Electronic Signing by Company Officers and the Paper Requirement for Deeds

Signing documents is such a basic – and seemingly straightforward – part of everyday business life in Australia that it can be a surprise to discover that the law on the execution of documents is still not completely settled in some respects. In fact, lawyers must ensure they are actively watching this space for current developments. A case in point is the following notorious question that crops up all the time for the transactional lawyer: can company officers sign deeds electronically?

Up until now, considered views in the Australian legal profession have ranged from “absolutely not” to somewhere around “that’d be nice, but let’s not go there”, despite the commonplace electronic methods by which documents are sent, shared and handled in boardrooms and law firms in practice.

However, a series of recent cases have shown that, at least in some circumstances, judges are increasingly prepared to hold that the use of electronic signatures to execute deeds may be possible.

The legal views to date

In a previous article for Legal Insight, Electronic Deeds: Recent Developments in NSW, we discussed the effect of recent New South Wales legislation abolishing the centuries-old common law rule that a deed must be “a writing on paper, parchment or vellum” – which had so far generally been seen as an absolute necessity, needing legislation to change it. The article also highlighted the key issues regarding the power of company officers to sign documents electronically. Building on this in relation to deeds, the relevant objections can be summarised as:

  • The Electronic Transactions Act 1999 (Cth) (the ETA), which validates the use of electronic signatures at a federal level, doesn’t apply to the Corporations Act 2001 (Cth) (the Corporations Act).
  • Without the benefit of the ETA, there’s persistent doubt about – and arguments for and against – whether electronic signing satisfies the methods prescribed in section 127 of the Corporations Act. These are the preferred methods for a company to execute a document so that people dealing with the company can have the benefit of certain statutory assumptions.
  • Even if company officers can sign electronically for general purposes under section 127, this still wouldn’t overcome the “paper rule” where deeds are concerned, which appears to prevent the use of electronic facsimile signatures.

Or does it?

Section 127(3) of the Corporations Act allows a company to execute a document “as a deed” using the prescribed signing method. The usual view is that all this really does is provide a uniform way for companies to sign deeds validly across all Australian jurisdictions, instead of under the various methods mandated by older state legislation relating to deeds and corporations.

There’s another argument, however, which is that section 127(3) actually overrides the common law requirements for signing of deeds when a company is executing. On this reading, it gives effect as a deed to any document that’s expressed to be a deed and signed by the relevant company officers – even where the document is an electronic one.

To date, that argument hasn’t been widely endorsed by lawyers and legal scholars, on the general basis that if that effect really had been intended, the statute should have spelt it out expressly, since the paper rule is so fundamental and has been around for hundreds of years.

The Great Southern / Bendigo and Adelaide Bank debt recovery cases

The high profile collapse of the Great Southern agribusiness schemes in 2009 has led to a large number of cases in the superior courts of several Australian states over the past several years. Among other things, these cases have resulted in a burst of recent judicial analysis about the law of signing.

The relevant cases tend to share some elements of the following basic facts:

  • The Great Southern Group marketed and operated a number of agribusiness managed investment schemes, and invited investors to apply for finance to invest in the schemes. Finance was usually provided by a preferred lender entity, now part of the Bendigo and Adelaide Bank group (the Bank).
  • The loan application contained a power of attorney, which appointed a Great Southern company (usually Great Southern Finance Pty Ltd (GSF)) as attorney for the investors.
  • Under that power of attorney, GSF officers executed a loan deed with the lender on behalf of the borrowing entity and, usually, on behalf of the individual investors as guarantors.
  • The signatures of the GSF officers on the loan deed were sometimes applied electronically, and sometimes without the actual participation of the officers themselves.
  • After the schemes failed, the Bank attempted to recover the loans. The cases tend to turn on whether the power of attorney and the loan deed were validly executed.

Courts have rarely directly queried whether there’s any exception to the paper rule in the context of company officers executing deeds. Usually, judges simply reaffirm that the paper rule is a longstanding, fundamental and accepted property of a deed: for example, see Burkett v Bendigo and Adelaide Bank Limited [2018] VSC 723 at [57]; Bendigo and Adelaide Bank Limited v Russo [2019] NSWSC 661 at [90]-[95].

However, in Bendigo and Adelaide Bank Limited v Pickard [2019] SASC 123 (at [57]), a decision of the South Australian Supreme Court apparently accepted a Victorian decision from the previous year in Bendigo and Adelaide Bank Ltd v Laszczuk [2018] VSC 388 as authority for the proposition that certain requirements for the execution of deeds had been overridden by section 127 of the Corporations Act, including with the effect of extinguishing or modifying the paper rule.

Relevantly:

  • In Laszczuk, two officers of GSF had signed a deed by stamping their facsimile signatures on a paper document, which was held to be valid. In that case, Croft J held that:
    • section 127(3) provides a statutory method under Commonwealth law for a company to “execute a document as a deed” if the document is signed as described in that section; and
    • Commonwealth and state law (in that case, Western Australian statute) about the execution of deeds could operate in parallel without inconsistency in this case. If there had been any conflict, however, the Corporations Act would have prevailed (at [44]).
    • There is no reason why the assumptions a person is entitled to make under s 129(5) of the Corporations Act should be confined to signatures made with a pen (at [45]).
  • In Bendigo and Adelaide Bank Limited v DY Logistics Pty Ltd [2018] VSC 558, the relevant issue was whether two officers of GSF had validly signed a loan deed by the placement of their electronic facsimile signatures on that deed by a “person unknown”. In that case:
    • Croft J found that it was possible to use electronic facsimile signatures, despite the ETA not applying. In considering what “signed” should mean at common law, Croft J held that section 127 either requires:
      • physical signature; or
      • personal authentication of a facsimile signature (at [50]-[55]).
    • However, the loan deed still failed, because there was no evidence of personal authentication by the signing officers. The relevant issue did not appear to be whether the deed was in electronic form or on paper at the time the signatures were applied.
  • In Pickard, the facts again concerned the application of two GSF officers’ electronic facsimile signatures to an electronic version of a loan deed by another person. In that case:
    • Stanley J applied DY Logistics in reaching the same conclusion that the deed failed for lack of personal authentication (at [60]-[71]).
    • Stanley J also appeared to accept Laszczuk as authority for the proposition that the paper rule had been either extinguished or modified by statute. Again, the relevant issue was the officers’ authentication of their signatures under section 127(1), rather than the paper requirement (at [57]-[59]).
    • On the issue of signing in counterparts, Stanley J also expressed the opinion that it would be insufficient for two signatures to appear on different counterparts, since no single counterpart would be properly executed under section 127(1) (at [70]).

What do these cases mean for companies and deeds now?

On the strength of these cases, it appears that courts are indeed moving to support the position that facsimile signatures, including electronic signatures, can be used by company officers to execute documents generally under section 127, provided that:

  • the signatories personally authenticate the signatures; and
  • each signed counterpart should have both officers’ signatures on it.

That seems to go a long way to resolving the historical doubts about whether section 127 inherently requires physical “wet ink” on paper, although it also shows that when electronic signatures are used, something more will be required than just the signatures, and it’s important to coordinate the sequence of signing by company officers.

However, the effect of section 127(3) on the paper rule for deeds is less clear. The reasoning isn’t squarely set out in detail in any of the cases, and the paragraph in Laszczuk relied on doesn’t appear to discuss the paper rule directly. The decision in Pickard appears to endorse the interpretation of section 127(3) as “giving effect as a deed” to any document (including, implicitly, an electronic document) expressed to be a deed and signed in accordance with section 127(1). It’s also worth noting that it didn’t appear necessary for the court in DY Logistics to consider any implications arising from the fact that the deed wasn’t on paper at the time the electronic signatures were copied and pasted. If there had been the required personal authentication, would the deeds then already have been valid? Would it have been relevant whether the deeds had then been printed?

In summary – we may be seeing a developing acceptance (in at least South Australian and Victorian courts) that electronic signing of electronic deeds by company officers won’t be invalid only because of the paper rule, but a development this significant probably needs – and is likely to receive – further consideration by other courts to establish a clear trend. In the meantime, lawyers should still (as always) exercise caution when dealing with deeds and the question of electronic signing. Printing a complete copy for physical signing is always still safest. However, these recent cases demonstrate that when it comes to fundamental assumptions about the law of signing, the ink may not be as dry as it appears.

Practical Law subscribers can access more information on execution issues in the following practice notes on the Practical Law Australia site:

  • Execution of deeds and documents by individuals
  • Execution of deeds and documents by companies incorporated under the Corporations Act 2001 (Cth)
  • Electronic signatures
  • Protocols for remote or virtual signings

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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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