Rowena Meager's Property Law Blog

In my last post I referred to the High Court’s decision in the case of Broxfield Limited v Sheffield City Council [2019] EWHC 1946 concerning liability for the payment of non-domestic rates. A very interesting point arose in that case which can be understood by reference to paragraphs [12], [13] and [33] of Mostyn J’s judgment. In short, what emerged in evidence was a concern about exactly what document (if any) had been signed by the parties. Central to the case, and therefore the proper identification of the liable party, was a document purporting to be a lease of the relevant premises. What is evident from the judgment is that the Judge was not satisfied that the whole lease had been signed rather than just a signature page that was then attached to a full document and presented to the Council as such.

Why does that matter? According to Underhill J in R (on the application of Mercury Tax Group Limited) v HMRC [2008] EWHC 2721 (Admin) (“Mercury“) it matters a great deal. Mercury concerned a tax avoidance scheme (“the Scheme”), the detail of which is unnecessary to recite for current purposes save to note that in respect of the tax year 2002-2003 Mercury operated the scheme for some 23 clients. However, the effectiveness of the Scheme depended upon the execution of certain documents. “… three of the key documents required to be signed by a client participating in the Scheme were (a) the Trust Deed …, (b) the Option Agreement …, and (c) the Sale and Purchase Agreement … It is common ground before me that in the case of not only Mr Grisay but of Mercury’s other clients participating in the Scheme the client was asked at some time in early or mid November to sign incomplete drafts of each of these three documents; and that, when fresh documents in final form came to be executed, he was not asked to sign those versions but instead the signature pages from the drafts were detached and stapled to the final version with the intention that that should constitute his signature to that version …”, para [9].The Judge considered the differences between the drafts and the final versions of the documents and concluded that there were substantial changes (blanks had been filled in and other material information had been altered).

Counsel for Mercury submitted that there was nothing wrong in the procedure adopted whereby signature pages were transferred from draft documents to substantially different documents. Reliance was placed on the case of Koenigsblatt v Sweet [1923] 2 Ch 314 to the effect that it was submitted that the alteration (by the substitution of completed documents for incomplete documents) was ratified by implicit authorisation. Underhill J rejected the applicability of that authority to the substantive changes to the relevant documents in the Mercury case. At para [38] Underhill J stated “… I am not sure that the evidence establishes that Mr Grisay or the other clients implicitly authorised (or ratified) the change in identity of the strip as between the draft and final versions of the Option Agreement and Sale and Purchase Agreement. Although the letters of 25 November 2003 do indeed refer in terms to the 2004 stock, there is nothing in KPBP’s letter which specifically draws clients’ attention to the fact that this is a change or that it will require alterations to the documentation which they had already signed: some may have noticed that, and recognised the implications, but others may not“. And at para [39] “… 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 … 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 documents 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 went on at para [40] “… even if I were wrong about the legitimacy of transferring signature pages in general, there is the additional factor that each of the three key documents in the present case was intended to be a deed … Mr Bird submitted, and I agree, that [the language of section 1(3) of the Law of Property (Miscellaneous Provisions) Act 1989] necessarily involves that the signature and attestation must form part of the same physical document  … Mr Mitchell observed that, although these documents were expressed to be deeds, it was not necessary that they should be. I am not sure that that is correct, at least in the case of the Option Agreement, for which no consideration is given; but, even if it were, the fact remains that the parties intended them to be deeds and their validity must be judged on that basis“.

In Broxfield the trial judge had been unable to conclude exactly what (complete) document had been signed, if any. However, the evidence clearly pointed to the distinct possibility that only a signature page had been signed (see para [33] of Mostyn J’s judgment) and then inserted into a ‘lease’ to provide to the Council to evidence the transfer of the right to possession of the relevant property. In those circumstances it was impossible for the court to positively conclude that the document upon which Broxfield relied had been executed as a whole document and the burden of proving that was upon the party relying upon it. Broxfield failed to meet that burden and, accordingly, the document it relied upon was not accepted as a lease or indeed any other form of contractual arrangement because, as Mostyn J surmised, it was impossible to know exactly what document had been signed.