The High Court has handed down a very interesting decision that, amongst other things, is an important restatement of the law around deeds and, unfortunately, quite common mistakes in commercial transactions.
It is useful to both lawyers and non-lawyers alike to be aware of the generalities of this decision – it may be a good time to review those sketchy/contracts deeds to make sure things have or are being done properly.
Deeds – the basics
A reminder of the basic legal position around deeds is helpful to understand the context and impact of the decision in Lendlease. We have covered the simple points elsewhere.
A deed is, at its core, an elevated form of your commonplace, but legally binding, written agreement – known in English law as a ‘simple’ contract. Deeds are used primarily in respect of transfers of land, mortgages, and powers of attorney (amongst other things). It reflects the historical position that because these types of agreements are so important, additional formalities are required for the agreement to be effective. These additional formalities, discussed below, ensure that the parties understand what they are doing when they enter into the deed, that they intended to do so, and what the effect of doing so is.
But deeds may be used in any type of transaction between parties. In addition to the above benefits, deeds (1) do not require payment (consideration) to be effective, a normal requirement of a binding contract and (2) permit a longer limitation period – 12 years instead of the normal 6 from the date that the cause of action arose – s. 5 and s. 8 Limitation Act 1980.
The latter benefit was the central point in Lendlease.
Deeds – requirements
Deeds must be:
- In writing.
- Obvious on the face of it that it is a deed.
- Validly executed as a deed.
- Delivered (provided with an intention to be bound to the counter signatory).
Section. 1 Law of Property (Miscellaneous Provisions) Act 1989 cover the above requirements, which were largely developed as part of the common law.
The requirement for valid execution is the relevant one to the point in Lendlease.
Where individuals are executing a document as a deed, the signature must be witnessed – s. 1(3) Law of Property (Miscellaneous Provisions) Act 1989.
Where a company is executing a document as a deed, the requirements are different. Per s. 44 Companies Act 2006 a company executes a deed by:
- affixing its seal to the document;
- by the signature of two directors or secretaries; or
- by the signature of a single director or secretary in the presence of a witness.
Without the company’s director/secretary comply with these requirements, on the face of it, a deed will not be valid. Instead, it will be, assuming all the other requirements are met, a simple contract.
The decision in Lendlease, however, gives extremely helpful guidance where the express statutory requirements for deeds are not met.
In early 2004, Leeds NHS Trust commissioned a new cancer treatment centre. The claimant, Lendlease Construction (Europe) Limited (Lendlease) was the lead contractor. It engaged the defendant, Aecom Limited (Aecom) as a subcontractor/consultant to develop the fire safety aspects of its design.
Put briefly, there were errors in the fire prevention design of some aspects of the hospital. This was discovered some years later, around 2007 (and there was an earlier settlement between the parties dating from 2012). In 2017 further issues were raised and proceedings were issued by Lendlease in 2019.
Of a number of issues, a key point was whether the original agreement (the Agreement) between Lendlease and Aecom was executed as a simple contract, or a deed. As stated above, if a simple contract, the limitation period would be 6 years. That placed Lendlease’s claims well out of time. If 12 years, as with deeds, Lendlease was in time (on the assumption that its arguments about knowledge and when the cause of action arose were successful).
The Agreement was, on the face of it, a deed. It contained the relevant wording, and contained a signature page for (1) for Aecom to affix its seal or (2) for it to be signed by two directors/secretaries.
It was signed by two individuals on behalf of Aecom. The signatures were in the wrong place, but, most importantly, the two individuals were at the time of signature not statutory directors of Aecom. At the judgment states at  and :
‘When Mr Cooper and Mr Palmer signed the Consultancy Agreement on behalf of Aecom they did not sign in the section asserting that the agreement was being executed as a deed by Aecom acting by two directors but in the signature block above that. This was the section providing for execution by the affixing of Aecom’s common seal in the presence of two directors. The signatures of Mr Cooper and Mr Palmer, accordingly, purport to be the signatures of persons witnessing the affixing of Aecom’s common seal. That seal was never affixed to the Consultancy Agreement. It is to be noted that a footnote to the phrase “executed as a deed by the consultant” had been inserted before the signing of the agreement. That footnote stated that “the named directors are Michael Cooper and Gareth Jones”. It is also to be noted that the prepared text alongside the space where Mr Palmer signed read as “director/company secretary” and that the words “company secretary” were deleted in manuscript leaving “director” as the description next to Mr Palmer’s signature.
‘As at October 2004 neither Mr Cooper nor Mr Palmer was a statutory director of Aecom. Mr Cooper had been a statutory director but had resigned from that position in November 2003 when there was a rearrangement of Aecom’s board with a reduction in the number of statutory directors. Mr Cooper had then been appointed a special director of Aecom. Mr Palmer had never been either a statutory director or a special director of Aecom. He had described himself as having been a director of Aecom from January 2004 in a subsequent LinkedIn profile and had been described as such in a magazine article of March 2006 based on an interview with Mr Palmer.’
The Court proceeds to analyse the parties’ submissions on this point, which were considered to be fairly balanced in terms of their force. The law of agency was considered, but ultimately the case of Freeman & Lockyer v Buckhurst Part Properties (Mangal) Ltd  2 QB 480 was followed on the basis that Aecom was ‘estopped’ from contending that the signatories were acting without authority.
Importantly, the terms of Aecom’s defence admitted that the signatories had the authority to act and the parties contracted on the terms of agreement. Accordingly, relying on the law of estoppel, at :
‘it follows that when Mr Cooper and Mr Palmer signed the Consultancy Agreement they were intending to execute a deed on behalf of Aecom. They were not acting improperly in relation to Aecom in doing so but were indeed doing what they were expected to do. As I have already noted the necessary representation and reliance can readily be inferred here. In those circumstances it is not open to Aecom to contend that the Consultancy Agreement was not a deed. It follows that the applicable limitation period in respect of claims asserting a breach of that agreement is one of twelve years from the date of the accrual of cause of action.’
Interestingly, the Court has in essence found a way around the issue of tinkering with statute by having recourse to the well established principle of estoppel. In other words, companies cannot receive the benefit of their actions whilst not shouldering the burden.
Nonetheless, the decision in Lendlease is an important reminder of both getting things right and the consequences of deeds.
At EM Law, we are experts in the law of contracts. We help individuals and businesses with the legal fundamentals so they can get on with making their endeavours a success. If you have any questions about deeds, please do not hesitate to reach out to Neil Williamson or Colin Lambertus directly, or contact us here.