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."
Disclaimer: We hope you find OUT-LAW’s content useful. It’s prepared by the lawyers at Pinsent Masons. Please remember, though, that it’s intended as general information only. It’s not legal advice. If that’s what you’re seeking, please
contact us. See also: our
full disclaimer
