With the current lockdown forcing many offices to close, we have seen an increase in the number of queries from clients regarding the remote execution of documents.
This article provides a “how to” guide for valid electronic execution of documents if you are signing a document on behalf of a company in NSW.
Deed or contract?
First check whether your document is a deed or a contract.
In simple terms, deeds are a formal version of contracts. Unlike simple contracts, deeds do not require the parties to provide reciprocal value (‘consideration’) to each other. Deeds also provide additional protection to a paying party by increasing the period which a performing party can be sued for a breach of its terms from 6 years under a simple contract to 12 years. As a result parties must comply with certain technical formalities when executing deeds..
The law maintains its requirements for more formality when executing deeds. This is important to keep in mind when considering whether to electronically execute a document.
Who should sign?
Section 127(1) of the Corporations Act 2001 (Cth) (Corporations Act) is the most common way for companies to execute documents.
S127(1) provides the following options to execute documents on behalf of a company:
- 2 directors of the company;
- a director and a company secretary of the company; or
- for a company that has a sole director who is also the sole company secretary, that director.
For companies which have two or more people appointed as directors and/or a company secretary, two different signatories will always be required under s127(1).
Note, companies which have only one director but no company secretary cannot sign in accordance with s127(1). If you are a director in this situation, it is a good idea to appoint yourself as company secretary through ASIC so you can execute in accordance with s127(1). Otherwise, you are signing as an agent of the company (see below).
What are the benefits of executing under s127(1)?
Put simply, signing in accordance with s127(1) makes it easier for others to deal with your company. Third parties can rely on the assumptions under s129 of the Corporations Act, namely:
- the person signing is duly appointed; and
- the person signing complies with the company’s constitution.
The assumptions promote confidence and certainty in commercial dealings. Third parties can more easily rely on documents signed on behalf of the company.
Are there any alternatives?
Yes. S127 does not limit the way that companies can sign documents.
Power of attorney
Companies may appoint certain individuals to sign on their behalf under a power of attorney. Powers of attorney must be granted in writing in accordance with the prescribed forms set out in the schedules to the Powers of Attorney Act 2003 (NSW) and its regulations. In NSW, if the attorney intends to sign documents dealing with land on behalf of a company, the power of attorney is required to be registered with the Land Registry Services.
It is important to request a copy of the power of attorney when the other party proposes to sign a document under a power of attorney. You will need to check what documents the attorney is allowed to sign and whether there are any limitations or conditions on the attorney’s ability to sign on behalf of the company.
Agency (including sole directors)
An agent of a company is a person with the express or implied authority of the company.
Examples of agents include:
- the sole director of a company with no company secretary appointed (as mentioned above); and
- a person to whom the board has delegated its authority (usually by board resolution).
An agent is permitted to execute contracts on behalf of a company.
There are two main issues with agents executing contracts:
- first, the other party will not be able to rely on the assumptions under s129 as mentioned above. The other party may need additional paperwork (such as a copy of the constitution, evidence of resolutions etc.) to ensure that the agent is validly authorised and validly exercising its powers.
- second, an agent cannot execute a deed unless the agent was appointed by deed. Most agents for companies are appointed by board resolution (i.e. not by deed) and therefore cannot sign deeds.
It is important you ask for a copy of the relevant resolution or other document which allows the agent to sign on behalf of the other party. This will likely include a copy of the company’s constitution. You will need to check whether the company allows agents to sign on its behalf and if so, what documents the agent is allowed to sign and whether there are any limitations or conditions on the agent’s ability to sign for the company.
Can I execute a document electronically on behalf of a company?
When signing a document, the most reliable form of execution is execution of a single, paper document signed by all parties using a blue or black pen. This is particularly the case when signing deeds.
That said, sometimes it is neither practical nor convenient to have every person sign one paper document, especially in COVID times.
The good news is that the Commonwealth is trialing electronic execution by companies. The trial began on 14 August 2021 and will end on 31 March 2022. This means companies can now electronically execute documents, including deeds, in accordance with s127(1) provided that certain conditions are met (explained further below).
The bad news is that in Australia electronic execution is still a relatively untried area of law and so there is a degree of uncertainty and apprehension about electronic execution.
The reason for this uncertainty is that the new wording introduced into the Corporations Act is the same wording found in the Electronic Transactions Act 2000 (Cth) (ETA). The ETA expressly excludes the Corporations Act from its operation, meaning that companies have not been able to rely on the ETA. Perhaps as a result, there have only been a small number of cases about the ETA so there is little guidance from the Courts.
How do I execute a document electronically?
To validly execute a document electronically in accordance with s127(1), you need to meet the following requirements:
- the person signing must be identified;
- the person must indicate they intend to sign the document;
- the document must include the entire contents of the document (not just the signature page or an extract); and
- the method used in points 1 and 2 must be as reliable as appropriate given the purpose for which the document was created or communicated, in light of all the circumstances.
In practical terms, this means that there is no prescribed method of electronic execution that companies are required to use to execute electronically. The method chosen must simply meet the above requirements.
So what options are available?
Examples of electronic execution include:
- typing your name above a signature line;
- scanning a physical signature onto your computer and pasting the image into a document;
- inserting a digital signature. By digital signature, we mean a special kind of electronic signature created through software that incorporates verification elements (e.g. DocuSign, AdobeSign, SignNow, etc.); and
- sending a document attached to an email which states who you are and that you intend to be bound by the document (the document may or may not have been physically signed by you before it was attached to the email).
A company is open to decide which method of electronic execution to use.
Electronic execution of deeds – a word of warning from the UK
In the UK, deeds have continued to be held to a higher standard even when electronically executed. This means mistakes in the electronic execution process will not be overlooked by the Court. In one case, the parties recycled a signature page from a deed of guarantee by attaching it to an amended version of the deed. This was held to be insufficient for execution. The Court said the test for execution of deeds was a strict test. This is in part to prevent fraud but also to maintain the historical formality associated with the serious nature of a deed.
The UK approach to deeds could be followed in Australia. Therefore, it is important that you consider carefully both whether and how you will sign a deed electronically. In case of doubt, execute with traditional paper and pen for extra certainty.
We expect the electronic execution of documents to become increasingly common. The technology is in place to cement the electronic execution of documents as commonplace.
As cases come before the Courts, we expect that the Courts will adopt a sliding scale approach where the Court will consider factors, such as:
- the type of electronic execution chosen;
- the nature of the document (e.g. invoice, sales advice, contract, deed, etc.);
- the importance, complexity, and value of the underlying transaction;
- any past dealings between the parties;
- any documentation/processes adopted by the company for electronic execution; and
- any other relevant circumstances.
We welcome further guidance from the Commonwealth as the law catches up with commercial reality.
Our top tips for companies to ensure valid electronic execution are:
- decide on and document an approved process for electronic execution of documents by your company;
- where the document involves another party signing, agree the electronic execution process with the other side/their lawyers;
- take steps to protect any scanned copies of physical signatures to prevent misuse/abuse (e.g. keeping the signatures in a secure location, using pdfs and reviewing metadata, etc.);
- ensure that the complete document, including any annexures or schedules, is included or attached when electronically executing (both before and after any physical signature); and
- if you have received an electronically executed document, take steps to:
- ensure that the signatory has confirmed that they intend to be bound by their signature, for example by words such as “I, [insert name and capacity, e.g. Sam Smith, director of X Pty Ltd], electronically sign [this document/the attached document]”; and
- prevent fraud, for example, by calling the signatory to confirm you have received the electronically executed document.
If you or your business needs advice on signing documents in the digital age, please contact Victoria Caldwell, Commercial Associate or William Barrington, Construction Senior Associate.
This publication is for general information purposes only and does not constitute legal advice. You should seek legal advice regarding your particular circumstances.
 R (on the application of Mercury Tax Group and another) v HMRC  EWHC 2721.