Transferred signature cannot count as document approval, says High Court

In a case concerning a tax avoidance scheme, Her Majesty's Revenue and Customs (HMRC) applied for search warrants because they had suspicions that the scheme was being operated fraudulently. They believed that documents were being improperly dealt with and their defects concealed.

Clients of Neil Masters, a solicitor who owned and ran the scheme as company Mercury, were asked to sign an incomplete draft of the three essential documents for the scheme's operation. They were not asked to re-sign final, complete versions of the documents.

The previously signed pages attaching to the earlier documents were taken and stapled to the new documents and taken to represent approval of the new documents.

Masters did not dispute that this had happened, but said that it did not affect his clients' approval of the documents. He said that there was a principle in law by which documents could be altered after signature by someone with the authority of the signer to do so.

Mr Justice Underhill said that a previous case in which a court approved the use of a signature in relation to a changed document did not support Masters' behaviour here.

"I have been referred to no authority which deals with the situation in the present case - that is, the taking of a signature page from one document and its recycling for use in another," he said. "[Masters' lawyer] Mr Mitchell submits that there is no essential difference between the two situations. It should, he said, make no difference whether the ( ex hypothesi, authorised) alterations are made to the selfsame document or whether, as is increasingly easy with modern technology, they are incorporated in a tidier form in a reconstituted document and the signature page from the earlier version is reattached. I do not agree."

"The parties in the present case must be taken to have regarded signature as an essential element in the effectiveness of the documents: that is to be inferred from their form. In such a case I believe that the common understanding is that the document to be signed exists as a discrete physical entity (whether in a single version or in a series of counterparts) at the moment of signing."

"The significance of this is not entirely talismanic (though it would not affect my view even if it were): the requirement that a party sign an actual existing authoritative version of the contractual document gives some, albeit not total, protection against fraud or mistake," he said.

Mr Justice Underhill rejected Masters' claim that the practice is common and acceptable. "There is no evidence – nor, for what it is worth, am I aware – of any general practice of signature pages being detached from an incomplete draft and attached to a later, and significantly different, version," he said.

Though lawyers can be under tremendous pressure to ensure complex documents and processes are in order in a short space of time, corporate law specialist Graeme Fyfe of Pinsent Masons, the law firm behind OUT-LAW.COM, said that they must ensure that the processes are proper.

"We all understand the pressure that can be involved in getting a deal done, particularly where there are hard deadlines involved," said Fyfe. "This decision acts as a timely reminder, however, that the formalities of how the deal gets done are still as important as ever, particularly given the likely upturn in disputes and litigation that is a likely consequence of the current financial crisis."