During the rush of a transaction, documents may need to be signed in counterpart.
Signing in counterpart means that duplicate contracts or deeds are printed so that there is a separate copy for signing by each party. The opposite situation is where one copy of the contract or deed is printed and signed by all parties to it. If you have numerous parties all in different locations it is a useful tool to allow completion without having to circulate a single copy of a document to all parties to sign. Often, you will see a clause in the agreement permitting the signatories to sign it in counterpart.
If the contract or deed does not contain a “counterparts clause”, can the parties still execute the contract or deed in counterpart?
Generally, yes, but best practice is to have a specific clause.
In short, contracts and deeds can usually be signed in counterpart. The absence of a specific counterpart clause should not affect the validity of a deed where a deed has been executed in counterpart. However, having such a clause can help to prevent another party from claiming that an agreement is not binding. They could claim that they did not know, due to the lack of a counterpart clause, that they were entering into a binding contract by signing an agreement not signed by the other parties.
Therefore, best practice is to either:
- have the contract or deed signed by all the relevant parties on one document; or
- have the contract or deed signed in counterpart but ensure that a counterparts clause is expressly contained in the contract or deed.
Counterpart clauses are so common they are rarely negotiated.
Can two directors sign in counterpart when both directors’ signatures are required?
There is no clear agreement on this point. Most lawyers will therefore err on the side of caution and say that when two directors (or another combination of two authorised signatories) are signing a document on behalf of a company they must sign the same copy of that document. The section of the Companies Act that deals with execution refers to execution of a document, singular.
This is supported by the case law position that a “counterpart” is a separate deed in itself which, when taken together with the principal deed and any other counterparts, forms one deed. This means that for one document to be a valid counterpart it needs to be executed correctly by the party to it, which arguably would not be the case if the two signatories were to sign separate copies.
Some practitioners are of the opinion that an execution clause requiring signature by two authorised signatories can be signed in counterpart. However, there is a lack of legal authority on this point and this is not the preferred view.
If it is not possible for the two signatories to sign the same copy of a document, for example, where the signatories are based in different locations, it is preferable for the document to be executed by one director in the presence of a witness.
North of the border: Scottish transactions
It is worth noting that, historically, counterpart execution was not generally recognised under Scots law (although it was a point of much lively debate). However, the Legal Writings (Counterparts and Delivery) (Scotland) Act 2015 changed this. Whilst you should always check with Scottish solicitors, the article linked (from the Law Society of Scotland Journal) gives a useful overview of the procedure for counterpart execution in Scotland.