The signing of legal documents has significant consequences. Deeds, in particular, impose binding obligations on those executing them, often in circumstances where there may be no exchange of anything of value by the parties to the deed.
Most would appreciate that signing a deed may transfer rights or property, or vary contractual arrangements and, in general, create binding obligations, but what is perhaps not considered by many members of the public are the intricacies of how a deed is executed.
There is a surprisingly elaborate legal framework detailing the execution of deeds, and consequences of doing it incorrectly. Australia’s statutory regimes differ from state-to-state, but in all jurisdictions a deed, or certain provisions of a deed, can even be voided if executed improperly. The key elements that are generally required when executing a deed include that it is physically signed, sealed and delivered, and attested to by an independent witness, or witnesses.
Arguably the most important of those requirements is that the deed is signed by the parties (and witnesses in the case of individuals) in what is called “wet ink”, requiring the physical affixation of a person’s name or other identifying mark to a piece of paper. However as is the case with many of the law’s more archaic practices, there has been a push in recent years to allow for parties to a deed to execute it electronically.
Changes to how corporations execute deeds
At the height of the COVID-19 pandemic (when the physical execution of deeds was made much more challenging) a push from the corporate sector resulted in the Federal government temporarily allowing deeds to be executed by companies (not individuals) electronically. These temporary changes were then made permanent with the passing of the Corporations Amendment (Meetings and Documents) Act 2022 (the Amending Act). The Amending Act had the effect of allowing technology as a legitimate means of companies executing deeds provided signatories complied with certain requirements. Amongst other changes these requirements included that deeds:
- no longer needed to be signed on paper but could be executed in soft copy;
- could be executed in duplicate, triplicate or as many copies as were needed;
- could be executed by different means (for example, by one party signing in wet ink and another signing electronically); and
- did not require witnesses in person.
The changes are exemplified by what is now enshrined in s 126(8) of the Corporations Act 2001:
This section does not limit the ways in which the individual may execute a document (including a deed).
The Amending Act has provided flexibility for companies going forward and gives the more latitude to determine their own procedures for entering into deeds.
Inconsistency with requirements for individuals
Whilst the changes introduced by the Amending Act have been embraced by the corporate sector as a welcome update to some arguably old-fashioned practices, the changes are only applicable to companies. Individuals are usually still required to comply with the established rules for entering into deeds, meaning they must still sign a physical document in wet ink with an attesting witness also simultaneously signing in wet ink. This begs the question of whether it is worth introducing amendments applicable to individuals similarly to those introduced for corporations.
The main arguments for keeping the current rules for execution focus on security and certainty. Tampering with hard copy documents is made more difficult by the fact that it will usually leave physical traces, whereas soft copies can be seamlessly manipulated with greater ease. Signing documents physically with a witness also makes it much easier for a Court to later hear from the witness to testify as to how the document was executed. By executing physically in accordance with convention, there is also certainty about what is required of a deed as the statutory requirements rarely (if ever) change.
Electronic execution, on the other hand, is much more in keeping with public demand for greater convenience and flexibility. The main pragmatic benefits to electronically executed documents are that soft copies are generally quicker and easier to distribute and parties do not have to manage secure storage for the physical document. Storing a soft copy also has the added benefit of being easier to retrieve later, allowing the parties to save time before, during and after the signing of the deed.
Some of the most popular tools for electronically executing documents include Adobe Acrobat and DocuSign, which allow users to quickly and easily create signature blocks with accurate signatures drawn using touchscreen-enabled mobile devices. DocuSign is especially practical for use with important legal documents because it has several helpful security features, including password-protected documents and a record of the IP address and time stamp from the execution. Features such as these mean that electronic execution tools for deeds could one day become a normalised industry standard, given how convenient and user-friendly the tools are, further supporting the argument that electronic execution should be allowed in Australia jurisdictions.
Good practice when executing deeds
Electronic execution now being enshrined as a legitimate method for companies entering into deeds means that parties should familiarise themselves with the associated risks and address them as best they can. Because in future, individuals in their personal capacity might be able to enter into deeds electronically as well, it is also potentially helpful for individuals to understand these issues in anticipation of any prospective changes to the rules. While the following are examples of things to be aware of in entering any kind of deed (electronic or physical) these are especially relevant considerations for electronic deed:
- Are the parties sure of each other’s identities?
It is common practice in entering deeds to conduct various searches (on ASIC for example) to confirm the identity of the other parties, but for electronic deeds it is even more important. If parties to an agreement have only ever used email or other technological means of communication, there is potentially no way of being sure that the other party to a deed is who they say they are. Always be sure to verify the identity of anyone who is a party to a deed before executing it electronically or physically.
- Is the same document being signed by each party?
Often in negotiating complex agreements, parties or their lawyers will send drafts back and forth a number of times before agreeing to execute a certain version, which can cause confusion about which version needs to be signed. Make sure you are confident the version being executed is the agreed one, and always compare the document first signed to the fully executed version to ensure the parties have not changed any terms.
- Has the executed document been stored somewhere safe, secure and retrievable?
Most people will responsibly store important documents where they are easy to retrieve but kept safe. Most law firms will even keep documents on their clients’ behalf in a deed packet for the specific purpose of keeping deeds safe and easy to produce on request. Electronic documents come with different storage considerations, most notably that they need to be stored where there is no risk of losing them or exposing them to unauthorised access, with cloud-based storage being the most preferred method.
Notwithstanding how the deed is to be executed, it is important to ensure that that the bare minimum requirements are complied with, being that the execution seals and delivers the deed, and for each individual there is a witness.
If you have any questions about the execution of deeds, whether electronically or physically, feel free to contact us.
Published 4 November 2022
The above is general in nature and is not intended to, and does not, constitute professional advice.