01/08/2011

A recent case dealing with whether or not a document was a deed would at first glance seem of little interest to business people but in fact could have important legal and practical issues about how businesses document their dealings.

I bet you never thought you’d care less as to whether a document was officially 'a deed' or not. Well if you’re involved in a business you just might have to start.

A recent Queensland Court of Appeal case of 400 George Street (Qld) Pty Limited v BG International Limited (2010) had to decide whether the document in question was or was not 'a deed'. The decision vitally affected the outcome of the case and the loss of a lot of money. Now we’ve got your attention.

Before we go to the case, what exactly is a deed?  Like a camel, they’re a lot easier to recognise than define. The definition is hard because they've been around for many hundreds of years and evolved a lot over those years.  Executing a deed is generally looked on as the most solemn act that a person can perform with respect to property or contract. A deed is a document that passes an interest in property, creates a binding obligation or confirms a previous act. They are special because unlike an ordinary contract they don’t require "consideration", the giving or receiving of a benefit that is so necessary for the existence of a contract.

Deeds must be in writing and originally needed to be "signed, sealed and delivered". All the States have passed legislation that has modified these requirements. For example in NSW section 38 of the Conveyancing Act says that as long as the deed is signed in front of an independent witness it is deemed to have been sealed by the party signing.

We used to use the words 'Signed, Sealed and Delivered' in the signature clause but these days most deeds simply say 'Executed as a Deed'.

Now if you’re still awake let’s look at the case. The landlords gave the proposed tenant an agreement to lease for signing. The proposed tenant signed the document through its duly appointed attorney. The agreement said "signed sealed and delivered" and "Executed as a Deed". The lease was for a number of floors of a city building.

The tenant later withdrew from the deal saying that there was no binding agreement. At that time at least one of the landlords had not signed the document. The landlords sued, saying that there was an enforceable agreement. They said that the document was a deed that had been duly executed and delivered by the tenant and as a result the tenant could not withdraw from the deal.

The court said: “A deed is very different from a contract.…  the contract is not binding on the parties until they have exchanged their parts.  But with a deed it is different. A deed is binding on the maker of it, even though the parts have not been exchanged, as long as it has been signed, sealed and delivered”.

The court went on to hold that to be a deed there had to be the intention of the parties that it be immediately binding on each of them as they signed it rather than when it was exchanged. The Court of Appeal found no clear intention by the parties to be bound until the documents had been exchanged.  That is, despite what the document called itself (ie a deed) it was not a deed because of the lack of intention by the parties to be immediately bound by it.

The result was that the document was never enforceable because it was never exchanged and the tenant was able to walk away from hundreds of thousands of dollars worth of annual rent.

So as a business person you might have to ask at some point when dealing with another business "do we expect the document to be immediately enforceable when signed or are we waiting for exchange of contracts?" Depending on the answer you may or may not have to "sign, seal and deliver" a deed.

If you have any questions in regard to the above article, please contact TOWNSENDS BUSINESS & CORPORATE LAWYERS on (02) 8296 6222.