Formalities – not so formal?

In two cases – one recent, one not so recent – the High Court looked at and got around formalities; (1) to find a claim in time for limitation purposes by concluding that an agreement had been executed as a deed and (2) by rectifying a signature block so that an amendment to a pension scheme's rules took place as intended. These cases potentially show the courts taking a more lenient approach to formalities and may assist in professional negligence claims arising where documents are considered invalid for failing to follow relevant formalities.

When is a deed a deed?

In the first of the two cases, Lendlease Construction (Europe) Limited v Aecom Limited (2023) the High Court looked at the formalities for a deed.  The proceedings involved a complicated construction/building dispute, but whether or not the contract between the claimant and defendant (the Consultancy Agreement) was a deed or not was vital to the applicable limitation period.  If the Consultancy Agreement was a deed then the contractual breaches relied on by the claimant, Lendlease, were in time as a breach of a deed attracts a longer 12 year limitation period.  If the Consultancy Agreement was a contract (so not a deed), then Aecom's position was that the claim was out of time.

The Consultancy Agreement had been drafted with an attestation clause in the format necessary for the execution of a deed.  It provided for execution in one of two ways – first by affixing the party's common seal in the presence of two directors or a director and the company secretary, or second expressed as being executed by the company as a deed and signed by two directors or by a director and the company secretary.  In this respect the execution block reflected the relevant statutory provisions prescribing the formalities for the execution of a deed (as the Consultancy Agreement was entered in October 2004 the relevant provisions were under s.36A and s.36AA of the Companies Act 1985 and s.1 of the Law of Property (Miscellaneous Provisions) Act 1989).  

There were two issues contended by Aecom who argued that the Consultancy Agreement was a contract and not a deed.  First, the individuals signing on behalf of Aecom signed in the section for witnesses purporting to be those witnessing the affixing of the company seal.  As a result, Aecon argued that the Consultancy Agreement was not expressed as being executed by Aecom as a deed.  Second, the two individuals that signed – Mssrs Cooper and Palmer – were not statutory directors of Aecom – albeit it was found by the High Court that they had authority to enter into the Consultancy Agreement on behalf of Aecom.

As to the first issue, the High Court found "… I have no hesitation in concluding that when Mr Cooper and Mr Palmer signed the Consultancy Agreement they were purporting to execute it as a deed…The reality is that Messrs Cooper and Palmer signed in the wrong place…"  Here the High Court relied on two factors – first, there was no intention that the Consultancy Agreement should be executed by affixing the company seal – so the signatures were in the wrong place.  Second, the alternative interpretation was that Mssrs Cooper and Palmer purported to witness something which had not happened.

On the second issue, the High Court acknowledged that the rules governing the execution of deeds are laid down in statute and it was the intention of Parliament that if a document was to take effect as a deed, specified conditions had to be satisfied.  The High Court then went on to find that the Consultancy Agreement was executed as a deed and that; "… the central factor is the artificiality of Aecom's position.  It accepts that Messrs Cooper and Palmer had authority to act as they did… it is not open to Aecom to accept that it was bound by the actions of Mssrs Cooper and Palmer and then to adopt an unrealistic stance as to the nature of those actions or as to their effect…".

So despite the fact the signatures were in the wrong place and the two individuals signing for AECOM were not statutory directors, that did not stop, on the facts, the Consultancy Agreement being found by the High Court to have been executed as a deed attracting a 12 year limitation period.

A missing signature?

 In the more recent case of Ballard v Buzzard (2024) the High Court was faced with the question about the validity of two amendments to a final salary pension scheme where the amendment power required a document to be signed by all five trustees but despite the fact all five trustees did sign, one purported to sign on behalf of the employer and not as a trustee, leading to doubt as to whether the amendment power had been followed.  If the amendment power had not been followed, the amendment was ineffective.  The scheme's amendment power was quite long-winded, but it was accepted by both sides that the amendment power envisaged three stages as part of any change to the rules.  First, the procedure was started by the provision by the employer to the trustees of a written authorisation to undertake the proposed alteration or addition, second the trustees needed to decide whether to implement the proposal as they did not have to automatically accept the employer's proposal and finally once the trustees had decided they should adopt any alteration or addition, they were required "forthwith" to declare any such alteration or addition to the rules in writing under their hands.

Following findings of fact in relation to the first amendment as there were two versions of the document forming the basis of the first amendment, the High Court was faced with the question of whether both amendments were valid as there was no signed version of either amendment signed by all trustees. Instead, one trustee signed against the signature block "for and on behalf of the principal employer" and the parties agreed there was no reason to believe that this trustee signed a second time as trustee – so whilst four of the trustees had or were found to have signed in a manner that demonstrated they were signing in their respective capacities as trustee, the only signature given by one of the trustees was in a different capacity.  One of the factual issues was that the proforma document for amendments did not have sufficient signature blocks – there were not five blocks for the trustees – and so the High Court found that this meant that on each occasion one trustee found a form in front of him, designed by the advisers understood to be experts in pension administration, and he ensured that the document was signed in the manner required by the signature blocks on that document.  In light of that the High Court found "… I have no doubt that in doing so it was his intention to demonstrate the approval [to the amendments] by both the [employer] and the trustees…".

Before the High Court, it was advanced that there were two reasons why the signature block – for the employer – should be ignored.  First, on a true construction of the amendment power the amendments were effective and second, even if the signature was ineffective as a signature as a trustee and the steps taken by the trustees to amend fell short of the formalities under power of amendment, it only did so in the most insignificant of ways and in such circumstances the court should apply the equitable maxim of "equity regards as done that which ought to have been done" to cure the defect.  However, the High Court did not need to deal with these issues as a way around the problem came to light during the hearing – namely that the court could apply its powers of rectification to the signature block.  In light of this the High Court ordered rectification of the signature block, so that it referred to execution in the capacities as both the employer and the trustee.

A potential cheaper answer in a professional indemnity claim?

The two cases show the court arguably taking a more lenient approach to formalities, particularly in the first case when it came to execution of a deed.  It also shows the court's willingness to get around issues with documents where it can.  Considering whether it is possible to get around execution/formality issues is important where in the absence of having following the formalities or where there are execution issues, the amendment does not take effect.  The issue most commonly arises in the trust area and particularly for pension scheme amendments.  Rather than treating the attempted amendment as invalid and calculating what the position would be on the basis the amendment was invalid, which can be particularly expensive in pension cases where the result is often higher benefits, it is worth considering if there is a way to resolve the issue first.  This is particularly relevant in professional indemnity claims involving documents where there are execution/formality issues as funding an application to resolve the problem may well be the cheaper option compared to having to address the damages arising from the fact a document simply does not have the effect it was understood to have had.