The Law Commission the Execution of Deeds And

THE LAW COMMISSION Report on a reference to the Law Commission under section 3(1)(e) of the Law Commissions Act 1965 THE EXECUTION OF DEEDS AND DOCUMENTS BY OR ON BEHALF OF BODIES CORPORATE To the Right Honourable the Lord Irvine of Lairg, Lord High Chancellor of Great Britain PART 1 INTRODUCTION Background 1.1 Following a joint reference from the Lord Chancellor and the President of the Board of Trade in October 1994, we published a consultation document entitled “The Execution of Deeds and Documents by and on behalf of Bodies Corporate” in November 1996. Our terms of reference were as follows: To review the law on the execution of deeds and documents by or on behalf of all bodies corporate and to make recommendations. 1.2 The background to the paper lay in the changes to the law governing deeds and their execution made by the Law of Property (Miscellaneous Provisions) Act 1989 and the Companies Act 1989, although some of the difficulties with the law were longer standing.1 1.3 The Companies Act 1989 introduced a new section 36A into the Companies Act 1985. This abolished the requirement that every company must keep a common seal and, for the first time, permitted companies to execute deeds by the signature of their officers alone. It also sought to reflect changes which had been introduced for deeds generally by the Law of Property (Miscellaneous Provisions) Act 1989, in particular the requirement that to be a deed, an instrument must make it clear on its face that the parties to it intend it to be a deed (“the face-value requirement”). 1.4 However, although the ability for a company to execute deeds without a seal was generally welcomed, the detailed drafting of section 36A was criticised by a number of practitioners. Not only was it regarded as complicated and uncertain, it was also difficult to reconcile with other overlapping statutory provisions, particularly section 74 of the Law of Property Act 1925 and section 1 of the Law of Property (Miscellaneous Provisions) Act 1989. 1 The difficulties are highlighted in paras 1.4-1.7 below. They are also summarised in paras 1.18-1.28 below. 1 The consultation paper 1.5 In the consultation paper we therefore examined the provisions of section 36A of the Companies Act 1985 and considered ways in which the various overlapping statutory provisions could be brought into line. This involved consideration of, amongst other things, the categories of permitted signatories, the face-value requirement, presumptions of due execution, and presumptions of delivery. Although the focus of this examination was on the requirements for the execution of deeds, section 36A also covers the execution of other documents. 1.6 There are, however, many other types of corporation to which the provisions of the Companies Act do not apply and which are subject to very different execution regimes. We also considered in the consultation paper whether it may be possible to achieve greater uniformity between different types of corporations in the rules applying to the execution of deeds and documents, and to make those rules more accessible. This involved considering not only other corporations aggregate within England and Wales, but also foreign corporations and corporations sole. 1.7 Finally, the reforms introduced in 1989 concerned, for the most part, the execution of deeds or documents by a company. However, deeds and documents may also be executed on behalf of a company, and some practitioners had indicated that the 1989 reforms failed to pay sufficient regard to this. In the consultation paper we therefore examined whether any changes were needed to the rules for executing deeds and documents on behalf of a company. Our provisional proposals 1.8 In the consultation paper, we found that not only was there a lack of consistency and uniformity in the present law, but also that there were serious technical uncertainties and problems of statutory interpretation which seemed quite disproportionate to the area of law under review. 1.9 We made a number of detailed proposals for reform in the consultation paper to tackle the technical difficulties and uncertainties. However, we also made a number of more general proposals for reform, and in particular suggested that the provisions applicable to companies incorporated under the Companies Acts should, to a large extent, be extended to corporations generally. This would enable such corporations to execute documents without a seal, and permit persons who deal with such corporations to rely on the presumptions of due execution and delivery which currently apply to companies. Response to the consultation paper 1.10 There was very clear support from respondents for legislative reform in this area, particularly from practising solicitors. One respondent, whose views were echoed by many others, commented as follows: We support the Commission’s view that there is a need for reform of the law to introduce greater certainty and uniformity in this area. It is plainly absurd that there can be doubt over such a basic matter as whether a document has been properly executed ... 2 1.11 There was also considerable support for many of our detailed provisional recommendations. However, although there was also support from a majority of respondents for changes to achieve greater uniformity in relation to execution of deeds and documents by different types of corporations, there were also objections raised by some respondents. Several respondents were very firmly of the view that the ability to execute otherwise than by affixing the seal should not be extended to particular types of corporation; the view was also expressed by others that it would not be right to attempt to achieve greater uniformity with one over-arching piece of legislation. Our approach to reform 1.12 In the light of the responses, we consider that a more limited reform exercise would be appropriate. We consider that the uncertainties and anomalies which we identified in the consultation paper should be eliminated so far as possible, but we do not consider that a wider reform which seeks to apply a (more or less) uniform approach to execution of deeds by corporations generally is feasible or desirable at this stage. Nor do we consider that a more limited “codification” of the existing provisions (with the additional changes which we recommend in this paper) should be undertaken. 1.13 Our views on this are reinforced by other factors. The European Commission is currently working on a draft directive on digital signatures.2 The scope of the European Commission’s work is currently fairly limited, extending simply to the recognition of digital signatures. However, the work of the European Commission forms part of a wider debate on the use of electronic communication and its compatibility with the requirements of form and procedure imposed by national laws.3 In this country, the Land Registry is considering the use of electronic conveyancing to facilitate the elimination of the “registration gap” (between a disposition having effect between the parties and its registration). Among the issues which will need to be considered is the current requirement that a paper document is needed to effect a disposition of land.4 We understand from the Land Registry that even before the introduction of any fully electronic system there is a possibility that there may be an interim stage which would involve standard form documents that could then be scanned into a computer; those documents might 2 See Proposal for a European Parliament and Council Directive on a common framework for electronic signatures Com (1998) 297 Final. For an earlier discussion paper published by the European Commission, see Communication on Ensuring Security and Trust in Electronic Communications: Towards a European Framework for Digital Signatures and Encryption Com (97) 503 Final. 3 For example, the Society for Computers and Law Legislative Working Party also produced a report for the Department of Trade and Industry in December 1996 on “Digital Information and Requirements of Form”. In April this year, the DTI published proposals for a secure electronic commerce bill which include measures to promote the legal recognition of electronic signatures in electronic commerce, and the introduction of a voluntary licensing regime for Certification Authorities, Trusted Third Parties, and other providers of cryptographic services PN/98/320. The United Nations Commission on International Trade Law (UNCITRAL) has also been working on Draft Uniform Rules on Electronic Signatures (discussed at Thirty-second session, Vienna, 19-30 January 1998). See also para 2.9, n 19 below. 4 The Land Registry is currently piloting the discharge of mortgages electronically. 3 not need to be first executed as deeds. These issues will be explained more fully in a forthcoming joint report on land registration from the Law Commission and the Land Registry which is due to be published on 2 September.5 1.14 This raises the question of the extent to which the current distinction between deeds and other documents will continue to be relevant; conveyances of land (or an interest in land) are, of course, the most common situations where a deed is currently required. As indicated in the consultation paper,6 we have not considered in this project any possible change in the situations when the law requires a deed to be used, or invited views on whether the distinction between deeds and other instruments should be maintained since we regarded this as beyond our terms of reference. In due course it may be necessary to address these issues. But such a review would go beyond the scope of our remit in this project since it would involve looking at the position of individuals as well as corporations, and would be concerned not simply with execution of deeds and documents, but with whether deeds should continue to exist in their current form.

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