England and Wales Court of Appeal (Civil Division) Decisions

IN THE COURT OF APPEAL (CIVIL DIVISION)
ON APPEAL FROM THE HIGH COURT OF JUSTICE
CHANCERY DIVISION
THE HON MR JUSTICE LEWISON
CLAIM No. HC09C02486

		Royal Courts of Justice Strand, London, WC2A 2LL
		20/04/2011

Lord Justice Mummery:

Introduction

1. This appeal turns on the construction of s. 44(4) of the Companies Act 2006, a statute that enjoys the dubious distinction of being the longest Act of Parliament ever passed. In this judgment reference is made to only 3 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 - (s.43 (Company contracts), s.44 (Execution of documents) and s.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 s.45. Subject to detailed provisions, s. 44 extended the changes made to the Companies Act 1985 by the insertion of s.36A by the Companies Act 1989. 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. (As 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 Limited 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 5 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 s.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", as 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 & Mrs Roger Williams. Their case is that there is no contract which they can be compelled to complete, as 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: s.2 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 s.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 s.44 procedure for execution of a document and the signature of an agent on a company contract, as permitted by s.43(1)(b); and that the words required by s.44 are any that make it clear that the person said to have signed on behalf of the company did so under s.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 s.44 of the 2006 Act and complied with s.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, as regards 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 only part of the seller as defined. Lewison J concluded that the Supplementary Agreement was validly executed in accordance with s. 44 of the 2006 Act and was thus signed on behalf of Redcard for the purposes of s. 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 contends that Lewison J's construction of s.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 s.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 s.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 the common seal.

(3) In order to achieve that result s.44 uses the familiar legislative technique of "deeming." Thus, in the case of a document signed in accordance with s.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 County Homes Ltd [2009] EWHC 1143(Ch); [2009] BCLC 196 at [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, as 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 paragraphs 3.30 to 3.35, which preceded the enactment of s.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 says 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 s. 43(1) of the 2006 Act, between the execution of a document "by" a company, which must comply with the requirements of s.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] 1WLR 2750 at [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.
18. For a document to be executed by a company, it must either bear the company's seal, or it must comply with s.44(4) in order to take effect as if 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 s.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 submits that it cannot be said that the Supplementary Agreement was executed "by" Redcard within s.44, as 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 says 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 s.44. It was not enough 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, as 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 s.44 (4). He says 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 s.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 wishing 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 relies on subsection (5). He says that it indicates that a document should only be regarded 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 if 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 only mean 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 s.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 about the execution of a document by a company can be avoided by taking more 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.

Lady Justice Black:

31. I agree.

Lord Justice Hughes:

32. I also agree.