Are you ready for counterpart signing?
Contracts briefing: Several large Scottish firms have been discussing a possible common practice in operating the new law on execution in counterpart
On 1 July 2015, a significant transformation in execution of documents in Scotland took place. The Legal Writings (Counterparts and Delivery) (Scotland) Act 2015 may be small in size (seven sections and no schedules), but it is likely to have a major impact on the way commercial transactions are conducted in future.
Signing documents in counterpart is common in England & Wales, and other jurisdictions, but it was not thought to be competent under Scots law. Increasingly, the advantages of being able to complete multi-party documents simultaneously when the parties are geographically remote from each other, has meant either employing tricky technical workarounds, or an eleventh-hour switch of ruling law, from Scottish to English, to allow documents to be signed in counterpart and complete the deal on time.
What is counterpart execution?
Previous Journal articles (“Writings redefined”, March 2015, Journal online, and others cited there) have outlined the legal changes made by the Act. Parties no longer need to have a single document sent to all for signing, or to meet for a signing session. Instead, each party may sign their own, identical copy of the document, which, when assembled together with all the other signed copies, will form a single, fully signed document, made up of either:
- both or all of the counterparts in their entirety, or
- the whole of one of the counterparts, plus the pages on which the other counterparts have been signed.
Depending on the parties’ requirements, each can sign either as many copies of the document as there are parties, or one complete copy of the document. Either each party delivers a subscribed copy of the document to each of the other parties, or one (or more than one) person is nominated to take delivery of the counterparts, and each party delivers their signed counterpart to that person.
Electronic delivery of paper documents
For documents to take effect, they must be delivered. The Act also permits documents (whether or not signed in counterpart) to be delivered (where this is required) by transmitting (e.g. by fax or attached to an email) an electronic copy of the whole or part of the document.
If part only is being sent, it must include the page on which the sender has signed the document, and be sufficient to show that it is part of the document. It is up to individual firms to decide what will be a sufficient “part”: the use of headers or footers can help to identify not only the document, but also the correct version number. It may be prudent to ask each signatory to confirm by email that the part delivered relates to the document originally circulated for signing.
However, it is important to understand that, while a traditional document may be effectively “delivered” electronically, what is delivered is not the physical document itself. So, where the principal document is needed, for example to enable registration at the Land Register or Books of Council & Session, physical delivery of the “wet ink” signed document or counterpart must follow electronic delivery.
How do we use the law?
Although many commercial and corporate lawyers in Scotland are familiar with using counterpart execution under English law, we now have our own system, created by statute, and, while Scottish counterpart signing looks very similar, there are a few important differences to bear in mind. As with all new legislation that impacts on our processes and procedures, there are inevitably going to be different views on how to deploy this new tool in a transaction.
With this in mind, a number of legal firms have discussed how to use Scottish counterpart signing in practice, to see whether it is possible to reach a consensus on a common approach. Representatives of Shepherd & Wedderburn, CMS Cameron McKenna, Pinsent Masons, Dickson Minto, Brodies, Maclay Murray & Spens, Burness Paull, DWF and HBJ Gateley have worked together to consider the practical issues and have agreed a broad strategy within which to apply counterpart signing. For other firms who decide to use it, the group thought to share some of the matters we have addressed.
Plan your procedures early
Particularly in the early days, it is sensible for all the parties involved, and their solicitors, to have clear agreement and understanding on the steps that everyone will need to take to ensure that the documents are correctly and validly executed. Having one party, or more probably their solicitor, assume the role of “nominated person” under s 2 of the Act, will make the administrative process more manageable and reduce errors or confusion. It is likely that this role will be regarded as an administrative one only, so, since the Act provides that the only duty of the nominated person is to “hold and preserve [the signed counterparts] for the benefit of the parties”, most solicitors acting in this role will probably want to contract out of this duty, which the Act permits them to do. We recommend that the nominated person sends an email to the other solicitors setting out the procedures, and at this early stage the parties can agree what form delivery is to take, e.g. actual or electronic, all or part of the documents, etc.
Holding as undelivered
A document signed in counterpart becomes effective when both or all counterparts have been delivered. But the parties can agree that the counterparts are to be held as undelivered, until either, (i) the party who signed the counterpart copy agrees that it is to be treated as delivered, and/or (ii) where a condition requires to be satisfied before delivery takes place, that condition is satisfied. This rule (s 1(5)) can be a useful transactional tool, particularly for documents of a type that become effective on execution or delivery. If they are signed in counterpart, it can be agreed to hold them as undelivered until the parties agree they are to become effective.
Date of delivery
If the parties have agreed that despite signed counterpart documents being physically or electronically delivered, they are to be held as undelivered until an agreed effective date for delivery, then it is likely that the parties will want that effective date to be identified somewhere in the document, and distinguish it from dates of signing. The group had different views on where the delivery date should appear – some favouring the top of the first page in the English style, others suggesting this could be conveniently added to the testing clause when completing the signing details.
The general consensus is that it doesn’t make any difference, as neither is a part of the deed, and either method is acceptable. Where the date has been inserted in the testing clause, it may also be put on the front cover of the document for ease of reference. And it is suggested that the document itself could acknowledge the intention to insert this date after signing (see next section).
There is no legal requirement for a document that is to be signed in counterpart to contain any wording authorising this. Most members of the group felt however that this would be a useful marker in the document and for possible clarification to any registration authorities receiving the document. The clause (see boxout) can also reflect the fact that the parties may agree to hold as undelivered and acknowledge that a delivery date will be added after subscription.
The principal difference between Scottish and English counterpart execution stems from the fact that Scotland has a statutory basis, whereas in England it is based on custom and practice. The Law Society of England & Wales provides protocols for “remote signings” as there is no statutory framework. While these rules do not apply to Scottish counterparts, it is likely that something similar (but Scots law compliant) will evolve. It should also be remembered that the underlying Scots law of contract remains intact, as does the Requirements of Writing (Scotland) Act 1995. So, a document that the parties need or want to be probative should be printed in full and subscribed. For documents relating to land, all annexations should be signed on each counterpart and all of the signed annexations attached to the single compiled document.
For contracts that do not require to be in writing, it is essential that a record of what was agreed between the parties, what was sent for signing, and what was returned, should be carefully preserved.
Ann Stewart, Senior Professional Support Lawyer, Shepherd & Wedderburn
Effective date of delivery
Where the effective delivery date of the document is to be inserted at the top of the first page, the following wording is suggested. Since the dates of actual signing by each party still appear in the signing blocks, this date is the delivery date, not the execution date.
“The date of delivery of this Agreement is [ ]” or “This Agreement is delivered on [ ]”
Where you have decided on the testing clause option, it might look like this:
"IN WITNESS WHEREOF this Agreement between A, B, C, D and E is [executed in counterpart] by the parties as undernoted, with a delivery date of [ ]:
[followed by signing blocks for each of the parties to the document]."
The following suggested counterparts clause wording is offered:
“Counterparts and Delivery
[ ].1 This [Agreement] may be executed in any number of counterparts [and by each of the parties on separate counterparts].
[ ].2 Where executed in counterparts:
[ ].2.1 this [Agreement] will not take effect until each of the counterparts has been delivered;
[ ].2.2 [each counterpart will be held as undelivered until the parties agree a date on which the counterparts are to be treated as delivered];
[ ].2.3 [the date of delivery may be inserted [in the testing clause in the blank provided for the delivery date][on page 1 in the blank provided for the delivery date][in Clause [ ] in the blank provided for the delivery date] of this [Agreement].]”