In today's world of electronic communication, many contracts are negotiated without the parties concerned ever meeting face to face. But what about when it comes to signing the contract?
The olden days
In Scotland, traditionally, either:
- all the parties had to be present in the same location to sign the contract; or
- there was a "round robin" exercise whereby multiple copies of the principal contract would be posted from one party to the next to get signed. When signed in this way, the parties had to wait for the last party to sign before the contract was concluded.
It could be hard to get all parties in the one place, especially if located in different countries.
The signature process was time consuming and, where lengthy or multiple documents were involved, costly if it involved posting documents around all the parties.
Lawyers found practical ways round this to enable transactions to complete even if people were signing at different locations. These were not ideal solutions and it became increasingly clear that Scots law could do with some changes to put things on a firmer footing.
What is "executing in counterpart" and how does that help?
Execution of a contract in counterpart involves each of the parties signing separate (but identical) copies of the contract.
Each party then exchanges their signed counterpart with the signed counterparts of the other party or parties.
The parties don't have to be in the same place to sign the contract or sign at the same time. Nor do they have to wait for a contract to be signed by the other party and sent on to them for signing.
Scots law on counterparts
The Legal Writings (Counterparts and Delivery) (Scotland) Act 2015 expressly permits execution by counterpart, thereby bringing Scots law in line with many other jurisdictions, including England.
A contract executed in counterpart will only become effective when each party delivers its signed counterpart to the other party or parties.
On execution, the Act provides that the counterparts are to be treated as a single document.
The single document can be made up of either:
- both/all the counterparts in their entirety; or
- one of the counterparts in its entirety, collated with the completed signature pages of the other counterparts.
Delivery and the contract coming into effect
Suppose Mr Pink and Mrs Green are entering into a contract and they want to execute by counterpart.
- Mr Pink signs his counterpart on Monday and sends it to Mrs Green the same day.
- Mrs Green signs her counterpart on Monday as well, but doesn't get round to sending it to Mr Pink till Wednesday.
Their contract will not be effective until Wednesday. That is so even though both of them signed it on Monday.
Can you delay delivery?
Yes. Each party can specify that their counterpart is to be held "undelivered" until the sender tells them that it can be treated as delivered.
The effect of this is that the parties can control when their contract comes into effect.
So our friends Mr Pink and Mrs Green could agree between themselves that, even though they will sign and exchange counterparts on Monday, these are not to be treated as delivered until Friday. That means their contract will not come into effect until Friday.
Mr Pink and Mrs Green should agree on this before they exchange their counterparts.
How do you "deliver" a counterpart?
A counterpart can be delivered physically e.g. by sending the hard copy to the other party.
Alternatively, delivery can be by electronic means e.g. by emailing a pdf of the signed counterpart.
Where delivering by electronic means, it is permissible to send only the signed signature page - not the whole contract. However, it must be clear from the signed page that it forms part of the relevant contract.
Dating a contract executed in counterpart
Scots law signature blocks for contracts usually have a space for the signatory to insert the date on which they sign.
But a contract executed in counterpart does not come into effect when the last party has signed. Rather, it is when all the counterparts have been delivered to the other party or parties.
So the "date" of a contract executed in counterpart would be that date of delivery.
The Act does not require the delivery date to be inserted into the contract. However, it is common practice to leave a space for this date to be put in at the top of the first page. When all of the counterparts have been signed and delivered, the date of delivery can be written in.
Where there are multiple contracting parties
Suppose there are ten contracting parties. You can see that things could get pretty complicated as each would have to sign nine counterparts and deliver one to each of the other nine contracting parties.
Now imagine that the transaction involves seven different agreements. The complexity only increases!
The Act allows parties to appoint a "nominated person" who acts as a central co-ordinator. This will usually be a solicitor for one of the parties.
The nominated person co-ordinates completion arrangements. They agree the execution and delivery process with the other parties (or their solicitors) in advance.
Typically, the nominated person will take delivery of the multiple counterparts, confirm with all the parties when these can be treated as "delivered", write the delivery date into each contract, and then distribute the completed contract(s) to the parties.
There is no requirement under the Act for the contract to contain a clause narrating that it can be executed in counterpart.
English law contracts, by contrast, will usually contain such a provision.
How Brodies can help
The Scottish rules on executing by counterpart have made the signing process a lot easier. But it's important to get it right, particularly when it comes to the date on which the contract is to be effective.
We regularly advise clients on execution requirements and counterparts. Should you require any further information, please get in touch with your usual Brodies contact.
Thanks to Louise Bell for her contribution to this blog.