Covid-19 - a timely reminder as to proper execution and electronic signing of documents

The physical restrictions and limitations resulting from the Covid-19 lockdowns and social distancing rules, have highlighted some of the technicalities of the various laws that apply to the execution of documents - particularly in relation to electronic execution.

Despite this, it is vital that documents are correctly executed to ensure that they are enforceable.

In this article, we review some of the key considerations relating to execution of documents generally and electronic execution.

Corporations

The Corporation Act 2001 (Cth) (Corporations Act) provides for a number of ways a company can execute a document.

The most common method is under section 127, where a document is validly executed by a corporate entity (with or without a seal) if:

1. there are two or more individuals appointed as officers:

  • two directors of the company sign; or
  • a director and a company secretary of the company sign; or

2. a proprietary company has a sole director, who is also the sole secretary, that sole director and sole secretary signs.

Sections 128 and 129 of the Corporations Act set out the assumptions a party dealing with a company can rely and when the assumptions can be relied on.

Importantly:

  • the statutory assumptions cannot be relied on in circumstances in which, at the time of the dealing, the person seeking to rely on that assumption knew or suspected that the assumption was incorrect (section 128(4), Corporations Act); and
  • where a company executes under section 127 of the Corporations Act, a person can assume the document has been duly executed (sections 129(5) and (6), Corporations Act).

Section 127 does not permit the execution of a document by a sole director who is not also the sole secretary. Where a company has only a sole director appointed, the company may execute a document in accordance with its constitution (section 126, Corporations Act) or by its duly appointed attorney.

Section 126 permits an individual, acting with the express or implied authority of the company, to execute a contract on behalf of that company. The way in which an individual may be granted such authority is typically dictated by the provisions of the company’s constitution or, for companies without a constitution, the replaceable rules. Best practice is a resolution of the board where a formal delegation document is approved.

Issues can arise where a third party seeks to hold the company liable pursuant to a contract made on behalf of the company by an officer of the company, such as:

  • the extent of the actual or implied authority of the relevant officer of the company;
  • the application of principles of ostensible authority; and
  • what is known as the ‘indoor management rule’. 

Where a contract is executed by an agent on behalf of the company who did not have appropriate authority, the laws of agency will determine whether the agent is personally liable to a third party under that contract.

In a situation where an individual purports to execute a document under section 126, the onus is on the other party to make all relevant enquiries as to the source of the person’s authority. Appropriate enquiries include requesting a copy of the resolution of the directors authorising the person to sign on behalf of the company and a copy of the company’s constitution.

Individuals

There are two basic categories of contracts - deeds and agreements.

For an agreement to be binding, there must ‘consideration’ passed between the parties.  

If a document is a deed, consideration is not essential for the deed to be binding, provided that the other formalities for a deed are satisfied.

In Western Australia, deeds must be signed in accordance with section 9 of the Property Law Act 1969 (WA). For individuals, their signatures must be witnessed. The attestation of the witness under a deed must occur contemporaneously with the witnessing of the document (Netglory Pty Ltd v Caratti [2013] WASC 364). Failure to comply with this formality (and any other formality for a deed) can be critical because then the deed is an agreement and, if there is no consideration, the document, as an agreement, is likely to be unenforceable.

Despite an agreement not requiring a witness to be valid, it is prudent to have each individual signature witnessed. A witness may provide vital evidence, where there is a claim that the document was fraudulently executed or similar.

Landgate requires an individual’s signature within a registrable document to be witnessed.

Execution of documents by an attorney

A document may be executed by an attorney on behalf of a company or a natural person, provided that:

  • it is clear that the attorney is signing as attorney; and
  • an attorney who is a natural person, must have their signature witnessed.

It is again prudent for the other party to request a copy of the document that appoints the attorney and set out the relevant powers.

If the document being executed by an attorney is to be registered at Landgate, the document will not be registered unless the relevant power of attorney has been registered with Landgate. Alternatively, the power of attorney document can be lodged with Landgate immediately prior to the registrable document for registration as part of the one dealing.

Electronic communications and execution

The Electronic Transactions Act 1999 (Cth) (ETA) was intended to make electronic communications easier and more reliable. The ETA provides that a transaction is not invalid just because it was agreed (in whole or part) by electronic means. Critically, the ETA (in a similar form) was separately enacted in each State and Territory. The terms of each of those Acts are slightly different to each other and the ETA.

Subject to the exceptions in the relevant regulations, provided that the electronic communication identifies the person, indicates their approval and the other’s party’s consent to the electronic signing, this may satisfy the need for a wet signature.

The form of the electronic communication must also be reliable having regard to the relevant circumstances, for example the value of the transaction.

What constitutes an electronic signature is broad and includes:

  • a scanned copy of a wet signature;
  • a signature inserted by a stylus;
  • typing in your name;
  • agreeing to a document by email correspondence;
  • an inserted image of your signature; and
  • the insertion of a formal digital signature (such as DocuSign).

Corporations

If a company has to execute with a seal, then electronic signing is not possible. The company officers must witness the physical affixing of the seal, which cannot be done electronically.

The Corporations (Coronavirus Economic Response) Determination (No. 1) 2020 (Cth) (Determination) was introduced by the Federal Government to permit officers to execute documents and deeds electronically under section 127(1) of the Corporations Act.  The Determination has effect from 6 May 2020 until 6 November 2020.

The Determination permits split execution. That is, the second company officer may execute a scanned copy of a document which is executed by the first company officer. It is doubtful that split execution is permitted under the Corporations Act. 

In accordance with the Determination:

  • execution under section 127(1) (that is without a seal) can be electronic provided that the party’s intention is clear, the execution is reliable and appropriate to the circumstance – this is similar to the ETA; and
  • companies where two officers must sign, can sign counterparts of the document electronically or by a wet signature,

however, complete copies of each entire executed document must be retained by the company.

The Determination also expressly provides that the assumption under section 129(5) of the Corporations Act applies to documents executed in accordance with the Determination.

Without the Determination having effect, the general consensus has been that because the ETA expressly excludes the Corporations Act, companies cannot execute electronically under section 127. This does not result in the agreement necessarily being invalid at common law, but the  counterparty will have to verify that the officers that executed were duly appointed and authorised to execute.

There is an alternative view that if two officers annexed their electronic signatures to a single, static document, that is valid for the purposes of section 127. This view has not been equivocally settled by the Courts.

Our recommendation is that once the Determination is no longer effective, companies should not execute documents electronically under section 127.

Deeds

In Western Australia, deeds must be signed by the parties to be bound by it and witnessed (section 9 Property Law Act 1969 (WA)). The Electronic Transactions Regulations 2012 (WA) (Regulations) exclude the application of section 8(1) of the Electronic Transactions Act 2011 (WA) (WA Act) where the document must be ‘verified, authenticated, attested or witnessed under the signature of a person other than the author of the document’. Therefore, the protections under the WA Act (section 8(1)):

…a transaction is not invalid because it took place wholly or partly by means of one or more electronic communications

do not apply to a document where the witness has used an electronic signature. This is not limited to deeds and includes affidavits (excluding those where the Courts have imposed alternative  practices), statutory declarations and wills.

More fundamentally, at common law a deed must be recorded on paper, parchment or vellum. Because there is no Western Australian statute that has altered the common law position, at this point in time, deeds cannot be signed electronically in Western Australia, by any entity.  The Determination, in our opinion, does not change this position under the WA Act in relation to corporate execution.

There is a contrary view, which is that companies can execute deeds electronically under the Determination because:

  • by the Determination, the definition of ‘document’, for the purposes of section 127(1) of the Corporations Act, now includes ‘a document in electronic form’; and
  • section 127(3) (in part) permits a company to execute a deed in accordance with section 127(1).

We recommend companies adhere to the conservative approach in relation to deeds and do not execute them electronically even while the Determination has effect.

Attorney

The Regulations also exclude the application of section 8(1) of the WA Act, where a document appoints an enduring power of attorney or attorney. This not only applies to power of attorney documents, but any document where a party is appointed another party’s attorney. For example, a lease where the tenant appoints the landlord its attorney to remove the registered lease or a caveat once the lease has ended.

Lavan comment

Covid-19 has brought about changes to the laws which have made it easier to contract and transact electronically, albeit temporarily. Whenever a party proposes to execute a contract or agreement electronically, due consideration must be given to whether this is possible under the legislation and where it is possible, if electronic execution is actually appropriate. The level of detail necessary to authenticate the electronic signing process varies significantly depending on the nature of the transaction and parties involved.

Lavan can guide you through these considerations to ensure that any agreement reached, including by electronic means, is valid and enforceable.