Sale of land – Contract – Companies – Execution of documents – Companies Act 2006 – Contract for sale of property – Company and its authorised signatories separately named as sellers – Individual signatories executing document without affixing common seal of company – Section 44 of 2006 Act – Whether document expressed to be executed by the company for purposes of section 44 – Whether validly executed contract binding company
The appellants were the purchasers, under a contract and supplementary agreement, for the sale of a residential building containing five flats. The term “Seller” was defined in those documents to include both the first respondent company, which was selling the freehold of the building, and several of its directors and shareholders, who were selling their long leasehold interests in individual flats. The various sales were comprised in a single composite contract for simultaneous sales at an unapportioned total price of £3.35m. Of the various signatures attached to the supplementary agreement, under the heading “SIGNED… SELLER”, two belonged to parties who were not only individual sellers of their leasehold interests but were also authorised signatories of the first respondent.
The appellants subsequently refused to complete their purchase. They asserted that they were not obliged to complete because the contractual documents had not been validly executed “by or on behalf of” each party as required by section 2 of the Law of Property (Miscellaneous Provisions) Act 1989; they claimed that there had been no valid execution by the first respondent. That argument turned on section 44 of the Companies Act 2006 and its provision for companies to execute documents, with the same effect as if under common seal, by affixing the signatures of two authorised signatories on the company’s behalf in a document “expressed, in whatever words, to be executed by the company”. The appellants contended that a valid execution by the company required not only the signatures of the authorised signatories but also express words stating that those signatures were “by and on behalf of” the company; they submitted that the words used in the sale contract did not indicate that the first respondent was executing it.
In proceedings between the parties, summary judgment was given for the appellants, but that decision was reversed on appeal. Permission was granted for the appellants to bring a second appeal.
Held: The appeal was dismissed. A document signed by two authorised signatories of the company in accordance with section 44(2) will not, without more, have the same effect as if executed under the common seal of the company. The requirement in section 44(4) for a document “expressed in whatever words to be executed by the company” adds a further requirement. However, it does not require express words spelling out that the signatures are “by or on behalf of” the company. Where the “Seller” was defined to include both the first respondent selling its freehold and the individuals selling their leaseholds, and where the signatures to the document included those of two authorised signatories under the heading “SIGNED… SELLER”, that meant that the document was expressed to be executed simultaneously by both the first respondent and by the individuals, all being included in the term “Seller”. No problem would have arisen had the sales of the freehold and leaseholds been effected by two separate documents, with the freehold document signed in a similar way by the authorised signatories. There was no reason why the position should be different where the transactions were combined in the same document, especially since the statutory provisions are intended to expand the range of formalities that will count as execution by a company. Accordingly, the supplementary agreement had been validly executed by the first respondent.
This was an appeal by the appellants, Roger Williams and Mrs Williams, from a decision of Lewison J, sitting in the Chancery Division of the High Court, reversing a summary judgment given in their favour by Master Price in proceedings against the respondents, Redcard Ltd, Ms Helen Christie, Mrs Anne Auber, Mrs Serene Ton Soo Ling, Mrs Rachel Singleton and Mrs Sarah Ferris, regarding the execution of a contract for the sale of land under the Companies Act 2006.
Timothy Dutton (instructed by Bircham Dyson Bell LLP) appeared for the appellants; Evan Ashfield (instructed by Davies Battersby) represented the respondents.
Giving judgment, Mummery LJ said:
Introduction
1. This appeal turns on the construction of section 44(4) of the Companies Act 2006 (the 2006 Act), a statute that enjoys the dubious distinction of being the longest Act of parliament ever passed. In this judgment, reference is made to only three of the 1,300 sections. No reference is made to any of the 16 Schedules.
2. Section 44, which came into force on 6 April 2008, relates to the execution of documents by a company. It allows the use of more informal methods than the affixing of its common seal. The section is in a group of sections in Part 4 of the Act – (section 43 (Company contracts), section 44 (Execution of documents) and section 45 (Common seal) – under the general heading “Formalities of doing business…”.
3. A company neither needs to have a common seal nor does it have to execute a document under its common seal: see section 45. Subject to detailed provisions, section 44 extended the changes made to the Companies Act 1985 by the insertion of section 36A by the Companies Act 1989 (the 1989 Act). It is enacted that a document signed on behalf of the company by two authorised signatories or by the attested signature of a director and expressed to be executed by the company has the same effect as if executed under the common seal of the company. (Since there was no attestation of signatures here, this judgment deals only with the case of signatures on behalf of a company by authorised signatories.)
Background
4. The salient facts are that a company called Redcard Ltd was named as a party to a contract dated 28 July 2008 and a supplementary agreement dated 27 January 2009. The contracts included an agreed sale of Redcard’s freehold interest in a substantial residential building at 24 Castlenau, Barnes, London SW3. The building was converted into five self-contained residential flats let on long leases to individuals who were directors and shareholders of Redcard. The contracts also included an agreed sale of the leasehold flats by the individuals.
5. Redcard fell within the definition of “Seller” contained in those documents. The question is whether the documents, which did not bear a common seal of the company or separate signatures stated to be “for or on behalf of” Redcard, were validly executed by the company. The supplementary agreement, which varied the completion date and confirmed the earlier contract in all other respects, has been treated by the parties as the relevant document for the purposes of the submissions on the application of section 44. If it is validly executed by Redcard, that cures any defect in the earlier contract. It is agreed that the issue on execution stands or falls by whether the supplementary agreement was executed by Redcard.
6. The supplementary agreement bore various signatures under the words “SIGNED… SELLER” including those of two individuals, who were authorised signatories of Redcard. The two individuals were named among the parties to the same document. They also fell within the defined term of “Seller”, since they agreed to sell their leasehold interests in their respective flats. The contracts for the sale of the freehold and of the leasehold interests were all included in the one composite document for simultaneous sales at an unapportioned aggregate purchase price of £3.35m.
7. The purchasers named in the supplementary agreement were the appellants, Mr and Mrs Roger Williams. Their case is that there is no contract that they can be compelled to complete because the sellers’ part of the contract was not properly executed by Redcard. They refuse to complete the purchase, despite a notice to complete served on 11 February 2009. They submit that the valid execution of the documents by Redcard requires that, in the absence of a common seal, the documents should contain words expressly stating that the signatures of the authorised signatories are “by or on behalf of” Redcard. In this case, they say that no words appeared in the supplementary agreement expressly stating that the signatures of the individuals at the foot of it were “by or on behalf of” Redcard, as distinct from the signatures of individuals acting in a personal capacity on the sale of their leasehold interests in their respective flats. Accordingly, the contract of sale was not executed by Redcard and they cannot be compelled to complete it. (The appellants have taken other points as to why the sellers’ claims against them should fail, but they do not arise on this appeal. It is common ground that if the appellants’ point on the execution issue succeeds, that would be fatal to the sale contract on which the sellers are relying.)
8. It is common ground that, being for the sale of land, the contract had to be signed “by or on behalf of” each party to the contract: see section 2 of the Law of Property (Miscellaneous Provisions) Act 1989. Those formalities apply to a contract made by or on behalf of a company, as well as a contract made by an individual: see section 43(2) of the 2006 Act. The main thrust of the appellants’ case is that a distinction is to be drawn between the signature of an authorised signatory pursuant to the section 44 procedure for execution of a document and the signature of an agent on a company contract, as permitted by section 43(1)(b); and that the words required by section 44 are any that make it clear that the person said to have signed on behalf of the company did so under section 44 rather than as agent for the company at common law.
9. On 18 November 2009, Master Price, on hearing cross-applications for summary judgment, held that the supplementary agreement was not executed by Redcard and that it was not valid and binding. On 23 April 2010, Lewison J held, on appeal on the execution issue, that the supplementary agreement was executed by Redcard in accordance with the requirements of section 44 of the 2006 Act and complied with section 2 of the 1989 Act.
10. On 29 June 2010, I refused permission for a second appeal. On 26 October 2010, the chancellor granted permission on the ground that the appeal raises a question of general public importance going to the root of all manner of transactions involving limited companies.
Judgment of Lewison J
11. In allowing the appeal from the decision of Master Price, Lewison J concluded that the point taken by the appellants on execution was not a good one. He said:
21… If a contract is to be signed by a person, both on his own behalf and also on behalf of a company, I cannot see why he should not be able to sign with a single signature provided that the signature is expressed to be a signature on his own account and also on behalf of the company. After all, the general principle of English Law is that no formalities are required to make a contract and it seems to me that if statute is to impose limitations on that general principle it must do so clearly. Accordingly, I consider that provided that, on the fair interpretation of the words in a contract, the reasonable reader would understand the signatures of the natural persons are signatures both on their own account and on behalf of the company, that is sufficient to amount to proper execution for the purposes of section 44. In this respect I respectfully differ from Master Price who held that the contract must state expressly in a testimonium clause that the natural person is signing for and on behalf of the company or some words to that effect.
22. Accordingly, I apply the test which I favour to the supplemental agreement. Would a reasonable reader with the background knowledge reasonably available to the parties have understood that the contract was signed on behalf of Redcard? The signatures appear in a box headed “Seller.” In order to understand what was meant by the word “seller”, the reasonable reader would have looked at the front page of the supplemental agreement. On seeing that he would have seen that the seller included Redcard. He would next have looked at the signatures themselves.
12. Lewison J then explained that, with regard to the relevant signatures, the reader would have been faced with two possibilities: either the signatures were both on their own account and also on behalf of Redcard or Redcard had failed to execute the agreement at all. In the latter case, the contract could not be enforced by or against the buyers (the appellants). The description “seller” would have been untrue since, in their personal capacities, they were part only of the seller as defined. Lewison J concluded that the supplementary agreement was validly executed in accordance with section 44 of the 2006 Act and was thus signed on behalf of Redcard for the purposes of section 2(3) of the 1989 Act. He said:
25. The reasonable reader would also have known from his background knowledge that all the directors of the company had committed themselves personally to performance of a contract which could only be carried out with the co-operation of the company of which they were directors and majority, if not sole, shareholders. He would also have understood that the contract was intended to be effective rather than ineffective. Faced with that choice, the reasonable reader would have concluded that the signatures of at least Ms Silberstein and Mrs Auber were appended to the contract both on their own account and also on account of Redcard.
13. In his able argument in this court on behalf of the appellants, Mr Timothy Dutton contended that Lewison J’s construction of section 44(4) was wrong. I turn to the terms of that subsection and to Mr Dutton’s submissions on its construction.
Companies Act 2006
14. Section 44 (“Execution of documents”) applies to any documents, not just contracts to which section 43 applies. It provides that:
(1) Under the law of England and Wales… a document is executed by a company –
(a) by the affixing of its common seal, or
(b) by signature in accordance with the following provisions.
(2) A document is validly executed by a company if it is signed on behalf of the company –
(a) by two authorised signatories, or
(b) by a director of the company in the presence of a witness who attests the signature.
(3) [definition of authorised signatories]
(4) A document signed in accordance with subsection (2) and expressed, in whatever words, to be executed by the company has the same effect as if executed under the common seal of the company.
(5) In favour of a purchaser a document is deemed to have been duly executed by a company if it purports to be signed in accordance with subsection (2).
A “purchaser” means a purchaser in good faith for valuable consideration and includes a lessee, mortgagee or other person who for valuable consideration acquires an interest in property.
(6) Where a document is to be signed by a person on behalf of more than one company, it is not duly signed by that person for the purposes of this section unless he signs it separately in each capacity.
15. I note a number of points on the purpose, context and language of the section.
(1) Section 44, like its neighbouring sections 43 and 45, relates to the formalities of doing business, in particular the formalities for the making of contracts and the execution of documents by companies.
(2) The purpose of section 44 was to facilitate the formalities of the execution of documents by companies by allowing signatures either of two authorised signatories or of one director, if attested, to count as execution by a company under its common seal.
(3) In order to achieve that result, section 44 uses the familiar legislative technique of “deeming.” Thus, in the case of a document signed in accordance with section 44, the document has the same effect “as if” executed under the common seal.
(4) The legal effect of words in subsection (4), “and expressed in whatever words to be executed by the company”, are central to Mr Dutton’s contention that, in order to give rise to a deemed execution of a document by a company, the signatures relied on must be expressed in words conveying that they are by or on behalf of the company.
(5) As for subsequent purchasers for value in good faith, subsection (5) deems, in their favour, that a document was duly executed by a company if it purports to be signed in accordance with subsection (2). We were referred to Lovett v Carson Country Homes Ltd [2009] EWHC 1143(Ch); [2009] 2 BCLC 196, in [79], for the proposition that “purports”, in subsection (5), “operates to refer to the impression a document conveys”, focusing on what appears to be the case rather than what actually is the case. That particular point does not arise here because the appellants are immediate not “subsequent” purchasers, but the provision is relied on by Mr Dutton as supporting his submissions on the construction of the key words in subsection (4).
(6) Similarly, subsection (6) does not apply here because only one company is involved, but it is relied on by both sides as an aid to the construction of subsection (4). It provides that where a document is to be signed by a person on behalf of more than one company, it must, for the purposes of due execution, be signed separately in each capacity. On this subsection, we were referred to the recommendations of the Law Commission No 253, 1998, The Execution of Deeds and Documents by or on behalf of Bodies Corporate, in paras 3.30 to 3.35, that preceded the enactment of section 44(6).
Appellants’ submissions
16. It is accepted that the supplementary agreement was signed by or on behalf of the individual sellers of the leasehold interests in the five flats. The question is whether it was executed “by” Redcard as the seller of the freehold interest. On this point, Mr Dutton’s submissions may be summarised as follows.
17. He said that the key to the execution requirements is in the answer to the question: was the supplementary agreement executed “by” Redcard? There is a distinction, which is recognised in section 43(1) of the 2006 Act, between the execution of a document “by” a company, which must comply with the requirements of section 44(4) and be apparent from the language of the document itself, and the execution of a document “on behalf of” a company. He cited Hilmi & Associates Ltd v 20 Pembridge Villas Freehold Ltd [2010] EWCA Civ 314; [2010] 1 WLR 2750*, in [28] to [31], as recognising, in the context of execution of documents, the distinction between a document signed by, as distinct from on behalf of, a company.
* Editor’s note: Also reported at [2010] 2 EGLR 41; [2010] 25 EG 104
18. For a document to be executed by a company, it must either bear the company’s seal, or it must comply with section 44(4) in order to take effect as though it had been executed under seal. Subsection (4) requires that the document must not only be made on behalf of the company by complying with one of the two alternative requirements for signature in section 44(2): it must also be “expressed, in whatever words, to be executed by the company”. That means that the document must purport to have been signed by persons held out as authorised signatories and held out to be signing on the company’s behalf. It must be apparent from the face of the document that the people signing it are doing something more than signing it on the company’s behalf. It must be apparent that they are signing it on the company’s behalf in such a way that the document is to be treated as having been executed “by” the company for the purposes of subsection (4), and not merely by an agent “for” the company. The supplementary agreement does not state on what behalf each signatory was signing it, or identify the relationship between the signatories and Redcard. Mr Dutton submitted that it cannot be said that the supplementary agreement was executed “by” Redcard within section 44 because there was no expression in words in the supplementary agreement that Redcard itself was executing it, rather than by an agent. There is nothing in it to indicate who was executing it on behalf of Redcard or whether Redcard was executing it by any one of the signatures.
19. Mr Dutton said that Lewison J’s fundamental error was to equate “by” the company in subsection (4) with “on behalf of” the company in subsection (2). It was not made clear by express words in the supplementary agreement that Redcard itself was invoking the procedure supplied by section 44. It was not sufficient to identify Redcard as a party to the supplementary agreement, for that says nothing about whether Redcard was executing it itself or by an agent. It was not sufficient for the signatures to be those of authorised signatories because that was not an expression of what Redcard was doing.
20. According to Mr Dutton, the judge was also in error in thinking that the factual context of the supplementary agreement and its availability to the reasonable reader could bring it within section 44(4). He said that Lewison J applied the wrong test. Asking whether the reasonable reader with the background knowledge reasonably available to the parties would have understood that the supplementary agreement was signed on behalf of Redcard was a test that was not warranted by the terms or statutory purpose of section 44.
21. It is also submitted that the test applied by the judge is inconsistent with subsection (6), which applies in the case of the same signatory wanting to sign on behalf of two companies. He should have applied that provision by analogy, pointing as it does to the undesirability of situations where one person signs a document in more than one capacity. Clear words are needed before one signature is to be taken as execution by two parties. Against Mr Dutton, it was argued on behalf of the sellers that subsection (6) is otiose if separate signatures in each capacity, one personal and the other for the company, are required under subsection (4).
22. As an aid to construction of subsection (4) Mr Dutton relied on subsection (5). He said that it indicates that a document should be regarded only as “purporting” to be signed for the purposes of that subsection and subsection (2) or as “expressed” to be signed under subsection (4), if that appears clearly from the face of the document itself.
Discussion and conclusion
23. The appeal turns on what the words “expressed in whatever words to be executed by the company” in subsection (4) add to the presence of signatures by two authorised signatories in accordance with subsection (2) and whether that added requirement was satisfied in this case.
24. I agree with Mr Dutton that those words must add something to the provision in subsection (2) that a document is validly executed by a company if it is signed on behalf of the company by two authorised signatures. Subsection (4) does not simply provide that a document signed in accordance with subsection (2) has the same effect as though executed under the common seal of the company.
25. I am unable to agree with Mr Dutton that the critical words require that, in addition to the signatures of the individuals who are the authorised signatories, there must be words spelling out that those signatures are “by or on behalf of” the company. Let us suppose that, in this case, the contract for the sale of the freehold and the leasehold interests was the same and that instead of being put into one composite document there were two separate documents. Also suppose that, in the separate contract for the sale of the freehold interest, Redcard was, as here, defined as “Seller” and that the signatures of two authorised signatories appeared, as here, under the words “SIGNED… SELLER ”, but without stating that the signatures were “by or on behalf of” Redcard. In my judgment, it would be absurd in such circumstances to say that the contract for the sale of the freehold by Redcard was not expressed to be executed by Redcard. If Redcard is defined as “Seller”, the signatures at the end of the agreement under the words “SIGNED… SELLER” could mean only that the document was expressed to be executed by Redcard.
26. Why should the legal position regarding execution by Redcard be any different when, as here, the freehold and the leasehold transactions are combined in the same document, the authorised signatories being parties to the contract and the defined term “the seller” including both the individual leaseholders and Redcard? In my judgment, there is no conceivable sensible reason why the legal position should be any different in the case of one document rather than two, especially when the statutory provisions were intended to expand the range of formalities that would count as execution by a company.
27. That this is a simple case within subsection (4) can be clearly demonstrated: the signatures to the supplementary agreement are under the words “SIGNED… SELLER”; “SELLER” is defined in the supplementary agreement as including both Redcard selling its freehold and the individuals selling their leaseholds; the signatures include the signatures of two authorised signatories; and the use of the defined term “SELLER” above those signatures means that the document is expressed to be simultaneously executed both by Redcard and by the individuals, all being included in the term “SELLER”.
28. As for the construction and operation of subsections (5) and (6), which do not apply to the facts of this case, I express no view. They cater for different situations and are not especially relevant to the construction of subsection (4).
Result
29. I would dismiss the appeal. By a slightly different route, I have arrived at the same conclusion as Lewison J on the construction and application of section 44(4). The supplementary agreement was executed by Redcard.
30. From a practical point of view, it may just be worth stating the obvious: expensive and long-drawn-out litigation concerning the execution of a document by a company can be avoided by taking greater care over compliance with the formalities at the time of execution, by, for example, adding words that expressly state the capacity in which an individual is signing a document to which a company is a party.
Black LJ said:
31. I agree.
Hughes LJ said:
32. I also agree.
Appeal dismissed.