In the time of COVID-19, many businesses have faced the logistical challenge of arranging physical signing of documents where the required signatories are working remotely.
Lack of certainty in relation to the legal position has led to some hesitancy in signing transaction documents electronically. A series of recent regulations has however considerably clarified matters. In particular:
- the Treasurer has issued the Corporations (Coronavirus Economic Response) Determination (No. 1) 2020 (the Determination) in relation to execution by companies under s127 of the Corporations Act; and
- NSW, Queensland and Victoria have issued regulations facilitating electronic deeds.
SIGNING SIMPLE CONTRACTS ELECTRONICALLY
Simple contracts can in most cases be signed electronically without reliance on any of the COVID-19 regulations:
- individuals (including individuals acting as attorneys for corporates) can sign personally; and
- companies can sign via an appropriate authorised representative.
There are no particular formalities required in either case (for example, no witnessing is necessary). All that is needed is a clear indication of agreement to the contract.
However, if a company signs by authorised representative, the counterparty will not have the benefit of the assumption in s129(5) of the Corporations Act (which essentially relieves the counterparty of confirming the authority of the signing officers to act on the company’s behalf).
If the counterparty wants the benefit of the s129(5) assumption, a company will need to sign under s127 of the Corporations Act. This is now possible electronically in light of the Determination – see further below.
SIGNING DEEDS ELECTRONICALLY
Deeds have historically posed a problem for electronic execution, primarily because the common law requires deeds to be on paper and because most Australian jurisdictions also impose witnessing requirements (which could be difficult or impossible to satisfy electronically).
However, electronic execution is now available:
- for individuals (including as attorneys for companies), in the case of NSW, Queensland and Victorian deeds; and
- in the case of companies registered under the Corporations Act, in all Australian jurisdictions.
The Queensland regulations also make provisions for execution by statutory and foreign corporations.
In principle ‘mixed’ counterparts (that is some in electronic form and some hard copy) should be a valid approach in cases where one party is permitted to execute electronically but another is not.
NSW: The NSW conveyancing legislation has for some time recognised that deeds made by natural persons can exist in electronic form. Lack of clarity around witnessing has however prevented widespread adoption of the practice. Recent temporary regulations in NSW (the Electronic Transactions Amendment (COVID-19 Witnessing of Documents) Regulation 2020) now make it clear that witnessing can validly occur remotely via an audio-visual link (such as Zoom or Skype), provided the requirements of the regulation are met.
Queensland: The relevant (again, temporary) provisions in Queensland can be found in the Justice Legislation (COVID-19 Emergency Response-Wills and Enduring Documents) Amendment Regulation 2020. Unlike other jurisdictions, the Queensland regulations address the fundamental requirements for validity of a deed that often present impediments to effective execution, and makes provision for execution by corporations generally including statutory and foreign corporations. The Queensland regulations therefore potentially provides the most attractive model for adoption in future, hopefully permanent, law reform.
Victoria: New temporary regulations (the COVID-19 Omnibus (Emergency Measures) (Electronic Signing and Witnessing) Regulations 2020) achieve a similar result in Victoria by amending the Victorian electronic transactions legislation to permit deeds to be signed electronically. They also include remote witnessing provisions, although Victorian deeds do not generally need to be witnessed at all.
Other: In other Australian jurisdictions, specific legislation for electronic deeds and remote witnessing does not (yet) exist. It follows that in most cases the relevant individual’s counterpart of the deed will need to be printed in full and signed wet ink with a witness in the traditional way.
Companies registered under the Corporations Act
The Determination allows companies to execute documents (including deeds) under s127 of the Corporations Act in electronic form. The Determination will be in place for 6 months from 6 May 2020.
The Determination operates by modifying s127(1) so that two directors or a director and company secretary (or the sole director/company secretary of a proprietary company) may execute a document without a seal if they each :
- sign a copy or counterpart of the document in physical form; or
- use an ‘electronic communication’ method which identifies them and indicates their intention in respect of the contents of the document (implicitly, the intention to execute the document).
The physical or electronic communication must include the entire contents of the document, but does not need to include the signature of another person signing the document.
There is a further requirement in the electronic context (mirroring language in the electronic transactions legislation) that the method used must be as ‘reliable as appropriate’ for the purpose for which the company is executing the document, or be proven in fact to have fulfilled the required functions as to identity and intention. Whilst it may be unclear exactly what the first limb will require in this context, little is likely to turn on it in practice given the second limb.
Although not expressly addressed in the Determination (or explanatory memorandum), it seems clear that the effect of the Determination is to permit electronic execution of deeds by companies. The existing s127(3) provides that ‘a company may execute a document as a deed if the document is expressed to be executed as a deed and is executed in accordance with subsection (1) or (2).’ As the Determination is expressed to be a modification of section 127(1), it follows that an electronic document executed in the manner permitted by the Determination should take effect as a deed under s127(3) if it is expressed to be a deed.
There are amendments to s129(5) so that the assumption under that subsection will be available if a document (including an electronic document) appears to have been executed under s127(1) as modified above.
SIGNING DOCUMENTS ELECTRONICALLY
Methods of execution by a director or company secretary which should in principle meet the requirements of the Determination for execution by companies under s127 include the relevant individual:
- signing an electronic document using DocuSign or a similar secure cloud-based service, whether by signing on-screen with a stylus or applying a stored copy of the person’s signature; or
- signing a local pdf or word copy on-screen with a stylus or by inserting a stored copy of their signature.
There also seems no reason why the director or secretary could not direct a PA, general counsel or other authorised person to insert a stored copy of their signature into a local pdf or word copy on their behalf, provided the direction is sufficiently specific.
These methods will likewise be available in principle in the context of electronic execution by individuals and, in Queensland, similar steps should also be available for execution by statutory and foreign corporations. However, in the case of deeds, there will generally also be additional requirements to satisfy by reference to the specifics of the regulations. In particular, where witnessing is required (which remains a requirement for NSW deeds, even if they are in electronic form) the remote witnessing provisions of the relevant regulations will need to be complied with – these should permit witnessing of electronic execution by the primary signatory, but care needs to be taken that the method of remote witnessing is compliant and that the requisite endorsement appears on the witness’s version. In addition, in some cases (notably Victoria which relies on the electronic transactions legislation) there will need to be consent by the other parties to the use of electronic signatures.
A DEVELOPING AREA (AND SOME PITFALLS REMAIN)
The developments in relation to s127, as well as the regulations in NSW and Victoria, provide welcome clarity and should greatly assist transaction parties in electronically executing documentation.
The position however continues to evolve as more States and Territories seek to address the issue. The law in this area is relatively complex, and each jurisdiction is so far approaching the issue in a slightly different way, so care needs to be taken to ensure relevant ‘local’ requirements are satisfied (especially where signatories are not individuals or Corporations Act companies).
Care also needs to be taken in the context of particular types of documents. This note is focussed on contracts generally. Special rules apply to certain categories of instrument (for example land registries still generally require dealings in real estate to be in wet ink). Likewise other sorts of documents that are subject to a signature or witnessing requirement may be subject to additional constraints that prevent or limit electronic execution.
In light of this, where electronic execution is proposed, it will usually make sense to check with the other parties in advance to confirm all are agreed on the signing methodology. Appropriate records should also be kept to evidence the manner in which electronic execution has occurred.
The truly paperless environment has yet to arrive, but at least until the expiry of the current measures it is a lot closer.
The contents of this publication are for reference purposes only and may not be current as at the date of accessing this publication. They do not constitute legal advice and should not be relied upon as such. Specific legal advice about your specific circumstances should always be sought separately before taking any action based on this publication.
© Herbert Smith Freehills 2021