26/02/2016

The laws of the main Eastern states of Australia prevent a 'deed' from existing electronically and therefore prevent it from being signed electronically. Those wanting to use new age signing technology need to understand its limits.

Picture the scene.  We are in medieval England and Sir Thomas has agreed to let Alfred the Smith use his western pasture to graze cattle to the exclusion of all others including Sir Thomas himself.  The Smith will pay three sovereigns each year for the right.

The parties meet with their supporters at a given place on the pasture to solemnise this important commercial arrangement.  Sir Thomas has had his retainer prepare a parchment which sets out the agreement.  Alfred cannot read so the document is read to him.  He nods his head in agreement.  

Sir Thomas affixes his seal to the document by impressing his ring into the soft island of warm wax that has been dripped onto the bottom of the parchment.  Alfred cannot write but in front of those present he makes a cross with the quill thereby showing his agreement.

The parchment is then torn in half and one part is handed to Sir Thomas and the other to Alfred.  The gap in the two men’s social standing means that hand-shaking is not appropriate but both smile warmly at the other and the witnesses generally express satisfaction with the formalised agreement.

That process was used for many hundreds of years in England and forms the basis of our law in Australia.  Eventually some of the formalities changed although the original processes were honoured for much longer through the way we described the new formalities.

The parchment became known as a ‘deed’ because it was a solemn promise by the parties to bind them to particular action.  The two torn halves and the common tear line that could only match up with both halves of the parchment were called indentures.   For the deed to be fully effective the party giving up rights had to affix their seal. The two halves had to be delivered to the respective parties.

Until only a few decades ago the signature page on a deed said ‘signed, sealed and delivered’, reflecting the process that Sir Thomas and Alfred went through so long ago.

Today deeds say simply ‘Executed as a Deed’ (materially less charming than the ‘olde’ phrase).

But one thing that hasn’t changed is the importance of a deed.  It goes beyond a simple contract.  It is a more fundamental binding to a course of action as evidenced by the fact that agreements contained in deeds don’t have to have all the elements of an agreement in a simple contract.  The very fact that the party executed the deed is taken as their intention to be bound by its terms notwithstanding the existence or otherwise of any other contractual rules (like the need for what is called ‘consideration’).

So put simply – deeds are uber agreements; obligations on steroids; solemn promises carrying the full weight of moral and legal enforcement.

That being the case exactly what do you need to create a deed in Australia in the 21st Century?

In Australia with our federal system, where all legal jurisdiction rests with the States except for the powers they gave up in the Australian Constitution or since by agreement,  what constitutes a deed is dependent on the laws in each State.  At common law

“there are three, somewhat antiquated, formalities which must be complied with in order for an instrument to amount to a deed. The first is that it must be written on parchment, vellum or paper. The second is that it must be sealed. The third is that it must be delivered: Norton, RF, Treatise on Deeds (2nd ed, 1928, 435) and Monarch Petroleum NL v Citco Australia Petroleum Ltd [1986] WAR 310 at 353.”     Scook v Premier Building Society (2003) WASCA.

The underlined words are the most important when considering whether a deed can exist electronically.  If the common law requires that a deed be on ‘parchment, vellum or paper’ then that is what a deed must look like unless there is legislation permitting something different.

In NSW, VIC and QLD there is no such legislation.  For example, s.38 of the Conveyancing Act 1919 (NSW) has something to say about issues relating to the formalities of deeds but is silent on the issue of the physical form of the deed.  The common law therefore applies.

Contrast s.41(5) of the Law of Property Act 1936 (SA) and s.9(4) in the West Australian Property Law Act which clearly change the common law by saying:

“Notwithstanding any other law, an instrument executed in accordance with this section is a deed if
(a)    the instrument is expressed to be an indenture or deed; or
(b)    the instrument is expressed to be sealed and delivered or in the case of an instrument executed by a natural person, to be sealed; or
(c)    it appears from the circumstances of execution of the instrument or from the nature of the instrument that the parties intended it to be a deed.”

Deeds in NSW, VIC and QLD cannot exist only electronically and digital signing is therefore not possible: the absence of physical form noted above is fatal to the notion that an electronic document can constitute a deed.  

That being the case the Electronic Transactions legislation in all those States and the Commonwealth is irrelevant.  The common law definition of a ‘deed’ is not dealt with in that legislation and as a result the other provisions cannot apply.

In future editions of Business Law Brief we’ll

•    look more closely at what documents can be executed electronically,
•    discuss the difference between an electronic signature and a digital signature,
•    assess whether a company can execute a document electronically,  and
•    consider the Electronic Transactions legislation, both State and Federal, and the important exclusions set out in those pieces of legislation.

If you can’t wait … contact us here at Townsends on (02) 8296 6222 for advice on all these issues and to better understand whether and what documents can be signed online.

* Autobiography of Sun Tzu