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When does your deed become binding?
Recent legislative updates give rise to questions as to when documents have actually been signed, sealed and delivered, write Andrew Lumsden, Clare Corke, Alexandra Feros and James Morley.
Andrew Lumsden, Clare Corke, Alexandra Feros and James Morley
The recent amendments to the Corporations Act (Cth) 2001 (Corporations Act) allow companies to execute deeds in accordance with sections 126 and 127, by signing either a physical or electronic form of the document. The methods used by a company to effect such electronic execution are not limited, provided that the person signing can be identified, have their intention indicated and that the method is reliable for the purpose.
Delivery
Historically, a deed takes effect on the date when it is delivered, rather than when it is dated or executed. The delivery of a deed does not need to be physical, as it is the point in time when the parties to the deed intend to be legally bound.
To determine when a deed is delivered, the rule requires the court to examine the facts and consider “the words and conduct of the executing party and the circumstances surrounding the execution of the deed”.
There is no general presumption that a party intends to be immediately bound simply by executing a deed. It is not unusual to have surrounding circumstances indicating that the parties do not intend to be bound until all the counterparts of a deed have been duly executed and exchanged. Indeed, it is quite common for transaction parties to deliberately delay delivery of transaction documents until all the parties have signed and agreed to be bound.
Is delivery required when deeds are executed via new platforms?
The recently amended provisions of the Corporations Act allow directors and secretaries to execute documents electronically on behalf of the company. The provisions make it clear that electronic execution applies to the execution of deeds as well as other documents. If the document is executed under these provisions, delivery of a deed is not necessary for execution to be effective.
Digital signing platforms are increasingly being used by parties to execute documents electronically. The effect of the provisions and the “mechanics” of the platforms are such that when the officers have executed documents via the platform, in most cases, the delivery requirement of a deed will be taken to have been satisfied.
Does the digital platform process fulfil the delivery requirement by automatic distribution?
When all of the executing parties have signed a document on platforms like DocuSign, DocuSign automatically sends a fully executed version of the document to all of the signees, together with a summary of execution details (automatic distribution). As delivery is not necessary for Australian companies that have executed a deed pursuant to section 127, the question is whether the automatic distribution should be considered as delivery for parties that are not Australian companies that have executed a deed.
Sections 10 and 13A of the Electronic Transactions Act (NSW) 2000 provide that a document can be provided by electronic communication if the other party consents to the production of an electronic form of the document. This means that executed documents can be considered as properly sent to parties through an email attachment, being the method used by the automatic distribution, if the parties have consented to do so.
However, as discussed at the beginning of this article, the delivery requirement for a deed does not mean the physical (or electronic) delivery of the executed documents. Rather, the time of delivery is the time when the parties intend to be legally bound by the document.
With that being said, even though the automatic distribution does not necessarily mean the delivery requirement is satisfied per se, it should be considered as one of the surrounding circumstances in determining the delivery of a deed. In the absence of any contradicting factors, a fully executed version of a deed distributed by DocuSign through automatic distribution to each signing party should at least serve as an indication of the parties’ intention to be bound.
In practice, in order to avoid the uncertainty around delivery of electronically executed deeds, the relevant document should include an express statement as to whether the execution constitutes delivery such that the intention to be legally bound is abundantly clear. In the case where execution does not constitute delivery, the parties should make it clear upon which event the delivery will occur.
This is particularly important when deeds are prepared internally or are pro forma where neither side is represented by legal advisers. Where the timing of delivery is important, we have also seen models where the respective counsel manage the digital signing process for their clients alone and then effect delivery by exchanging emails attaching their client’s executed counterparts.
The above demonstrates that there is an argument that delivery is likely to be considered met for all parties (not only Australian companies) upon receipt of the executed document returned through automatic distribution, and if the parties want to use a different trigger to create a binding deed, then separate and deliberate processes should be put in place to manage that issue.
If you are using a digital signing platform, you need to carefully consider the practical and technical implications of the platform and the new signing rules for electronic execution.
Andrew Lumsden, Clare Corke, Alexandra Feros and James Morley are partners at Corrs Chambers Westgarth.
