Backdating contracts and other documents and instruments

The risks of backdating (or misdating) documents accidentally is multiplied in modern commercial transactions by the practice of getting all the documents signed before “completion” and then rushing around dating them afterwards.

My father (who was also a lawyer) used to love telling a story about how he was able to triumphantly prove to the court that a yacht charter was backdated by showing the stamps which had been used to pay the nominal 15¢ stamp duty were in fact first issued by the post office some four months after the date stated on the face of the document.

However, he rarely adds that he actually ended up losing that trial, which brings us to my second point – even though the law generally deprecates the backdating of documents, the legal consequences of backdating are highly variable. This article will try to unpick the various legal threads of when you can and cannot backdate documents, and what the consequences will be if you do.

The first and most important thing to note about the consequences of backdating a document is that it is potentially a criminal offence. When we say “backdating” what we usually mean is executing a document and then dating it with an earlier date than the actual date of execution, with the intention that it should be treated as giving rise to legal rights before the actual date. However, at common law this was a criminal offence (going by the contradictory sounding name of uttering a false document) and in most English law based legal systems it is still an offence today, although in many cases statutory provisions have superseded the common law (for example, in the British Virgin Islands see section 242 of the Criminal Code 1997). Where backdating is done for financial gain, it may also constitute the more dull-sounding criminal offence of obtaining a pecuniary advantage by deception.

Although criminal prosecution might be a risk in serious fraud cases, in most day to day legal matters where backdating occurs for reasons of administrative convenience, or simply by oversight or error, the risk of being charged with a crime are commensurately small. But even if a person is not charged with a crime, the fact that a crime can be demonstrated to have occurred may still impact the rights of the parties. Parties seeking to enforce rights can find those rights barred by ancient common law doctrines like ex turpi causa non oritur actio  (“from a dishonourable cause an action does not arise”). In certain cases a criminal act may negate insurance. At the very least a party seeking equitable relief will struggle to meet the test of “clean hands” which the courts require. Lack of a prosecution does not mean a lack of legal consequences.

But even if there is no crime committed (for example, if the backdating was accidental so that there was no mens rea) or if one simply disregards the criminal aspects, falsely dating a document may negate the document under other common law doctrines such as non est factum  (“not my deed”) or the rule in Pigot’s Case such that in the eyes of the courts, the document is treated as though it does not exist. However, such doctrines are normally limited to situations where one party backdates the contract without the knowledge or consent of the other. Where both parties consent to the backdating of the document, normally the courts in common law countries will simply disregard the backdating of the document, and treat the rights as accruing from the date when the document was actually executed. Although in exceptional cases – where third party rights are not affected – the courts might be persuaded to treat the stated date as being the effective date, a situation we return to below.

So is it ever OK to backdate a document? There are rare occasions when it may be permissible or even justified to do so. A commonly used example is where the parties had originally signed a document, but the original had been lost or destroyed before it could be stamped or filed. In such cases it would be perfectly proper for the parties to re-execute an identical document to replace the missing one. Slightly more tenuously, where the parties reached a binding agreement on a certain date, but only reduced it to writing on a later date, they might be justified in putting the date of agreement rather than the date of execution if the terms were in fact identical (a more likely scenario given the length and detail of many modern written contracts would be where the terms of contracts are agreed by e-mail on a certain date, but the parties were only available to sign the actual physical documents upon a later date). However, in each case this could only operate where the contact is a “simple” contract rather than formally executed as a deed (ie signed, sealed and delivered). For execution as a deed the requirement of signing is a crucial part of the process of creating rights by way of deed, and so it is never permissible to backdate a deed.

Probably the most difficult of the grey areas occurs where parties have a recurring commercial relationship which starts informally, but they later decide to document it and agree terms. In such cases, where the parties are not legally advised, it is absolutely not uncommon for the parties to sign the agreement and then backdate it to the start of the commercial relationship believing that this will “catch” all the prior aspects of their relationship. Legally speaking of course what they should do is put a provision in the contract which states that the terms of this contract shall also govern prior transactions which the parties shall henceforth treat as being regulated by those terms. However, where lay persons write contracts themselves or download a pro forma  from the internet, often these legal niceties are lost upon them. In practice the courts are more sympathetic than one might anticipate.

The courts will generally try to construe contracts to give effect to the parties’ commercial intentions, not destroy them (see for example the decision of the Canadian Supreme Court in McClelland & Stewart Ltd v Mutual Life Assurance Co of Canada  [1981] 2 SCR 6). Where the parties have obviously and without malice tried to wrap antecedent matters into a contractual framework, the courts will often imply a necessary term into the contract in relation to the regulation of earlier matters, particularly where this does not have an adverse impact on a third party or result in some evasion of taxation or filing fees. Another common example is where one person purports to sign a document on behalf of another person, and then afterwards the parties execute a backdated power of attorney to clothe the signatory with the necessary authority. In practice what should happen is that the principal should ratify the signatory’s act as agent, and the courts are usually happen to construe signing a backdated power of attorney as misguided (but effective) attempt to ratify by conduct. However, backdating documents creates a contract a bit like Schrödinger’s cat.

You can never be absolutely sure whether it is alive or dead (or perhaps alive from a different date than you had anticipated) until a judge opens the box for you. Accordingly, the best advice in relation to backdating documents will always remain: don’t do it.