Creating deeds in electronic form: Why we should not be deterred by the ghosts of the past
The electronic transactions laws have been on the statute books in Australia for twenty years. But five years ago, a highly influential text advanced a powerful argument that deeds cannot be entered into by electronic communications.2 And last year a Supreme Court judge opined in passing that had it been necessary to decide the question, the judge would have concluded that it remains a common law requirement of a deed that it be written on paper.3 Why is it so? This article considers how we got to where we are. It suggests that the electronic transactions laws can be used to facilitate parties’ entry into deeds by means of electronic communications. It concludes, however, that given the experience of the last twenty years the best course would be for there to be further legislative intervention, ideally on a national basis. It also suggests that the temporary COVID-19-driven reforms relating to deeds could be extended from time to time until the further legislative intervention happens.
Why do finance lawyers use deeds?
A deed is a special type of binding promise or commitment. Executing a deed involves formalities that reinforce to the person executing it the seriousness and solemnity of what they are doing. In contrast with ordinary agreements, there is no need for a reciprocal quid pro quo (“consideration”) in order for a deed to be binding. The formalities of a deed overcome any lack of consideration, although lack of consideration may have a bearing on whether equitable remedies are available against the person who executed it. Further, there is a longer limitation period to bring an action for breach of a deed in comparison with the limitation period to bring an action for breach of an ordinary agreement not made by deed.4
In Australian finance transactions, guarantees and indemnities, security documents and documents by which a party accedes to security and guarantee arrangements are often executed as deeds. This is to overcome any difficulty that may arise if there is no consideration given to the executing party in return for the undertakings in the document. In addition, there is the advantage of a longer limitation period, as noted above, but I am not sure whether this is a significant factor for financiers.
Additionally, if a finance document conveys a legal estate in land, it needs to be a deed.5 This requirement applies to the conveyance of Torrens land in Victoria, but not to the conveyance of Torrens land in New South Wales.6 In New South Wales, upon registration of a dealing relating to Torrens land, the dealing has the effect of a deed duly executed by the person who signed it.7 The requirement for a deed for the conveyance of a legal estate in land is addressed in the legislation governing electronic conveyancing in Australia. That legislation provides that a registry instrument lodged electronically with an electronic lodgment network operator (like Property Exchange Australia: PEXA) has the same effect as if that instrument was a paper document.8 Further, if a registry instrument in a jurisdiction is digitally signed in accordance with the participation rules applicable to that instrument, the instrument is taken to be writing for the purposes of every other law of that jurisdiction.9 Moreover, the requirements of any other law of that jurisdiction relating to the execution, signing, witnessing, attestation or sealing of documents must be regarded as having been fully satisfied.10
Formalities for deeds
For a deed to be validly executed at common law, it had to be written on parchment, vellum or paper, and sealed and delivered. 11 Signing was not always necessary. 12 In this article I suggest that the requirement for writing on parchment, vellum or paper should no longer be taken to be a requirement of the common law. For a deed to be sealed, it had to have a seal affixed, attached or impressed upon the deed and the party expressed to be bound by the deed must have performed some act by which she expressly acknowledged the seal to be hers. For a deed to be delivered, there had to be (and – subject to some variations made by legislation in some jurisdictions – still have to be) acts or words sufficient to show that the party making the deed intends the deed to be presently binding on her.
The common law requirements outlined above have been varied by legislation in the Australian States and Territories. For example:
- it is now clear that a deed executed by an individual must be signed by them, not just sealed;13
- a deed need not actually be sealed (i.e. have a seal affixed, attached or impressed upon it): it is taken to be sealed if it is expressed to be sealed;14 and
- many jurisdictions (but not Victoria) expressly provide that a deed must be attested by at least one witness not a party to the deed.15
The legislation in some States and Territories may have altered the common law relating to deeds to remove any continuing common law requirement for a deed to be written on paper, parchment or vellum.16 However, I believe that Australia should now implement more definitive (and nationwide) reforms to address this issue.
Do the Australian Electronic Transactions Acts (ETAs) make it possible to enter into deeds using electronic communications?
In the first Anglo-Australian legal text in nearly a century that deals specifically with the topic of deeds, Dr Nicholas Seddon has made a powerful argument that, while the ETAs may enable the writing and signature requirements for deeds to be satisfied by electronic methods, deeds cannot be entered into by electronic communications.17 This is because, in Dr Seddon’s view, the common law of Australia still requires that a deed be written on paper, parchment or vellum. This is said to follow from the fact that although Australian legislation has modified the common law relating to deeds in some respects,18 those laws have not specifically removed the common law requirement for a deed to be written on paper, parchment or vellum.19 Dr Seddon points out that this contrasts with the United Kingdom, where the Law of Property (Miscellaneous Provisions) Act 1989 specifically removed the restriction on “substances on which a deed may be written”. Dr Seddon’s view is that this substance requirement for deeds still applies in Australia and has not been addressed by the ETAs.
I respectfully disagree, for two reasons. First, I have a different view as to the effect of the ETAs. Secondly, even if my views in relation to the ETAs are incorrect, I suggest that in any event the common law on deeds is capable of being extended (and ought to be extended) to accommodate electronic media.
About twenty years ago, the ETAs were implemented under a cooperative national legislative scheme involving the enactment of broadly similar laws by the Australian Commonwealth and the Australian States and Territories. 20 Amongst other things, those laws provide that, for the purposes of the law of the Commonwealth, or the relevant State or Territory, as the case may be, a transaction21 is not invalid because it took place wholly or partly by means of one or more electronic communications (the “General Facilitative Provision”). The General Facilitative Provision does not automatically establish the validity of an electronic transaction. Instead, it merely provides that the electronic form of the transaction does not make it invalid. In each Australian jurisdiction, the beneficial effect of the General Facilitative Provision is specifically excluded from being available in instances that are specified in the electronic transaction legislation in that jurisdiction. These exclusions differ from jurisdiction to jurisdiction.
I suggest that the General Facilitative Provision in each jurisdiction was intended to facilitate parties’ entry into deeds by means of electronic communications, except in cases where the circumstances fall within a specific exclusion of the availability of the General Facilitative Provision in that jurisdiction. There are extrinsic materials to support this.22 The Australian Electronic Commerce Expert Group Report,23 which led to the enactment of the Australian Electronic Transactions Acts, said the following in respect of the United Nations International Trade Law Commission (UNCITRAL) Model Law on Electronic Commerce (1996), which formed the basis of the Australian Electronic Transactions Acts:
Paragraph (3) of article 6 [of the UNCITRAL Model Law] allows an enacting State to exclude certain specified situations from the application of those articles, that is where the enacting jurisdiction does not wish to establish a complete functional equivalence between a writing and an electronic record. Examples might include those situations where writing requirements are intended to give warning or notice of factual or legal risks, such as … where domestic requirements reflect historical developments such as for deeds to be on paper or other similar material. The provision is not intended to be given a blanket application (emphasis added).
Further, some of the facilitative provisions in the ETAs in New South Wales, Queensland, South Australia and Western Australia are excluded from operating in respect of a legal requirement for there to be a witness’s signature on a deed.24 In addition, in Victoria, any transaction, requirement or permission whereby a will, a codicil or any other testamentary instrument (all deeds) is created, executed or revoked is excluded from the facilitative provisions in Victoria.25 These exclusions would not be required if the General Facilitative Provision (and the other facilitative provisions in the relevant Electronic Transactions Acts) did not apply to deeds at all.
Dr Seddon has questioned whether the General Facilitative Provision can be applied to render not invalid a document like a deed, because a document is different from the transaction that may be associated with it or embodied in it. Another commentator has challenged this view, including because the purpose of the General Facilitative Provision is to “validate transactions which otherwise would have required a physical document”.26 With respect, I agree with that commentator.
Does the common law still require that a deed be written on paper, parchment or vellum?
The authority cited by Dr Seddon for the substance requirement is over four hundred years old.27 Until very recently,28 the substance requirement has simply been referenced generally in cases, but not where the requirement was itself in contention.29 I suggest that, should this specific matter arise for judicial consideration in future, the common law rule in respect of the substance on which deeds must be written ought to be expanded beyond paper, parchment and vellum to accommodate electronic media.
Historically, the substance requirement appears to have been driven by the need for the writing to be on a substance that was durable and resistant to alterations after being written:30
Blackstone considered…that it was a strict requirement for writing to be on paper or parchment… “for if it be written on stone, board, linen, leather or the like, it is no deed. Wood or stone may be more durable, and linen less liable to rasures; but writing on paper or parchment unites in itself, more perfectly than any other way, both these desirable qualities, for there is nothing else so durable, and at the same time so little liable to alteration; nothing so secure from alteration, that is at the same time so durable.”
As along ago as 1979, a legal academic suggested that “it is probable, however, that a modern Court would hold that a deed may be written on a modern equivalent to paper or parchment; and it is possible that a modern Court would go further and apply, by analogy, the principle that a will may be written on any material.”31 I suggest this view applies with even greater force in 2020. Electronic communications embodying writing are amply capable of being durable and in a form that makes alteration of that writing detectable.
Why is this issue taking so long to resolve?
The above analysis would be facile if the main difficulties impeding the wide adoption of electronic methods for the execution of deeds are not acknowledged.
Witnessing and attestation
As noted above, many Australian jurisdictions (but not Victoria) require that a deed executed by an individual be attested by at least one witness not a party to the deed.32 Although the difficulties should not be overstated, there are technical and practical questions about how an electronic signing method may accommodate witnessing and attestation.33 Except in cases where it is clear that Victorian law governs the validity of execution of a deed, these technical and practical questions hamper widespread adoption of electronic execution methods for deeds.
Execution of deeds by Australian companies
Section 127 of the Corporations Act has the effect that, without limiting other ways in which an Australian company may execute a deed, the company may execute a document as a deed if the document is:
- expressed to be executed as a deed; and
- signed in accordance with section 127 of the Act (permissible signing methods include signing by two directors of the company or a director and a company secretary of the company).
Importantly, the Corporations Act permits financiers to assume that a deed executed by a company in accordance with section 127 is duly executed by the company.
The beneficial effect of the General Facilitative Provision (and other facilitative provisions) in the Commonwealth ETA is not available in relation to the requirements of section 127 of the Corporations Act.34 A significant proportion of finance documents executed as deeds in Australia are executed by Australian companies. As a result, the non-availability of the facilitative provisions in the Commonwealth ETA has had a chilling effect on the widespread adoption of electronic execution methods for deeds.
The availability of “workarounds”
In the absence of satisfactory methods for electronic execution of documents (including deeds) the market has developed remote signing protocols to dispense with formal signing ceremonies at which all parties or their attorneys are physically present to contemporaneously execute and exchange a single hard-copy original. These protocols appear to have originated in the London market. There has been a robust protocol in Australia for several years.35 These protocols are highly desirable but may have had the practical effect of slowing the pace of legal reform because they have to some extent mitigated the problems with the current law.
New South Wales
As a result of the insertion of section 38A in the Conveyancing Act 1919 (NSW), since November 2018 in New South Wales a deed may be created in electronic form and electronically signed and attested in accordance with the general rules relating to deeds that are set out in the relevant part of that Act. The explanatory note accompanying the Conveyancing Legislation Amendment Bill 2018 suggests to me that the provision is intended to have plenary effect.
In my view this is a helpful reform. However, I believe that it would be highly desirable for reforms of this kind to be undertaken co-operatively by the Commonwealth and all the States and Territories, as was the case when the electronic transactions legislation was introduced.
COVID-19 measures relating to deeds
The COVID-19 pandemic has led to the alteration of certain rules about document signing and witnessing that are not compatible with public health measures for social distancing. Here are the key provisions as they relate to the execution of deeds.36
|Provision||Effect on deeds||Comments|
|1||Corporations (Coronavirus Economic Response) Determination (No 1) 2020, sections 6 and 7.||Section 127 of the Corporations Act is modified until 5 November 2020 so that an Australian company may execute a document without using a common seal:
||Section 127(3) of the Corporations Act specifically contemplates that an Australian company may “execute a document as a deed” if the document is expressed to be executed as a deed. As a result, I suggest that the modification permits a deed to be executed in electronic form. There is nothing in the Determination to suggest that deeds, although specifically mentioned in section 127, are outside the scope of the modification. Further, the Determination defines “document” to include “a document in electronic form”. The reference to “electronic form” suggests that the medium in which the writing and signature is embodied may be electronic. This contrasts with the ETAs. As noted above, the ETAs, by referring to “writing” and “signature” requirements and permissions left open the argument (strongly put by Dr Seddon) that the ETAs do not remove the “substance” requirement for deeds.37|
|2||COVID-19 Omnibus (Emergency Measures) (Electronic Signing and Witnessing) Regulations 2020 (Vic). Regulation 5, read in conjunction with the COVID-19 Omnibus (Emergency Measures) Act 2020 (Vic), ss 4(1)(l) and 11.||To avoid doubt, the General Facilitative Provision in the Victorian ETA is modified until 25 October 2020. The effect of this is that deeds and mortgages are taken to be transactions which are not invalid because they took place wholly or partly by means of one or more electronic communications.||The phrase “to avoid doubt” suggests that the Chief Parliamentary Counsel wished to leave open the possibility that the (unmodified) General Facilitative Provision may already validate electronic methods of forming deeds.|
|3||Electronic Transactions Amendment (COVID-19 Witnessing of Documents) Regulation 2020 (NSW), regulation 2, read in conjunction with sections 17 and 18 of the Electronic Transactions Act (NSW).||Until 22 October 2020. the witnessing and attestation of deeds may be performed by audio visual link.||Given the existence of section 38A in the Conveyancing Act (discussed above) this Regulation does not need to cover the validity of deeds created in electronic form and electronically signed and attested.|
|4||Justice Legislation (COVID-19 Emergency Response – Documents and Oaths) Regulation 2020 (Qld), Part 3D and Regulation 27.||Until 31 December 2020 there are modified requirements for making a deed, or an instrument having effect as a deed, under the Property Law Act 1974 (Qld) or a common law rule. In particular, an instrument:
|For the purposes of these regulations, “electronically signed” is defined in a way which corresponds with the reliability and proof benchmarks that are set out in the ETAs.
The way forward
In my view, incremental judge-made law shaped by the vicissitudes and adversarial opportunism of litigation is not the optimal way to provide more certainty to the market. Cooperative federalism has been made to work by the national cabinet mobilised to deal with the COVID-19 pandemic. Perhaps the first step would be to keep extending from time to time the period of operation of the COVID-19 driven reforms outlined above until a more enduring framework is developed for adoption across all Australian jurisdictions. I suggest that, amongst other things, that framework should achieve the following:
- To avoid any doubt, make it as clear as possible that electronic methods for entering into deeds are not invalid only because they are electronic.
- Address the execution of deeds using electronic methods by Australian companies in accordance with section 127 of the Corporations Act (Cth).
- Impose a limited number of technology–neutral requirements to be fulfilled when making deeds using electronic methods. Those requirements would reflect the formality that is associated with deeds when compared with simple contracts. They may include, for example, a requirement that additional warnings should be given to, and additional consents obtained from, a party as part of the electronic deed formation process.
For further information please contact the author or any member of our Fintech, Privacy & Emerging Technologies team.
This article is general commentary on a topical issue and does not constitute legal advice. If you are concerned about any topics covered in this article, we recommend that you seek legal advice.