Electronic execution: The gaps in e-signing

Introduction

On 22 February 2022, the Corporations Amendment (Meetings and Documents) Act 2022 (Cth) (Meetings and Documents Act) received Royal Assent. Schedule 1 to the Meetings and Documents Act commenced on the following day, bringing with it permanent reform to the Corporations Act 2001 (Cth) (Corporations Act) to provide for electronic execution of documents (including deeds). While the market embraced temporary measures¹ enacted during the COVID 19 pandemic, the Meetings and Documents Act has now provided corporate Australia with a degree of certainty with respect to document execution. However, the Meetings and Documents Act must not be viewed as a panacea for all matters relating to execution of documents. Some unresolved gaps still remain and it is still necessary to be mindful of the practical issues when dealing with e-signing of documents in Australia.

The benefits of the Meetings and Documents Act

Some of the permanent changes to methods of document execution in Australia which are born out of the Meetings and Documents Act, benefitting companies registered under the Corporations Act, include the following:

• Technology neutral criteria for signatures: A person may sign a document by signing a physical form of the document by hand or by signing an electronic form of the document using electronic means, and can use different methods to sign the same document.
• Split Execution: A person is not required to sign the same page or copy of a document as another person. Importantly, this allows officers for the same company to sign different copies of a document, resolving some prior market uncertainty.
• Exchange of signature pages: The form of a document signed by a person need only include the signature page signed by that person, meaning that it is not necessary to include the entire contents of the document in a counterpart. Although as a matter of evidentiary integrity parties should continue to follow this practice, this change allows flexibility for documents where this might not be possible (for example many cloud based platforms have size limits for documents, this can, for example, make the inclusion of technical drawings and specifications within annexures to documents difficult).
• Agents and attorneys: A number of long standing common law rules with respect to the execution of deeds have been dispensed with, with the stand out feature being that natural persons acting as an agent or attorney for an Australian company no longer need to be empowered by a deed in order to execute a deed.

Beware of gaps in the e-signing landscape

What if a foreign company is a signatory to a deed?

The Corporations Act governs execution of documents by companies registered under the Corporations Act only. As such, these latest amendments to the Corporations Act, and in particular the dispensation of many common law formalities around deeds, are of no direct benefit to foreign companies. While Australian law does not impose any particular formalities on foreign companies for execution of agreements, it does so for deeds, and yet State or Territory legislation also doesn’t always clearly provide for execution of deeds by foreign companies either (with the exception of Queensland²).

Where a deed is not governed by the laws of Queensland we must contend with the common law rules for execution of deeds by corporations, which, amongst other things, requires the application of a corporate seal (that very often cannot be applied electronically, depending on to what extent State or Territory legislation may be considered to have impacted the common law rules around deeds more generally). Execution by the foreign company must also comply with its constituent documents and any formalities and signing requirements under the relevant foreign law. This can add a level of complexity to execution.

It is important to note that foreign companies are not the only entities which do not benefit from the Meetings and Documents Act. The methods of execution of other entities, such as government bodies, statutory corporations and individuals, do not fall within the ambit of the Corporations Act. Moreover, there are occasions when the amendments introduced by the Meetings and Documents Act will not benefit Corporations Act companies: for example, section 126 of the Corporations Act does not contemplate a corporate entity acting as an agent or attorney of a Corporations Act company. Consequently, care must be taken to ensure that execution by entities of the like complies with the requirements of the applicable law (which may include a mix of legislation and common law).

The importance of prudence

The Explanatory Memorandum for the Corporations Amendment (Meetings and Documents) Bill 2021 explains that amendments to allow certain documents to be signed in flexible and technology neutral manners promote ease of business communication at lower cost. This “technology neutral approach” sees that the Meetings and Documents Act does not mandate any particular form of technology for electronic execution. Rather, the Memorandum nods to the use of a “range of different technologies” for document execution, such as using stylus tools to sign PDFs, other online platforms and even future technologies that are yet to be developed. While it is clear that these permitted methods are flexible and will make life easier, it is imperative to remain prudent with respect to methods of electronic execution and to ensure that reliable methods of execution are used.

Identification and Reliability requirements

We should be mindful of the “identification” and “reliability” requirements which must be satisfied for a person to have been deemed to have signed a document, as articulated in section 110A of the Corporations Act: a method of signing satisfies these requirements if it identifies the signatory, indicates their intention and is reliable as appropriate for the purpose for which the information was recorded. As such, it is prudent to include the printed name of a signatory and the capacity in which they sign under their signature, particularly when a person signs the physical form of a document by hand. This is because the technology neutral signing criteria of the Corporations Act applies to both wet-ink and electronic signatures.

Further, there may be instances in which electronic signatures are cut and pasted into signature blocks and distributed by non-signatories. In such a scenario, it is prudent for a recipient to obtain the signatory’s confirmation that they inserted their signature into the signature block, or that they authorised another person to insert their signature on their behalf. To mitigate this potential issue in the context of document exchange via email, a signatory should inform other parties that their email address is their own and not to be used by another person, and then email the executed document or counterpart to the relevant parties personally, using that email address.

Making assumptions

Sections 129(5) and 129(6) of the Corporations Act allow counterparties to make assumptions about due execution when a Corporations Act company executes a document without a common seal under section 127(1) or with a common seal under section 127(2): the sections can operate to prevent a company from avoiding liability under a signed document by arguing that signatories were not properly authorised to enter into such document.

It is also necessary to be aware of s 128(4) of the Corporations Act, which provides that a person is not entitled to make an assumption in section 129 if at the time of the dealings they knew or suspected that the assumption was incorrect. While this reinforces the importance of including the name and office of a signatory in an execution block, it likewise underscores the necessity of fulfilling the identification and reliability requirements in section 110A of the Corporations Act (discussed above). It is imperative that a counterparty to a document ensures they sufficiently identify a person who signs that document as someone who was authorised to do so.

Conclusion

The Meetings and Documents Act has revolutionised document execution in the Australian market. The permanent changes to the Corporations Act will allow Corporations Act companies to execute documents with flexibility and to conduct business in a simpler, faster and more cost effective manner. However, there still remains a myriad of open questions about, and gaps in, the e-signing landscape and the changes are of no benefit to a signatory that is not covered by the Corporations Act. The ease and flexibility facilitated by the Meetings and Documents Act is also no excuse for complacency. It is imperative that we continue to be prudent as participants in an evolving landscape.

If you are a signatory to a document and you are not signing that document on behalf of a company that is registered under the Corporations Act, you must ensure that execution complies with the requirements of the applicable law. Alternatively, if you are a signatory on behalf of a Corporations Act company, we recommend that you continue to employ reliable methods of electronic execution. This includes adopting the measures discussed in this article to ensure that the identification and reliability requirements are satisfied.

For more information, please see our related article and contact a member of our team.