Last updated: 22 April 2020

Introduction

The impact of COVID-19 means that many businesses have their employees work from home. This raises issues regarding the electronic formation and execution of documents, particularly as individuals are working remotely and may not be able to print hard copies of documents or meet to arrange execution.

The following are some general principles to assist with identifying whether electronic formation and the use of electronic signatures is acceptable or not.

If there is no Australian statutory requirement for a particular contract to be in writing or signed, there is nothing to prevent a party from using an appropriate electronic method to enter into a written and signed contract with a counterparty. Where there is a specific Australian legal requirement for a contract to be in writing or signed, a party would be able to rely on the relevant Electronic Transactions Acts (by complying with the requirements set out in these Acts) to satisfy these requirements under Commonwealth or State / Territory law by an appropriate electronic method unless the requirement falls within specifically excluded statutory requirements for "writing" or" signature".

In particular, there are real risks that electronically executed and formed deeds will not satisfy the "paper parchment and vellum" requirements or requirements for the execution of deeds to be witnessed. One way of managing these risks may be to convert an agreement intended to be executed as a deed to an agreement. This would mean that the features of a deed such as a 12 year limitation period and importing consideration do not apply. So, for example, it may mean the agreement needs to provide for nominal consideration.

Signing under section 127 of the Corporations Act causes significant issues where more than one signatory is required. The issue is that it is generally accepted in the authorities that in order to be a valid section 127 signing the signatories must sign the same document. So, there would be no difficulty if a document was printed and one director signs and then the same document is given to the other director who signs it. Section 127 does not require that the two signatories sign the document in each other's presence. However, in our view, there are risks that there is not a valid execution under section 127 if a printed document is signed by one director and then that document is converted to a PDF, emailed to the other director who prints it and signs the printed document which bears only an image of the other director's signature.

In our view, if two signatures are applied to a single electronic document the section 127 requirements can be satisfied. A number of electronic execution platforms operate in this way. However, there is still an inherent risk with this position due to a comment in a recent case (Bendigo and Adelaide Bank Limited v Pickard [2019] SASC 123 to the effect that this can never be the case with an electronic document. In any event, two signatories each signing a separate electronic document is not likely to be a valid execution under section 127.

However, just because an agreement is not signed under section 127 does not of itself mean that there will not be a valid agreement that is binding upon the company. It simply means that the other party to the agreement cannot rely upon the assumption in section 129(5) of the Corporations Act that the agreement has been duly executed by the company. In many circumstances, depending upon the procedures adopted, electronic execution by a company that does not comply with section 127 will still result in a binding contract. Please contact us if you would like specific advice on this.

  • the signatory intends to place their signature electronically on a document; or
  • an agent (such as a colleague or assistant) will be placing the signatory's signature electronically on their behalf. This is critical because clear and unambiguous supporting evidence (such as authorising board minutes) will need to be obtained confirming that the signatory personally authenticated the placement of his or her signature on the specific document in question.

The method used to identify a person must satisfy basic evidentiary requirements (for example, the method should be capable of storing an audit trail, time stamps and access logs that evidence matters such as the time the contract was formed, what contract terms were agreed and that the relevant signatories "signed" the contract). The more serious the consequences for the parties of the commitment, the more stringent the methods it will need to use to ensure the other party is properly identified and committed.

 

Applying the above principles, some practical tips on how to deal with the uncertainties raised by electronic execution of documents:

  • If you are seeking to rely on the statutory assumption of the Corporations Act as to due execution under section 127, do not accept a document executed by two company officers on behalf of a company on different counterparts (commonly referred to as "split execution"), instead of both signing the same document.
  • Where documents are to be exchanged at a remote or virtual signing, ensure that there is consensus between the parties about the appropriate signing protocols to be adopted well before the time to execute.
  • Use deed form only when legally required.
  • Documents (including deeds) that are required to be witnessed should be approached with caution in respect of electronic signatures – minimum attestation requirements will need to be satisfied, including that the witness should be physically present for the signing by the signatory.
  • Before using electronic signatures, obtain the express written consent of each party to the document for that purpose and ensure that the electronic signature is only ever attached to a document with the express approval or authorisation of the person whose signature it is. Where officers of a company are executing documents with electronic signatures, obtain clear and unambiguous supporting evidence (such as authorising board minutes) confirming that the relevant officer personally authenticated the placement of his or her signature on the specific document in question.
  • We add that on 25 March, the COVID-19 Legislation Amendment (Emergency Measures) Act 2020 (NSW) amended the NSW Electronic Transactions Act to permit regulations to be made to facilitate the execution of documents remotely in view of the COVID-19 pandemic. Although any such regulations would only have a six-month duration, be limited to having effect in New South Wales and only apply where a signature is required under the law of NSW, such regulation-making power could potentially be used to overcome some of the issues identified above, such as to facilitate the execution of deeds electronically in NSW in light of some flaws in the recent amendments to the NSW Conveyancing Act.

Remote signing options: Practical guidance for companies with more than one company officer executing documents

Australian Government's social distancing and isolation requirements in response to COVID-19 has sparked a flurry of questions about executing and exchanging contracts as people grapple with the reality of working remotely for the foreseeable future.

Schedule 5 to the Coronavirus Economic Response Package Omnibus (Measures No 2) Act gives responsible ministers the power by legislative instrument to make a determination:

  • varying;
  • providing for the non-applicability of;  or
  • substituting a new provision for,

provisions of an act or legislative instrument requiring or permitting matters such as signatures, witnessing of signatures, verification of the identity of witnesses and the attestation of documents. 

A determination is limited to being in response to circumstances relating to COVID 19.  It can have retrospective effect but will have no operation after 31 December this year.

Additionally, New South Wales now permits regulations to facilitate the execution of documents remotely in view of the COVID-19 pandemic, and other States and Territories are doing so (see below). However, implicit in the passing, or proposed passing, of these laws is the fact that there are legal risks and uncertainties unless and until statutory reform arrives.

One of the key legal and practical hurdles for companies with more than one company officer is the vexed question concerning "spit execution".  Split execution occurs when two company officers execute a document on behalf of a company under section 127(1)(a) or (b) of the Corporations Act (ie without fixing a company seal) on different counterparts, instead of both signing the same document.  Courts and practitioners alike have themselves been split on whether this constitutes valid execution for the purposes of section 127.

Under the execution regime in the Corporations Act, a person dealing with a company is entitled to the benefit of certain statutory assumptions, unless that knew of suspected the relevant assumption to be incorrect.  In particular, a person may assume that a document has been duly executed by a company if the document appears to have been signed in accordance with subsection 127(1).  Having the benefit of these statutory assumptions gives certainty to third parties dealing with companies and reduces the burden of having to conduct extensive due diligence.

Accordingly, we set out below several devices you may wish to consider to help manage the risks associated with split execution.

Courier hard copy documents

The first officer signs a hard copy document with a wet-ink signature and then sends that document via courier to a second officer who counter signs the same document.

This remains the safest method of executing documents as it allows counterparties to rely on the statutory assumptions in sections 128 and 129 of the Corporations Act (in particular, section 129(5)).

This method is appropriate for all types of documents.

Sign documents electronically via an electronic document platform

Electronic document platforms (such as Adobe Sign and DocuSign) facilitate the electronic formation and execution of contracts.  Various security measures can be used to demonstrate an “authenticating intention” of the signer such as a code sent by SMS to the signer's mobile phone and/or requiring the signer to answer knowledge based questions, before they can access the document.  These measures are critical to making sure there is a record of the signatory personally authenticating the placement of his or her signature on the specific document in question.

Most electronic execution platforms have processes which purport to cause both signatories to concurrently "sign" the same electronic document, or simultaneously apply their signatures to a single electronic document with their authorisation, together with a mechanism to record that fact.  However, recent judicial analysis has cast doubt about whether this would ever be the case when two electronic signatures are required to be affixed to a document.

In our view, provided the signatures are added to the same electronic document (as most electronic document platforms purport to do), it will be validly executed.  However, there is still a residual risk if the doubt cast by that judicial analysis is correct.

This method may be appropriate for agreements but should not be used for deeds.  Consider converting the deed to an agreement (for example by including nominal consideration) if that is possible.

Appointing an authorised agent

Section 126 of the Corporations Act provides another (less common) manner in which a company may bind itself contractually.  Under that section, a company can execute a contract without using a common seal if the power to do so is exercised by an individual acting with the company's express or implied authority and on behalf of the company.  This method has the advantage that one person can be appointed as the company's authorised agent to sign contracts on behalf of the company thus circumventing the potential risk of "split execution".

If a party proposes to accept execution by an agent on behalf of a company, it should satisfy itself that the agent has been validly authorised to execute the document and keep records to prove that the agent was so authorised. Additionally, the execution clause should make it clear that the person or persons are executing on behalf of the company because execution in this manner is not execution by the company.

A board resolution alone is not sufficient to confer authority on an agent to execute a deed on behalf of a company.  This is because of the common law principle that authority to execute a deed must also be by deed. 

This process could be used for executing documents electronically via a sophisticated electronic document platform with no greater risk than signing documents with wet ink signatures on paper.

It can also be used for executing paper documents

This method may be appropriate for agreements but should not be used electronically for deeds.  Bear in mind the witnessing rules in all jurisdictions apart from Victoria if this method is used for the paper execution of a deed.

Consider converting the deed to an agreement (for example by including nominal consideration) if that is possible.

Modified split execution

Modified split execution involves an officer of the company signing a document with a wet-ink signature and then faxing or emailing a PDF copy of it to a second officer at a different location with the intention the signature on the print-out made by the recipient second officer is to be treated as their signature.  The second officer then prints and also wet-ink signs that faxed or PDF copy.  Some people have asserted that this method of execution satisfies the requirements of section 127 provided that the first officer personally intended the signature on the print-out to be treated as their signature.  This essentially relies on the premises that the printed fax or PDF is like a stamp so the printing of the fax or PDF by the second officer is no different to the first officer authorising the second director to affix a stamp of their signature to the document.  At common law, a person may sign a document by stamping their name, by typewriting or by printing provided there is some kind of personal authentication of the individual ‘signing’.  However, we have real doubts that gets around the issue because the officers are not affixing their signatures to the same printout.  The first officer's signature was already affixed to a document and it is difficult to see how printing the complete document containing a signature constitutes the signing of that document by the first officer.  Accordingly, unless this method is specifically endorsed by a court or addressed by statute, we do not recommend adopting it other than as a last resort.

This method may be appropriate for agreements and deeds.  However, it is subject to the risks we have identified above.

Remote witnessing – NSW

NSW has become the first Australian jurisdiction to pass new laws and regulations to facilitate the witnessing of signatures via audio visual link during the COVID-19 pandemic.

The new reforms pave the way for businesses and individuals to sign and exchange contracts while the NSW Government's social distancing and isolation requirements remain in place.

Key points

  • On 25 March 2020, the COVID-19 Legislation Amendment (Emergency Measures) Act 2020 (NSW) amended the NSW Electronic Transactions Act to permit regulations to be made to facilitate the provision of altered arrangements for the signing, witnessing and attesting of documents under an Act.
  • The NSW Government has now made the Electronic Transactions Amendment (COVID-19 Witnessing of Documents) Regulation 2020 (NSW) (Emergency Regulations) allowing signatures on documents, including wills, powers of attorney (including enduring powers of attorney), deeds, affidavits and statutory declarations to be witnessed via audio visual link during the COVID-19 pandemic.
  • The Emergency Regulations will have a maximum 6 month duration and will be limited to having effect in New South Wales.

Background

Witnessing of an agreement signed by an individual is prudent but not essential unless it is specifically required under law.  However, witnessing (or some form of authentication) is recommended for evidentiary purposes. On the other hand, certain documents such as deeds, affidavits and statutory declarations are required by law to be witnessed.  In NSW, a person who takes and receives a statutory declaration or affidavit must be an "authorised witness" (usually a Justice of the Peace or a lawyer).

There are serious doubts as to whether video technology satisfies witnessing requirements. This has made the signing and witnessing of documents during the COVID-19 pandemic difficult.

Witnessing of signatures and the attestation of documents may be performed by audio visual link. For this purpose, an audio visual link is technology that enables continuous and contemporaneous audio and visual communication between persons at different places, including video technology.

A person witnessing the signing of a document by audio visual link (the witness) must:

  • observe the person signing the document (the signatory) sign the document in real time;
  • confirm the signature was witnessed by signing the document or a copy of the document;
  • be reasonably satisfied the document the witness signs is the same document, or a copy of the document signed by the signatory; and
  • endorse the document or the copy of the document with a statement specifying the method used to witness the signature of the signatory and that the document was witnessed in accordance with the Emergency Regulation.

The Emergency Regulations will apply to a broad range of arrangements requiring witnessing  governed by NSW law such as:

  • wills;
  • powers of attorney or enduring powers of attorney;
  • deeds;
  • affidavits, including an annexure or exhibit to the affidavit;
  • statutory declarations;
  • certification of matters required by a law;
  • confirming or verifying the identity of a signatory; and
  • seeing the face of a signatory.