July 2015 – Execution In “Counterpart” Goes Live

Author: Mitchells Roberton
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Legal Writings (Counterparts and Delivery) (Scotland) Act 2015

(“the Counterparts Act”)

General background

Contracts may be formed in various ways. For example, in relation to the sale and purchase of a house, a succession of formal letters are normally exchanged between the parties’ respective solicitors until all the parties’ respective conditions concerning the transaction are agreed. Once they are, “missives” are said to be “concluded” at which point both parties are bound to go ahead.

 Execution-In-Counterpart-Goes-Live

  • Although the buyer’s original offer is usually met by what is referred to a “qualified acceptance” looked at legalistically it is not an “acceptance” at all: it is a rejection of the buyer’s original offer by the seller and its replacement by a counter-offer by the seller which, in turn, the buyer may reject and replace with his or her own further counter-offer; and so on, until a deal is concluded.
  • Alternatively, contracts may be concluded by means of a single document containing all the terms of the contract which is then signed by all the parties to the contract. If there are only two or three parties all of whom are located in Glasgow then there may be little practical difficulty about their all getting together to sign the single document. If so, then once they have all signed it, the contract is binding on them.
  • But sometimes with such contracts – particularly commercial contracts – there may be many more than three parties and they may all be geographically spread so that their all getting together to sign a single version of the document is not practicable. The Counterparts Act is designed primarily to provide a solution to that practical difficulty.

 

Introduction

 

  • On the 1st of this month the Counterparts Act came into force.  Something was said about this in an earlier “BPU” in March 2013 (before the Act was passed). A little more is said now that the Act is in force. By way of re-cap, the March 2013 BPU opened as follows:

“The phrase “execution in counterpart” might bring to mind “the worst excesses of the French revolution” (to borrow from Lady Bracknell in The Importance of being Earnest) as suggesting guillotines operating in gory tandem. But this Note touches on nothing gory.  Instead it makes a few points concerning the Execution in Counterpart etc (Scotland) Bill 2013. The Bill is still at the draft stage with the Scottish Law Commission. But something is said about it here in anticipation …

As the phrase “execution in counterpart” suggests, it is a procedure where:

  • a document to be signed by two or more parties is produced in as many counterpart (or duplicate) copies as there are parties;
  • each party signs their own counterpart or duplicate copy independently of other(s) in whatever location they may be; and
  • each party then delivers their copy to the other party(ies).

This avoids parties in, say, Aberdeen, Edinburgh and Glasgow all having to meet at the same location to sign a single copy of the document(s) to which they are all to be parties. The counterpart documents may be signed digitally or (more likely) signed traditionally with “wet ink” signatures.”

  • Until the Counterparts Act came into force there was some doubt as to whether this form of signing of contractual documents (generally referred to as “remote signings”) were fully effectual as illustrated in the next section.

Some more background to the Counterparts Act

  • The Counterparts Act is the result of work by the Scottish Law Commission which examined the whole area of electronic formation of contracts. Their 2012 News Release accompanying their Discussion Paper on the topic said this:

“We enter into contracts so frequently that we sometimes don’t even notice that we are doing so: buying a bus ticket, a loaf of bread or a ringtone.  In other situations, the contract will be the product of lengthy and careful negotiation, such as when we get a home extension or new kitchen or, in the commercial field, when a public authority has a school built or an airline buys a new plane.

… How, though, do you tell if there is a valid contract at all?  If you want to enter into a binding contract how can you be sure of success and are there any formalities which you must observe?

These are questions which need to be answered periodically to make sure that the law is still satisfactory … Just now there is added urgency because of the rapid rise in the use and importance of electronic media – how do you form a contract in the electronic age and what role can electronic signatures play?  Do the rules which were designed for oral and paper contracts still work for e-contracts?

… [w]ith the rise in new technology it is high time that our law on how contracts are formed is reviewed and updated.  Our proposals would lead to a clear and modern law in line with developments in technology and its usage.  We think that the innovations would be particularly attractive for commercial parties, for whom the proposals offer world-class levels of certainty and convenience.”

  • And, in particular, the Commission’s Discussion Paper noted:

“We have been told that law firms in Scotland take differing approaches to remote signings under Scots law. These are based on varying interpretations of the rules relating to contract formation […] and uncertainties about the law on delivery of documents…we think it unfortunate if Scots law is seen as making otherwise perfectly legitimate business dealings in any way more difficult than necessary… “

The Counterpart Act’s essentials

 

  • The Counterpart Act is primarily targeted at facilitating the completion of commercial transactions (including in particular cross-border transactions) by way of execution of documents in counterpart.
  • As mentioned above, this would enable parties in, say, Aberdeen, Edinburgh and Glasgow each signing their counterpart (duplicate) copy of an agreement at the same time in their different locations. The scope for doing so is already available in England. Clearly it could be useful here too – particularly in larger transactions with many parties geographically scattered.
  • In particular, the Counterpart Act clarifies and confirms the legal underpinnings to ensure that multi-party signings involving multiple copies of the same document have a legal effect which is certain.
  • Further, it also makes provision for documents which are traditional documents (i.e. paper and pen documents, not just those in electronic form) being delivered by electronic means (for example as a pdf attachment). This is something of an innovation as is illustrated by a court case in 2009 (Park, Petitioners No 2) which concerned formal lawyers’ letters for buying and selling a house being sent by fax. In that case the judge had concluded that:

“the fax transmissions [i.e. electronic communication] of the qualified acceptance and the final acceptance on 31 August 2007 were insufficient for the conclusion of missives [i.e. for the conclusion of a binding contract] on that date…[a]ccordingly I find that missives were not concluded on that date.”

 

Note: This material is for information purposes only and does not constitute any form of advice or recommendation by us. You should not rely upon it in making any decisions or taking or refraining from taking any action. If you would like us to advise you on any of the matters covered in this material, please contact Ian Ferguson: icf@mitchells-roberton.co.uk

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