The legal requirements
The requirement for a public body created by statute (including NHS Trusts and Foundation Trusts) to use a common seal to execute documents originates in the common law. For those who are not familiar with the term, ‘common law’ is law made by judges deciding cases. There is no time limit on the relevance or application of common law. Common law is subject to amendment by decisions of higher courts or by statutes passing through Parliament.
The common law requirement for a deed to be executed under seal has been abolished for individuals (by The Law of Property (Miscellaneous Provisions) Act 1989) and for companies (by the Companies Act 2006). No similar abolition exists in relation to public bodies and so the common law requirement for NHS Trusts and Foundation Trusts to use a seal remains.
The NHS Act 2006 contains references to NHS Trusts and Foundation Trusts using a seal.
In respect of NHS Trusts, paragraph 33(1) of Part 4, Schedule 4 of the NHS Act 2006 provides that:
‘The fixing of the seal of an NHS trust must be authenticated by the signature—
(a) of the chairman or of some other person authorised (whether generally or specifically) by the NHS trust for that purpose, and
(b) of one other director.’
In respect of Foundation Trusts, paragraph 29(1) of Schedule 7 of the NHS Act 2006 provides that:
‘The constitution must make provision for the authentication of the fixing of the corporation’s seal.’
The legislation does not specify when the seal must or should be used.
Likewise, the legislation does not specify how the fixing of a Foundation Trust seal must be authenticated. These provisions are usually found in a Foundation Trust’s standing orders and/or standing financial instructions. Following the provisions in respect of NHS Trusts, it is usual and recommended practice that the fixing of the seal of a Foundation Trust is authenticated by two signatures, usually Directors of the Trust.
Standing orders/ standing financial instructions
Most standing orders/standing financial instructions specify who is to hold/authenticate the seal and that a register of seals is to be kept, but most do not specify when the seal should be used. It is helpful to specify this in standing orders/standing financial instructions so that it is clear when the Trust will/must use the seal.
Generally, all deeds should be executed under seal in accordance with the common law position. Contracts may be executed under seal where they are of a specified type or value for example.
The difference between deeds and contracts
A deed is a written document which is executed with the necessary formality (that is, more than a simple signature), and by which an interest, right or property passes or is confirmed.
A deed is similar to a contract, but there are some key differences. Deeds have to be in writing, whereas a contract can be verbal or written. Contracts require ‘consideration’ (i.e. something is given in return), whereas deeds do not. The limitation period for actions brought under a deed is generally 12 years, rather than 6 years for a simple contract.
A written document must be executed as a deed in certain types of transactions including leases, transfers of land, appointments of trustees and powers of attorney. Therefore, in these types of transactions the Trust seal should be used to execute the document as a deed with the necessary formality.
A Trust may decide that other types of documents/contracts should be executed as a deed by affixing the Trust seal, as the necessary formality of affixing the seal is deemed appropriate, or because no consideration is given or because the longer limitation period is deemed required. This may be, for example, contracts of a certain type (construction contracts or contracts for capital works) and/or of a certain value.
Conclusion
Standing orders and/or standing financial instructions should ideally therefore clarify:
- Which documents/contracts the Trust seal must be used for;
- Who authorises/affixes the Trust seal; and
- Any approvals needed for the document before the seal is affixed – for example, if and how the document is approved by the Board, Board committee or those with delegated authority under the Trust’s Scheme of Reservation and Delegation before the use of the seal is authorised and affixed.
For further information, please contact:
Emma Stockwell, Partner, Hill Dickinson
emma.stockwell@hilldickinson.com
