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Wednesday 20 December 2017

Privy Council decision on delivery of deeds in escrow and pre-incorporation contacts.

Andrew Mold appeared for the successful Respondent in the recent Privy Council decision of Rolle Family & Company Ltd v Rolle [2017] UKPC 35.  The case (on appeal from the Court of Appeal of the Bahamas) considered the subjects of the delivery of deeds in escrow and pre-incorporation contacts.

The Privy Council’s judgment was given by Lord Sumption who held that a deed could not be delivered in escrow where the grantee under the deed was not yet in existence.  As Lord Sumption explained: ‘Delivery is an essential condition for the effectiveness of a deed. It requires unequivocal words or conduct signifying an intention to be bound. A deed purportedly delivered to a non-existent party could never be more than a statement of intention, recallable at will, and could not therefore be said to have been delivered’.

The Privy Council provided a useful explanation of the meaning and effect of section 22 of the Companies Act which deals with the notoriously difficult subject of pre-incorporation contracts (i.e. contracts purportedly entered into with a company before the company has been incorporated).  Like many other jurisdictions, the Bahamas has introduced statutory provisions enabling pre-incorporation contracts to be adopted by a company following its incorporation.  Under section 22, any such act of adoption must take place within a ‘reasonable time’.

In the circumstances of the case, the Privy Council rejected the appellant’s reliance on section 22 on the basis that no act of adoption had taken place within a reasonable time.  For practical reasons, any act of adoption should take place within a short period of time.  As Lord Sumption explained: ‘The temporal limitation is not there for the benefit of the company. It is there for the benefit of third parties dealing with it’.

Andrew was instructed by Tynes & Tynes and Harcus Sinclair LLP.

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