Gone are the days when parties entered into contracts on handshake terms with people they personally knew. With advancing technologies – and being in the middle of a pandemic – enabling documents to be electronically executed how do you know that the document you have just signed will be legally binding on the other party? Agreements vs deeds In many ways, there is little distinction between the look and feel of agreements and deeds. For an agreement to be legally binding on a party, it must satisfy certain criteria: There must be an offer, acceptance and consideration exchanged between the parties; The parties must have the legal capacity to enter into contracts; and The parties must intend for the agreement to be legally binding on them. The main differences between an agreement and a deed are: Under long-established principles of common law, a deed is required to be in parchment, on paper or on vellum, and signed in wet ink A deed does not require any exchange of consideration between the parties A deed is required to be signed, sealed and delivered, and is binding on a party when these obligations have been satisfied, even if the other party has not yet executed the deed The statute of limitations imposes a much shorter time period for a party to bring an action under an agreement than under a deed. For example, in NSW the statute of limitations for an agreement is six years and for a deed it is 14 years. In NSW, the Conveyancing Act 1919 (NSW) (Conveyancing Act) requires any deed, regardless of whether it affects property, to be attested by at least one witness who is not a party to the deed. Execution requirements The Electronic Transactions Act 1999 (Cth) (Cth ETA) and the Electronic Transactions Act 2000 (NSW) (NSW ETA) allow agreements to be signed electronically if the following requirements are met: The method used to electronically sign was reliable for the purpose of the communication; The method used is able to identify the person and indicate the person’s intention to be bound by the agreement; and The recipient consents to the method being used. Amendments to the Conveyancing Act in late 2018 also enabled deeds to be electronically created, signed and attested. For companies, section 127 of the Corporations Act 2001 (Cth) (Corporations Act) specifies a number of ways in which a company may execute an agreement or a deed, with or without a seal. These are: For two directors (or one director and a secretary) to sign or witness the affixing of the seal; or For a proprietary company with a sole director who is also the sole company secretary (or if there is no secretary), that director to sign or witness the affixing of the seal. The Corporations Act requirements for execution are not limiting, and companies can sign by an authorised representative or under a power of attorney. However, parties who are entering into deeds or agreements with a company cannot assume that the deed or agreement will be binding on the company in the absence of one of the methods specified in section 127 of the Act. Limitations Despite the above legislative attempts at enabling electronic execution of deeds and agreements, there were still some limitations which applied before the COVID-19 pandemic arrived. These included: No split execution – while it is common practice for deeds and agreements to permit each executing party to sign separate, identical copies of an agreement or deed and exchange those executed counterparts, this concept does not extend to separate signatories of the same executing party For example, there has long been doubt that a counterparty could rely on the assumptions in section 127 of the Corporations Act unless two persons signing on behalf of a company physically (or electronically) signed the same physical or electronic document. Doubt about the extent to which two directors could electronically sign a single electronic document was also reinforced in a recent case (Bendigo and Adelaide Bank Limited v Pickard) which noted ‘there is good reason to consider there must be a single, static document…’[1] Witnessing – as the Conveyancing Act requires the execution of a deed to be witnessed, the witness would have to be present at the affixing of the electronic signature for a deed in NSW to be binding as a deed. Electronic execution during the COVID-19 pandemic In response to the COVID-19 pandemic, and the public health orders which imposed social distancing and remote working arrangements, recent temporary legislative amendments to the Corporations Act and NSW ETA allow: Deeds and agreements in NSW to be witnessed remotely by audio visual link provided that the witness actually sees the signatory signing the agreement or deed in real time, confirms (and is reasonably satisfied) the document being signed is the same version provided to the witness by signing that document or a copy of it, and endorses it as having been witnessed electronically in accordance with the Electronic Transactions Amendment (COVID-19 Witnessing of Documents) Regulation 2020 (NSW); and Split execution by two persons signing on behalf of a company under section 127 of the Corporations Act[2]. The above content is commentary rather than legal advice and was prepared on the basis of applicable legislation, government programs and initiatives that were in place as of the date of publication. Given the ongoing evolution of both the COVID-19 pandemic and frequent consequential changes to the various laws and programs within all Australian states and territories, readers should seek legal advice on the current situation as applicable to their specific circumstances before taking any action in relation to the above. [1] Bendigo and Adelaide Bank Limited v Pickard [2019] SASC 123. [2] Corporations (Coronavirus Economic Response) Determination (No. 1) 2020 (Cth), which commenced on 6 May and remains in force until 6 November 2020.
