The Need for a Common Sense Approach to Executing Documents

There are a few situations that still cause uncertainty for lawyers and their clients when signing documents due to the murkiness of the law surrounding their execution, particularly when it comes to deeds. When these questions come up for decision, courts attempt to balance two competing priorities – the need for expediency in commercial dealings and the need for objective means of verifying the intention of the parties according to law.

You can avoid getting lost in the mist of arcane rules about execution of documents by taking a common sense approach to authorisation and signing. Here are some tips to keep in mind coming out of a few recent cases.

Courts are pragmatic about who can witness deeds – but an independent witness is always best

Section 38(1) of the Conveyancing Act 1919 (NSW) requires that a signature on a deed be attested by “at least one witness not being a party to the deed”. In Reliance Financial Services Pty Ltd v Pineiro [2017] NSWSC 1739, the New South Wales Supreme Court found that the same individual who executed a deed on behalf of a company as a director of that company, could then also validly witness the execution of the deed by a separate individual. The Court held that an individual’s lack of independence from a party (such as by serving as a director) doesn’t necessarily make them associated or identified with the entity that’s actually party to the deed. In other words, the fact that an individual might sign on behalf of one party doesn’t prevent them also performing the purpose of witnessing another party’s signature, so long as the individual isn’t a party in his or her own right.

However, given this decision hasn’t yet been followed and affirmed, parties should take a common sense approach and find an independent witness. In any case, a lack of independence might compromise an individual’s ability to give evidence as to the execution of a deed should any problems arise. When disputes arise, such evidence is often decisive. An independent witness can help to remove doubts about the parties’ independent intentions in signing the deed.

It’s up to parties to confirm their own assumptions about execution

Another case, Colin R Price & Associates Pty Ltd v Four Oaks Pty Ltd [2017] FCAFC 75, concerned the question of a single director’s authority to bind a company to a document (where the usual method of signing under section 127 of the Corporations Act 2001 hadn’t been used). In obiter, the Federal Court gave helpful guidance as to where a company will be found to have given a director, by its acquiescence, apparent authority to bind the company. Namely, where there are ordinarily structures in place to ensure that a director’s actions reflect the intentions of the company, such as a requirement for all directors to approve a decision, only clear representations from individuals with actual power to delegate can authorise the director to go beyond this structure.

While it isn’t always necessary for the other party to a deed to take steps to solicit such representations, since in some circumstances such representations would be forthcoming (or, when section 127 is used, statutory assumptions can be made), it’s common sense to take a safety-first approach. Even where it’s safe to assume the other party is acting in good faith, it’s usually not particularly onerous or obtuse to ask for such representations. A glance at the resolution of the board and relevant parts of the constitution, and a call or exchange of emails with the other directors, would clear up any doubts.

Online signatures require particularly close attention

The case of Williams Group Australia Pty Ltd v Crocker [2016] NSWCA 265 concerned the integrity of electronic signature (ES) procedures, an area where courts have been very adaptable in their accommodation of current business practice. Electronic signatures are as valid as their wet ink equivalents for many categories of documents. However, their effectiveness can depend on evidence of an intention to authenticate, which in some cases requires more than the digital ink.

In this case, the Court had to determine whether sufficient evidence existed that a director (Mr Crocker) had, through ES, bound himself to a guarantee related to a trade debt owed by his company (IDH) to Williams Group. Mr Crocker claimed that his electronic signature had been placed on the guarantee by someone else without his knowledge.

Williams Group argued that the ES system was so well integrated within the “organisational structure” within which Mr Crocker operated that:

  • he had placed someone with access to his login details in a position to represent to third parties that they had apparent authority to bind him; or
  • alternatively, he would’ve become aware of the signature at some later stage and tacitly ratified that signature by the absence of any representation to the contrary.

Neither of these arguments convinced the Court that the test for apparent authority had been met. In particular, the nature of the “organisational structure” didn’t mean that Mr Crocker had armed any other person to bind him personally. While the requirement imposed by the Court to verify the intentions of each party may be inconvenient for commercial parties, it’s, as always, better to be safe than sorry. In a similar vein to the cases mentioned above, Williams Group could easily have avoided any such issues by contacting the principal to verify their intention.

A common sense approach and expediency in commercial dealing are perfectly compatible

Execution is unfortunately not always a straightforward matter. However, neither common law nor legislation contradict the approach of keeping an ongoing dialogue in which any intentions that any party might rely on are clearly communicated and objectively verified. The circumstances of the three cases cited in this article all point to the same conclusion. Modern forms of commercial dealing, whether technological or otherwise, should in principle facilitate, rather than inhibit, such a dialogue, and parties should use them accordingly.

Thomson Reuters recently hosted a free webinar: E-Signed – and Sealed? Executing Deeds in the Digital Age. Tim Perry, Head of Corporate and Shan-Ree Tan, Senior Writer in the Practical Law Australia Corporate team, provided an up-to-date primer on the valid execution of deeds and documents by individuals and companies. Click here to access the on-demand recording.

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