Blog Authors: Marcus Harling and Alistair Russell – Burges Salmon LLP
Electronic signatures, data rooms, Mercury execution? Evolving working arrangements mean we should all double check exactly how to execute construction documents.
Whilst smart contracts and digital signatures are still very much the immediate future, for most people they did not arrive in time to help with the complexities of contract execution created by the COVID-19 lockdown. Suddenly the traditional way of contract execution became almost impossible and old questions on remote Mercury compliant execution procedures, such as ‘Can my spouse witness my signature?’ resurfaced. These issues are particularly relevant to construction contracts, which often give rise to the additional logistical headache of ensuring huge appendices are legally incorporated while offices are shut and signatories locked down at home.
The easing of lockdown may mean that some of us are returning to a semblance of working normality. However, the risk of future lockdowns and an increased acceptance of remote working as the ‘new norm’ means that a good understanding of remote execution is likely to be required for some time to come. This article explores some of the key considerations.
Before we look at traditional ‘wet-ink’ signatures, it should be noted that electronic signatures, where acceptable to both parties, are a great option for ‘simple’ contracts (i.e. not deeds) in the current circumstances. Both parties can sign at once, there is no need for hard copies and no reliance on the post, courier or home printing. An electronic signature provider with appropriate cyber-security credentials can help to ensure the contract is executed securely, reliably and to provide resilience to fraud. It will be helpful to include wording in the contract that records the parties’ intention to execute by electronic signature and that such execution is evidence of their intention that it will have the same legal effect as a wet-ink signature.
For deeds, where the execution requirements are more stringent, it may be more practical in the current circumstances for documents to be executed by two directors (or one director and the company secretary) rather than a director and witness. This is because the witness must be physically present at the time that the director signs. There are valid, socially distanced, ways around this potential problem, including the witness being the other side of a window or screen, but witnessing via video link is not acceptable.
If either of the parties insists on execution using a director and witness then the identity of the witness needs to be considered. Where an independent witness isn’t available (because the relevant signatory is in lockdown or self-isolation at home) the Companies Act does not technically prohibit a family member acting as a witness. While this is not considered to be best practice (and is prohibited in certain specific circumstances) it can be used as a last resort where no other witness is available. It would be a matter of general law as to competence of the witness and the veracity of any evidence they may give if the execution of the deed was ever called into question. As with remote executions (see below) it is key to dispel any suggestion that fraud may be involved in the execution of deeds.
With many sections of the construction industry remaining very active during COVID-19 lockdown, and with those sectors experiencing significant disruption needing to maintain momentum on key projects, the need to master remote execution has never been greater. Construction contracts, often being a complex package of standard terms, amendments to standard terms, technical schedules and lengthy appendices bring their own unique problems to remote execution. Here are some key points to remember:
- Don’t forget to include a counterpart clause in the contract. This records that all signed and delivered counterparts constitute one and the same agreement.
- A virtual data room may be the most efficient way of collating and sharing all the technical schedules and appendices. The data room and all the documents in it need to be incorporated into the contract by reference and supported by an index which identifies what they are.
- The documents in the data room and those set out in the index in the contract need to be agreed in advance and should be checked to ensure that they match before the contract is executed. It may be appropriate to list document version numbers or use unique document ID numbers to avoid arguments at a later date about what was and wasn’t incorporated into the contract when it was signed.
- Will the data room be accessible in the future? It’s all well and good including a reference to the data room and an index in the contract but will it still be accessible in the same form two years later if the parties are in a dispute? It can be helpful to take a screenshot of the contents of the data room just in case.
- Get all counterparties to agree the procedure for and method of execution well in advance. Make sure all parties will have the necessary facilities to print, sign and scan/photograph the signed pages of the contract.
- With remote executions comes the need to dispel any suspicion of fraud as highlighted in the infamous Mercury case. When agreeing the procedure that underpins a Mercury style execution, the parties need to:
- clearly set out in their communications what is the agreed version of the contract that is being signed;
- what their signature is being appended to; and
- importantly, expressing clear confirmation that they give permission for their signature to be appended to the contract and for one party to collate a final copy.
COVID-19 and lockdown may increase the number of hurdles to be overcome to effectively create new construction contracts. But as long as both parties follow established procedures and clearly document their intentions there is no reason for execution to be added to the list of unprecedented challenges currently facing the industry.
If you have any queries relating to the content of this article, please contact Marcus Harling, a partner in the Construction and Engineering team at Burges Salmon – firstname.lastname@example.org.
This article was first published on 1 September 2020 at burges-salmon.com.
R (on the application of Mercury Tax Group and another) v HMRC  EWHC 2721