In a case which raised a range of issues, the High Court considered the circumstances in which an agreement could take effect as a deed where it had not been validly executed. The Court found that the agreement should take effect as a deed in circumstances where the signatories were represented as being able to execute a deed on behalf of the company, and the other party had relied on that representation.
In this case, the agreement in question was signed in October 2004. At that time, the relevant law governing the execution of deeds by companies was set out in sections 36A and 36AA of the Companies Act 1985 and section 1 of the Law of Property (Miscellaneous Provisions) Act 1989. This legislation provided that valid execution is necessary for a document to take effect as a deed executed by a company. A company could validly execute a deed using its common seal, or by signature by a statutory director and secretary of the company or two statutory directors of the company. Similar provisions are now contained in the Companies Act 2006.
The case concerned the design and construction of a hospital. A number of claims were brought in relation to alleged defects, including by the main contractor against a sub-contractor appointed to carry out fire safety and mechanical and electrical works.
The sub-contractor’s appointment (the “consultancy agreement”) had been signed on behalf of the sub-contractor by two signatories purporting to execute the document as a deed, using a signature block providing for execution by affixing the sub-contractor’s seal in the presence of two directors. However, the signatories were not statutory directors and the document had not been executed using the company’s seal. The sub-contractor accepted that it was bound by the consultancy agreement as a contract, but argued the agreement did not take effect as a deed because the requirements of the legislation governing execution of deeds by companies were not met.
If the consultancy agreement was a contract, the relevant statutory limitation period for breach of the agreement was six years from the cause of action, and the claim was time barred. If the consultancy agreement was a deed, the relevant statutory limitation period was 12 years and the claim was not barred.
Following previous case law, the Court considered that where a person was represented, or “held out” as being in a particular position or as having particular authority on behalf of a company, the company can be prevented from denying that such a person has the authority normally associated with that position. This is a legal doctrine available to the courts, known as “estoppel by representation”. There must be a representation, or “holding out”, by the company placing the signatory “in such a position that he or she is able to represent him or herself as having the authority in question”. There must also be reliance by the other party on that representation, such as entering a contract on the basis of the signatory’s asserted authority.
On the facts, the Court was satisfied that there was both representation and reliance. The sub-contractor had placed the signatories in positions where they were able and expected to act on its behalf, and the parties then proceeded on the basis that their dealings were covered by the consultancy agreement. Until the dispute arose, the sub-contractor had not sought to argue that the consultancy agreement did not operate as a deed. The sub-contractor was therefore not able to contend that the consultancy agreement was a contract rather than a deed to benefit from the shorter limitation period.
While not a pensions case, the judge’s conclusions on the application of estoppel by representation may also be applicable in the pensions context. That said, its application will be very fact specific.
Perhaps the bigger lesson to take from this case is that there are strict requirements for the valid execution of deeds, and there may be very significant consequences if they are not complied with.
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