Electronic Deeds: Recent Developments in NSW

It’s one of the most venerable rules in Australia’s common law and, particularly for transactional lawyers and their clients in today’s digital workplace, arguably the most inconvenient – the rule that deeds still must be written on paper to be valid as deeds.

It still means a flurry of printing, collating, and couriering in the critical final stages of any transaction, and regularly creates hassles, holdups and scares about valid execution and registration, particularly where the person signing isn’t anywhere near a printer, let alone able to print hundreds of pages of the complete deed for strict compliance with the law – an all-too-familiar predicament.

In an electronic signatures guide published on Legal Insight in 2018, Tim Perry discussed the acceptance of electronic signatures under both common law and the Electronic Transactions Acts (ETA) regime. In summary, the law in most Australian jurisdictions recognises that, as a general rule, documents that aren’t deeds usually don’t have to exist as hard copies on paper to be legally valid, although there are a range of risks involved in the use of purely electronic documents that are signed electronically. However, despite the ink that’s been spilled to find ways around it, the “paper, parchment or vellum rule” for deeds has endured – and is stronger than ever with each case affirming it. This is compounded by the complexity of registration requirements and industry practice in key sectors requiring paper documents – notably, conveyancing and finance transactions.

So what’s changed?

The eConveyancing reforms in New South Wales

The most significant development has been the November 2018 amendments to the New South Wales Conveyancing Act 1919 (Conveyancing Act) and Real Property Act 1900 – the first of their kind. These aimed to introduce certainty around the exchange and use of electronic contract documentation in the conveyancing transactions, as part of the NSW Government’s support for a transition to a wholly digital eConveyancing model nationwide, and for protections for off-the-plan purchasers. Up until recently, statutory requirements for many land transfer instruments (including mortgages and caveats) to be deeds, and therefore on paper, had been preventing the full potential of end-to-end electronic settlement and lodgement processes and platforms (such as PEXA).

The reforms introduced a series of dramatic changes to the law of deeds so that in NSW, among a range of other things:

  • Deeds can be created (and exist) in electronic form, and can be electronically signed and attested in accordance with Part 3 of the Conveyancing Act (section 38A, Conveyancing Act).
  • The Conveyancing Act now generally applies to contracts or deeds in electronic form in the same way as it applies to all contracts or deeds (section 6C, Conveyancing Act).
  • Requirements for instruments relating to land interests to be in writing can now be satisfied electronically, including any requirement for that writing to be signed (section 23C, Conveyancing Act).

The reforms have been enthusiastically welcomed by the conveyancing industry. NSW Land Registry Services will cease accepting paper copies of a range of documents that were formerly required to be on paper for lodgement from 1 July 2019.

Are the reforms only relevant for conveyancing instruments, or more generally?

Although the reforms were directed primarily at the conveyancing industry, the statutory amendments appear to be drafted expansively enough to affect all deeds governed by NSW law. Historically, Part 3 of the Conveyancing Act has set out general rules for deeds under NSW law “whether or not affecting property” (section 38), and the provisions allowing the creation of electronic deeds contain no express limitations as to subject matter.

Of course, the reforms were aimed squarely at instruments that were to have effect in, and under the laws of, New South Wales. An electronic deed might be found to be valid for a purpose in New South Wales but not valid to the extent it creates rights and obligations, or is to be recognised in, another jurisdiction. Lawyers should always check in with their counterparties to agree whether a document is in acceptable form.

So can companies sign electronic deeds in NSW now?

Unfortunately, legal opinions still vary about the power of companies to sign anything electronically at all – which may be surprising given the purpose of the reforms. While there are now persuasive legal arguments in favour of companies being able to do so, and by extension to sign electronic deeds in New South Wales, objections and uncertainties persist even under the new legislation, and those probably won’t be dispelled without judicial opinion, or further statutory amendment at the federal level.

In a nutshell, some of the key continuing issues are that:

  • Some lawyers interpret section 127 of the Corporations Act implicitly to require “wet ink” signatures on a paper document to trigger the benefit of the statutory assumptions relating to due execution, although the applicable definition of “document” in that section might otherwise cover electronic documents.
  • The ETA regime at the federal level excludes the whole of the Corporations Act from the benefit of provisions in the Commonwealth ETA that would validate electronic signing of deeds and other instruments under section 127 of the Corporations Act. Many lawyers read into this a legislative intention to prevent companies from executing anything electronically. However, doubt about that conclusion persists.
  • The existing section 38 of the Conveyancing Act, which sets out how a natural person should execute a deed, contains an exception stating that section 38 itself doesn’t extend to the execution of deeds by corporations. On the face of it, that limit does not appear directly to affect section 38A, which contains the new reforms allowing electronic deeds “in accordance with Part 3”, but the extent of the interaction  of the two provisions is unclear.

The answer seems to be that “safety first” is still the sensible watchword for now, having regard to the divergence of opinion and the conservative approach taken by many lawyers on the point. Having company officers sign copies of deeds on paper puts the issue at least beyond doubt in a transactional context. Electronic copies of those documents can then be created for lodgment where required.

What about individuals (natural persons)?

The answer is a qualified yes, but you should be aware that it depends greatly on the method or digital platform. Not every technology, even specific “e-signing” platforms, will be legally effective.

The current difficulty concerns how the execution of an electronic deed should be properly witnessed (attested) – a key requirement of an effective deed. Even though the amended Conveyancing Act now expressly permits the electronic signing and attestation of deeds (which the old NSW ETA regulations refused to validate), it doesn’t prescribe a particular acceptable method for either process. During Parliamentary debate about the amendments, the Government confirmed that this was intentional so that parties would not be limited as options become available and technology advances, and noted that future regulations could provide guidance about how electronic signing and attestation could be achieved.

However, the settled law relating to attestation still applies even in the absence of that guidance. Witnessing electronically should be effective where these requirements are met:

  • the witness is physically present at the time the electronic deed is being electronically signed by the signatory (so teleconference tools won’t be acceptable for this purpose);
  • the witness electronically signs the same document, not a copy (and can be certain of that fact); and
  • the witness signs at the same time as the signatory.

This reflects the Law Society of New South Wales’s guidelines on electronic witnessing. The Law Society points out that the second requirement is the one where greatest caution is required, since many technologies – including cloud-based platforms – might create a separate (although identical) copy of the document for the witness to sign. That would fail the legal requirement that a witness sign the same document as the signatory.

In turn, that suggests the only way to validly execute an electronic deed is for both signatory and witness to be looking at, and signing, the same document on the same physical device at the same time – which presents one of the same logistical requirements as witnessing a paper document.

Despite the headway made by NSW’s legislative reforms, it seems the practices that have grown up around deeds on paper won’t fade away quite so soon. We haven’t yet seen a decision of a NSW court where the facts have lent themselves to a direct test of the new statutory reforms, although several cases have otherwise recently reaffirmed the existence of the “paper rule” at common law. However, now that the conveyancing industry has robustly adopted eConveyancing, we can expect further clarification – either in the form of additional regulation or judicial guidance – in the relatively near future.

If you liked reading this, be sure to check out the Practical Law Team’s webinar on executing deeds in the digital age

Shan-Ree writes for Practical Law’s Corporate practice area. He joined Practical Law after eight years in practice at Gilbert + Tobin, where he advised on private equity transactions, trade sales, restructures, capital raisings, fund structuring, foreign investment, privatisations and other State transactions, employee incentive schemes, corporate governance, commercial contracts and charities.

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