was unlikely to be an accidental omission.

The farmer’s claim on the grounds of lack of due attestation was therefore rejected, however, she was successful in her challenge on other grounds (Consumer Credit Act 1974).

WB Comment

The buffalo farm case (a unique feature) clarifies the legislation as far as the timing of witness attestation is concerned. Some might say that it is a “lucky” judgement on this particular point. A different judge may have reached a different conclusion.

Nevertheless, this judgement and Gleeds case emphasises the importance of following execution formalities. For pension schemes, both the relevant legislation and the provisions laid out in scheme documentation need careful checking when it comes to executing documents in relation to a scheme.

Scheme trustees and sponsoring employers must follow their lawyer’s advice when executing deeds. Getting this wrong can have a domino effect in terms of subsequent documentation and be very costly in terms of liabilities for the scheme and the legal fees necessary to fix things!

[1] [2014] EWHC 1178 (Ch)

[2] [2019] EWHC 2205 (Ch)