What does Execution in Counterparts mean?

Counterpart clauses provide for more than one "original" signature page in a multi-party transaction document. That is, the parties sign identical copies in different locations. When signed, a set of counterparts is formed. The counterpart clause typically provides that any one of the counterparts may be used as a fully-enforceable original. The effect of executing in counterparts is that the parties do not have to coordinate three-way or four-way exchanges of a full set of originals. Instead , you can fax or scan and email your signature page as needed.
Multi-party agreements often involve complex binding arrangements. Sometimes, getting all parties to a multi-way closing in a single location on a single day can present practical challenges. There can also be practical data and document management considerations, to which an executed set of counterparts is better suited.
Any competent counterparty will expect to see a counterparts clause in any multi-party transaction document. A counterparty may even propose one if none exists.

Legal Nature and Significance

The inclusion of counterpart clauses confers legal validity to the execution of an agreement by counterpart. In the absence of such a clause, the parties may run the risk of unenforceability of the agreement in the event of non-compliance with an express provision in the main body of an agreement requiring all parties to sign one document.
The courts are increasingly reluctant to construe strict conformity with such provisions as a condition precedent to the formation of a binding contract. However, if the intention of the parties who have bound themselves to a contract is to the contrary, nothing can alter this will unless the law permits it or they all agree to something different.
A condition precedent occurs where two or more parties are required to execute one document before the agreement becomes binding. In Bridge v Campbell 1926 CPD 370, the court found an agreement invalid as the parties had not all affixed their signatures to the same document: "Any attempt to make an agreement which has been reached before the execution of all the documents to have effect at any time before it comes into operation, is quite impossible"; this, notwithstanding the fact that an agreement had been reached by all parties before the execution of the agreement.
However, in Duntroon Investments (Pty) Ltd v Gray Construction (Pty) Ltd 2015 (2) SA 127 (SCA) concerns regarding the strict enforceability of an agreement were corroded.
"[T]he question is not whether the signature of two parties to an agreement is placed on separate documents, but whether their intentions are combined on the subject matter of their dispute. In other words, were the parties ad idem in relation to the subject matter of their dispute."
The court held that section 2(1) of the Alienation of Land Act 1981 ("the Act") does not require compliance with formalities to be complete before a binding contract is formed, and they do not come into existence by the mere signing of a document in the absence of a pronouncement from the contracting party to resolve the dispute.
The parties had acted in accordance with the agreement despite not signing a single document. The parties understood that the agreement was binding even though they did not have an endorsed agreement. Therefore, the court held that the parties were ad idem. Accordingly, validating a series of emails containing a counter signature of all parties constituting a single contract.
In the event that a party wishes to enforce an agreement against a party who materially failed to comply with any provision of an agreement, it bears the onus to show that its non-compliance was material and this impacted on the party’s ability to carry out its contractual obligations.

Benefits of Counterparts

Traditionally, getting a legal agreement signed required each party to sign the same original document. If the signatories were in different locations, it could take several days or weeks to get the signed agreement back and forth between the parties, which may have justified the practice of using "counterparts." These usually allowed for a party to sign a page of an agreement, fax, email, or even mail it to the other party, who would print, sign, and return the page, effectively signing the agreement in counterparts.
Often this practice turned out to be inconvenient—inefficient and wrongly perceived as unnecessary with the emergence of modern document production and delivery methods. Yet the use of counterparts remains not only justifiable but worthwhile due to their convenience.
Counterparts help save on time, travel, and overall costs associated with sending agreements among parties at different locations. They allow for the more efficient execution of a large number of agreements. In many instances, an integration of modern technology can allow legal agreements to be executed in real time. For example, if a large lender syndicates a loan to a number of other lenders (in case of significant loans) and expects that they all sign the same set of documents, the notarization and delivery of documents will require significant time and money. In this case, the transaction would be done in many times less than what it would be without use of counterparts and by utilizing e-mails, online data rooms, fax machines, and scanners coupled with the courier service.
Such collaborations can be referred to as "virtual closings," and are increasingly permissible under laws allowing for electronic notarization and online registrations in many jurisdictions. Such developments suggest that, as e-technology becomes ever more widely accepted and utilized, which is likely to happen, the use of counterparts will eventually be unnecessary.
Indeed, for some contracts, the approval of counterparts eliminates the need for the parties’ approval of what is, in a way, a distraction: the closing mechanics that, under conventional methods, consume time that might otherwise be spent completing the contract. A particularly useful example of this is the combination of a confidentiality agreement (to maintain confidentiality prior to a deal being concluded) and an investment in the company agreement, which creates the contractual framework for the investment that the investor will be able to exit through an exit agreement after the agreed-upon period has elapsed, upon the occurrence of an agreed-upon trigger event, or in some other manner.
In such an agreement, with often hundreds of pages of transaction documents, it might be unnecessary for the parties to sign each document if they are going to be exchanged in counterparts anyway. Instead, it could be sufficient to sign only the main agreement and perhaps some of the exhibits, relieving the parties of the need to sign dozens of separated documents but allowing them to come together yet again for a signature of an exit or conversion agreement.

How to Execute Agreements in Counterparts

Proper execution of an agreement in counterparts should involve the following steps:

• (1) Parties must agree to execute the agreement in counter-parts.
• (2) Wording indicating the execution of counterparts should be added to the end of the agreement if such wording is not already included. At the end of the agreement add a heading above the execution blocks, as follows: Execution in Counterparts
• (3) After the header above the execution blocks stating "Execution in Counterparts" is added, insert the following wording: [Each party agrees that this agreement may be executed electronically in counterparts, and that a fully executed copy sent by email, fax or any other electronic format shall be effective as if it was an original.]
• (4) Ensure all parties execute the document in person and have a separate signature page to sign, unless the parties have other written agreement of which the parties are aware and respect relating to execution of documents. In person signing is the preferred method of execution; however, signing in counterpart at a distance is often necessary. In such occasions, it is important to ensure that all parties sign and return their signed copies . If it is necessary for each party to have possession of the original agreements signed by all parties, all parties must have a separate signature page to sign and return.
• (5) Confirm the agreement has been fully executed. As the final step, ensure the agreement in counter-parts is fully executed by conducting a thorough review of each individual copy of the signed agreement. In addition to confirming all parties have signed the same document, it is advisable to inspect the signature page, including initials, for any alterations, omissions or changes before registering the agreement.
• (6) Depending upon the circumstances, the execution of agreements in counter-parts may also involve the following additional steps:

(a) In connection with the registration of certain agreements, depending upon the applicable legislation, it is often advisable to insert the header described in step (2) above, immediately following the header which describes the document
(b) If there are any gaps in the sequence of the parts of the signature page, either visually or in the order of the signatures, provide notification on the last page of the document as to the exact order of the signatures.

Issues that Arise and How to Correct Them

A common error parties make is assuming that a counterpart executed by one party (with or without the signatures of the other party or parties as a result of application of section 127(3) of the Corporations Act 2001 (Cth)) will be accepted as a counterpart by the entire counterparty group. It is incorrect to make that assumption. In circumstances where the parties cannot evidence that their respective counterparts have been physically exchanged and each have unambiguously agreed to accept each other’s counterpart, they can be at risk of the general rule that parties enter an agreement based on the terms executed by the last party (as evidenced by the last executed counterpart being the physical original), particularly where there exists discord between the provisions of the various counterpart originals.

Examples and Case Law

The use and interpretation of counterpart clauses have been the subject of many important legal decisions. Particularly in complex commercial transactions involving multiple parties and cross-border relationships, courts have invoked the counterpart doctrine to enforce the bargain between sophisticated parties.
In signing an EPC contract agreement, the New South Wales Supreme Court in Worthy [2001] NSWSC 682 held that: "In this case, the signed copy provided by Mr Worthy to McMahon (the copy marked "A") was an offer by Mr and Mrs Worthy (Worthy) to enter into a binding contract. There was then an acceptance of that offer by McMahon not only by signing the contract which it sent to Worthy by facsimile but also by its performance of the contract on the same day."
The issue in Worthy was whether the contract was formed when Mr Worthy (Worthy) signed the contract with McMahon and returned a copy to McMahon with an additional clause stating: "We confirm our agreement to the above terms in all respects other than the following sums". District Court of Western Australia in Steenkamp & Others v El Banco Exterior De Espana SA and Another [2011] WASCA 233 followed the decision in Worthy and came to the estimate conclusion that the additional clause did not alter the character of the document signed by Mr Worthy as a contract and that the clause did not alter the character of the document signed by McMahon as an acceptance of the offer made by Mr Worthy.
In Alliance Healthcare Services, Inc v Gottlieb et al [No 4] [2010] NSWSC 7 (Alliance Healthcare), the NSW Supreme Court held an agency agreement was formed on 9 October 2007 when it was signed by the agent and delivered to the principal, but was not completed as the substantive contract was not signed by an authorised officer of the principal company. The court held the parties could have completed the contract by signing a contract in counterparts or by other means such as facsimile transmission .
In Alliance Healthcare, Barrett J stated "It is well accepted that, even if a document is in standard form, its delivery can constitute an offer to enter into a contract if the document is signed and handed to the offeree with the intention that the process be followed by signature by the offeree and return of the signed document to the offeror; also that delivery can constitute acceptance of an offer of a contract if the document is signed by the offeree and handed to the offeror with the intention that the agreement be adopted."
The restrictive approach to the concept of non-completed contracts on counterpart clauses has been relaxed in more recent cases. In B P Oil International Ltd v Hunt [1997] 3 All ER 422, the High Court of Justice held the agreement was complete when it was signed by both parties despite the absence of execution by an authorised signatory for the buyer.
The significance of counter-part clauses, especially in the context of electronic communication, is very relevant to modern day practices considering in B P Oil International Ltd the court stated "[W]e are entitled to pay no regard to [whether a person was authorised to sign an agreement], for we have to consider whether the document sent, signed or unsigned, by the party was intended to bind him or her and to confirm that intentions, whatever appeared on the face of the document."
It is worth noting that the counter-part doctrine has only been accepted in some jurisdictions such as Australia, Canada, New Zealand, South Africa and the United States. In England, the position is not as clear cut, particularly considering the English Court of Appeal decision in Inglenook Property Developments Ltd v Westminster City Council [2001] EWCA Civ 837 where the court disagreed with the majority position in Worthy and instead held that the parties had not entered into a contract.