Electronic execution of documents - the implications, tips and outstanding issues

In brief - Changes to the Corporations Act and what these mean for execution of documents by companies

Technology has evolved more rapidly than law in recent times. This fact has been painfully illustrated by the uncertain legal status of documents electronically signed by corporations in recently years. 

Recent amendments to section 127 of the Corporations Act 2001 (Cth) (Corporations Act) clarify the circumstances where companies may sign electronically. These amendments have provided some welcome relief to both legal practitioners and business communities, particularly in circumstances where hard lockdowns have been imposed in several cities across the country. 

Our property team prepared a summary of the changes brought in by the Treasury Laws Amendment (2021 Measures No. 1) Bill 2021 (2021 Measures), which received Royal Assent on Friday 13 August 2021. That article can be found here. Our Wills, Estates and Succession Planning team has also written about the changes in this article Electronic witnessing for estate planning documents in Victoria, Queensland and New South Wales.

While these changes are valuable, they do not provide a sliver bullet to electronic signing for all documents by all signatories. In this article, we consider the implications of the 2021 Measures, provide some practical tips, and flag some of the outstanding issues for businesses and practitioners to consider. 

Electronic execution

Under the new section 127(3B), a director or company secretary may sign a document, including a deed, on behalf of a company using electronic means if the following conditions are met: 

• a method is used to identify the person and to indicate the person's intention to sign a copy or counterpart of the document; 

• the copy or counterpart includes the entire contents of the document; and

• the method used is as reliable as appropriate for the purpose for which the document was generated or communicated, in light of all the circumstances.

Signing methods 

The 2021 Measures do not mandate the use of any particular method or mode of technology. Instead, the changes are deliberately technology neutral, allowing for an execution method as reliable as appropriate for the purpose. This non-prescriptive language will enable the application of new technologies to sign documents. 

• Stylus tool: As an example, the Explanatory Memorandum of the 2021 Measures lists using a stylus tool to sign a PDF document and the person who signed the document emailing the document back to the company as a method that may be used to identify the person and indicate their intention to sign the document. A stylus is an electronic pen, which can be applied to a tablet computer to replicate the method of signing paper with an ink pen.

• DocuSign: The Explanatory Memorandum also mentioned signing by electronic means using a platform such as DocuSign as a method to identify the person and to indicate their intention to sign. DocuSign uses a signatory's email address as a method of identity verification. Given the conditions set out in section 127(3B), it is expected that an established electronic signing platform, such as DocuSign, will be widely used as a preferred method of signing documents by electronic means. A properly followed DocuSign process means that the electronically signed documents will likely satisfy the requirements under section 127(3B). 

• Encryption: The drafting of the 2021 Measures enables the application of new technologies. One example of a new method may be to use digital authentication to identify a signatory. A method of this kind is currently employed by PEXA for property transactions. An authorised PEXA user must insert a unique, encrypted PEXA Key, a USB stick, into their computer to authenticate their identity in order to use the platform. 

• Copy and paste (extra care required): Another method may be the copy and pasting of an electronic scan of the individual's signature. We note that this method is not referred to in the Explanatory Memorandum. While this method is commonly used, extra care should be taken to ensure that there is sufficient evidence to identify the person who signed the document and their intention to be bound and the reliability of the method in light of all the circumstances. 

Identification and intention

Section 127(3B) requires a reliable method to be used to identify the person who is signing the document and their intention to sign a copy or counterpart of the document. 

Generally speaking, a properly followed DocuSign process or an established encryption technology platform will likely satisfy the requirements of section 127(3B).

In other cases, one way to establish identification and intention is that when a document is signed electronically, the person receiving the document should ensure that the authorised signatory has:

• electronically signed the document in the appropriate execution block;

• returned the document from their individual email address; 

• stated their intention to sign in the email correspondence; and 

• attached the entire contents of the signed counterpart document to the email. 

This email, together with the entire contents of the electronically signed counterpart, should be filed and saved. When exchanging an electronically signed document with a counterparty, the email evidencing the person's intention to sign, should also be exchanged. 

Further, while electronically signed documents do not require a specific clause relating to electronic signing to be included in the document, we recommend including provisions in the document whereby the parties state their intention to sign electronically and that they will be bound by their electronic signatures. 

Other considerations

• Date of document - Extra consideration should be given to the effective date of a document. Parties should make it clear in the document whether they intend to be bound on a specified date, or the date of exchange as confirmed by the respective lawyers, or the date on which the last person signed the document.

• Property transactions - Despite the changes to the Corporations Act, special considerations should be given to real property transactions. Land titles offices in each jurisdiction may prescribe special requirements for dealing with interests in land. Property documents requiring registration must be signed in accordance with the requirements set by the land titles office in the relevant jurisdiction.

• Deeds by individuals - State laws also provide different rules for the signing of deeds by individuals. Some states allow electronic execution by individuals. Other states still follow the common law rules, which means that wet ink signatures are required for executing deeds by individuals. Different states also have their own requirements relating to sealing, delivering and witnessing of deeds. These should be considered on a case-by-case basis.

• Foreign companies - For a document to be signed by a foreign company, care must be taken to ensure that the execution complies with the law of the jurisdiction in which the foreign company is incorporated and the foreign company's constituent documents. Where practicable, a lawyer qualified in the relevant jurisdiction should confirm that the execution methodologies comply with the local requirements. 

• Mixed execution methods - The amendments also permit a combination of different methods to be used to execute a document. For instance, one director may physically sign a paper version of the document while the second director could sign the document using electronic means. 

• No retrospective application - The changes take effect from 13 August 2021, the date on which the 2021 Measures received Royal Assent. The 2021 Measures do not apply retrospectively. This means that any documents signed during the period between 22 March 2021 (after the expiry of Determination No. 3) and 13 August 2021 remain subject to the old rules. 

• Permanent fixture? - It is unclear when the Parliament will also pass the Treasury Laws Amendment (Measures for Consultation) Bill: Use of technology for meetings and related amendments. If this bill is not passed, the changes outlined above will expire on 31 March 2022. Electronic execution will only become a permanent fixture of the Corporations Act once this later bill is passed.