The long-awaited change to the law in Scotland regarding execution in counterpart came into force on 1 July 2015, by virtue of the Legal Writings (Counterparts and Delivery) (Scotland) Act 2015 ('Act").
The Act aligns Scots law more closely with other jurisdictions including England and Wales by allowing Scots law documents to be executed in counterpart. Previously, the same document had to be signed by all parties.
Parties have often opted for alternative jurisdictions other than Scotland, to avoid the need either to (1) send the same document to every signatory or (2) hold a physical signing meeting with all signatories in attendance. The traditional Scottish approach has often been viewed as a barrier to business and the Act now allows a greater degree of flexibility in multi-party transactions. It will be particularly useful in cross-border transactions, as it facilitates a consistent approach across the board.
How can documents now be executed and delivered under Scots law?
Execution in counterpart is optional and Scots law documents can continue to be signed in the traditional way; however we anticipate that the new system will be widely adopted wherever appropriate.
A document is executed in counterpart if it is executed in two or more duplicate, interchangeable, parts and no part is subscribed by both or all parties. Once a document is executed in this way, the counterparts are to be treated as a single document.
Under the Act, traditional documents (distinct from electronic documents) can now be delivered by electronic means. Where a traditional document is delivered by electronic means either the entire document or only a part of the document (ie the relevant signing page) can be delivered. The ability to satisfy delivery by transmitting a single signing page by e-mail is a significant advantage in relation to large documents. However such a signing page must be capable of being identified as forming part of the complete document for example by the use of headers or footers. It is recommended that all parties agree to receipt of only part of the document in advance.
The Act allows the parties to a document executed in counterpart to nominate a person (nominee) to take delivery of one or more of the counterparts. In practice, it is anticipated that the nominee will be a solicitor of one of the parties. The nominee's statutory duty is to hold the counterparts for the benefit of the parties only. This means that if the nominee is the solicitor for one of the parties the nominee cannot take instructions from its client that would conflict with this duty.
How will commercial transactions be affected?
The benefits of the Act seem clear. In particular, the execution of documents relating to commercial transactions (which often have a number of parties, in different locations) and the process of concluding such transactions will be simpler.
Although the Act aligns the execution and delivery of documents governed by Scots law with other jurisdictions, the effective date of Scots law documents will remain unchanged. Depending on how practice develops, it may become common for the effective date of a Scots law contract to be stated on the front page (as is seen in documents governed by the law of England and Wales). However this will not be the effective date of a Scots law document and would merely be an endorsement.
Real estate solicitors must remain alert to ensure that multiparty deeds submitted for registration meet with the Keeper's requirements. Registers of Scotland (RoS) have confirmed that documents executed in accordance with the Act will be accepted for registration, provided that the standard criteria for registration are met. The terms of the Requirements of Writing (Scotland) Act 1995 still apply as regards the validity and self-proving nature of documents and so deeds should continue to be executed accordingly.
To clarify their requirements, RoS have indicated that deeds executed in counterpart will be acceptable in two different formats: (1) both or all of the counterparts in their entirety; or (2) one counterpart in its entirety, collated with all of the signing pages of the other counterpart(s). While deeds in either format are acceptable, RoS have indicated a preference for the second option.
A difficulty arises in respect of annexations. The Act does not override the existing requirement that annexations are executed by all parties - therefore annexations cannot be executed in counterpart. RoS suggest that deeds should be submitted in terms of the second option, together with a set of annexations executed by all parties.
One proposal by the Scottish Law Commission is that annexations be circulated for signature after the deed itself has been executed in counterpart, on the basis that signature of annexations does not become requisite until the deed is to be registered or founded upon. This seems to limit somewhat the benefits of the Act. Solicitors may not be enthused by the prospect of circulating annexations for signature post-completion within the advance notice period in which the deed must be registered. It will be interesting to note how practice develops but it seems likely that registrable deeds encompassing annexations will continue to be signed by all parties.
The Act has been welcomed by many in the legal community in Scotland and we are interested to see how the practice of executing in counterpart develops. Please do not hesitate to get in touch if you have any questions.
This document is for informational purposes only and does not constitute legal advice. It is recommended that specific professional advice is sought before acting on any of the information given.