With a large proportion of the population working from home under COVID-19 restrictions, many people will be unable to physically print, sign and scan documents. While the law in Australia provides most documents can be signed by electronic signature, the authority on electronic execution of deeds is still unclear. However, businesses may be compelled to implement measures for electronic execution in the name of continuity.
The below summary focuses on the rules surrounding executing documents electronically and may be useful during this uncertain time.
The Electronic Transactions Act 1999 allows documents and agreements to be in electronic form and signed using an electronic signature. This means that any electronic mark that carries the intention of a signature, like a scan of a person’s signature, will be acceptable. Most documents and agreements used in businesses are capable of being signed electronically, for example those used in sales, legal and human resources departments. For these documents, an electronic signature is legally equivalent to a wet-ink signature if it meets the requirements under the Act. These will be satisfied if the signature identifies the person, the method used to sign was reliable, and that the counterparty consents to the use of an electronic signature. Sending an electronically signed document via email is a common way for identity to be verified. Document signing platforms will also overcome any doubts about validity.
An electronic signature is less formal than a digital signature, which requires an additional layer of security to determine authenticity. Digital signatures may assist businesses who are working remotely as they are a trusted and secure way to verify a signature. We are adapting ourselves by using DocuSign.
Although electronic signatures are widely accepted for many documents, deeds require additional authenticity as they are significant agreements and undertakings. This means that deeds must normally be in paper form and signed in wet ink. Deeds are valid without the same consideration as an agreement and they can be binding on a party immediately upon signing, even if other parties do not sign. Therefore, the use of electronic signatures can cause problems.
Examples of deeds that require wet-ink signatures include confidentiality deeds, financial guarantees, indemnity deeds and deeds of termination. These are required to be executed in front of a witness. If a document that is intended to be a deed is electronically executed or incorrectly witnessed, it may become an agreement. The risk of this is that the deed may not be immediately valid or have the intended effect. The only exception is under the Conveyancing Act 1919 where a deed may be created in electronic form and electronically signed and attested.
The rules surrounding physically executing and witnessing deeds remain unchanged. However, there is movement in this area, with the Electronic Transaction Act NSW 2000 recently adding provisions specifically for COVID-19. Section 17 provides that the regulations under any relevant Act may be altered in response to the pandemic, including arrangements for the signature of documents, arrangements for witnessing signatures and verifying identity, and arrangements for attestation of documents. While further regulations have not been made yet, the framework is ready to come into effect when necessary.
Section 127 of the Corporations Act
Section 127 relates to execution of a document by the company itself. An individual can execute a document without using a common seal if the document is signed by relevant directors or authorised staff of the company. For example, a corporate power of attorney may print and execute for the company under section 127.
Generally, a company cannot validly execute a deed electronically. However, execution of an agreement may be valid if the counterparty agrees and wishes to satisfy itself of the identification, reliability and consent criteria mentioned above. For example, a corporate power of attorney can electronically execute agreements on behalf of the company while working remotely.
Companies may also execute documents under section 127 by using split execution or modified split execution where two or more originals are signed at the same time by different people.
It is important that documents are signed properly so that they are not considered void and there are varying views among businesses as to what is appropriate. The conservative approach to ensure a formal document has been validly executed is still to sign with a wet-ink signature.
We previously blogged about the importance of estate planning, which also noted the NSW Government is passing emergency legislation to allow new regulations to change the signing and witnessing requirements for wills and powers of attorney.
Although the regulations are yet to be created, we expect developments in this area. The new regulations may provide for these documents to be signed in counterparts or with the use of digital signatures, but for now the strict physical execution requirements still stand.
This area will likely continue to evolve given the circumstances surrounding COVID-19. We will monitor developments and provide further update when required.