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Can a deed be made electronically?

Can-a-deed-be-made-electronically

In this article I am keen to answer key questions regarding the very old-fashioned legal tradition of deeds and how they interact with modern practices such as:

  • Can a deed be executed electronically?
  • If a lawyer drafts a 50 page deed and emails it to a client as a PDF file, if only one page needs signing, can just that one page be printed and signed?
  • What is the value of a PDF version of a signed deed?

I think these are critical questions for all professionals who work with SMSFs, given the importance of the role of deeds in establishing SMSFs as well as varying their governing rules.

Similarly, deeds are also of course commonly used in similar ways for discretionary trusts, unit trusts and more.

What’s changed?

The key change in this area is the publication of a book called Seddon on Deeds written by Dr Nicholas Seddon, who is, among other things, Adjunct Professor, College of Law, The Australian National University.

Until the publication of Dr Seddon’s book, if one wanted concise commentary on deeds, one either had to refer to general legal encyclopaedias, or use the text Norton on Deeds. With the greatest of respect to Norton on Deeds, it is an English text not an Australian text and its second edition was published in 1928! As the foreword to Seddon on Deeds by former Justice of the High Court Michael Kirby points out, naturally in the almost 90 years since that time there have been fundamental changes to the Australian legal system.

Of course Seddon on Deeds is not legislation or the ratio decendi of a judgement and thus does not form part of the law. However, it does happen that some leading texts get cited with approval by judges so often that a person is prudent to regard the text at least as ‘best practice’ (a great example of this is the text Statutory Interpretation in Australia, which at last count has been cited in 2,471 Australian judgements). I suspect Seddon on Deeds will become such a book.

Can a deed be executed electronically?

My feeling had always been no, a deed can’t be executed electronically.

However, in saying this, I know that there are many who are already purporting to execute deeds electronically. Also, I acknowledge that it would be far more convenient if they could be executed electronically. However, due to the wealth in SMSFs (the average SMSF has assets of $1,066,080 as at 30 June 2014), I think we should not take any chances.

My reasoning as to why deeds can’t be executed electronically is as follows.

As Steytler J wrote in Scook v Premier Building Solutions Pty Ltd [2003] WASCA 263 ‘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.’ Accordingly, unless legislation alters the position, the starting point is that a deed can’t be executed electronically because it would fail to be written on parchment, vellum or paper and thus would fail to constitute a deed.

There is legislation enabling electronic transactions (such as the Electronic Transactions (Victoria) Act 2000 (Vic)). However, I’ve never felt comfortable that such legislation actually went as far as overruling the common law requirement that a deed itself must be on paper.

Accordingly, I was thrilled to see that Seddon on Deeds tackles the issue. Here’s what he writes from its chapter on execution:

In Australia, it is still the case that a deed must be written on parchment or paper … there is no legislation that provides for electronic deeds … It is open to argument that a statutory requirement of writing can be satisfied by an electronic document … However, in the case of deeds, the common law requires not just writing but writing on parchment, paper or vellum. [Footnotes omitted; Emphasis in the original]

Accordingly, no, a deed can’t be executed electronically. It should all be done on paper with a traditional ‘wet’ signature (or — for academic completeness — on parchment of vellum, which are types of animal skins that used to be used for writing).

Can only the signing page of the deed be printed and signed?

My feeling had always been no, it is not sufficient for only the signing page of the deed to be printed and signed. In forming this view I referred to old cases like Clayton v Minister of Lands [1914] 33 NZLR 1433 (ie, over 100 years old) along with general legal encyclopaedias, such as Halsbury’s Laws of Australia, which states: ‘It is also insufficient if the signatures of multiple parties to a deed are written on separate sheets of paper, without the deed being present, and the sheets of paper are subsequently attached to the deed.’

However, none of these are in the modern context of something like a lawyer drafting a 50 page deed and emailing it to a client as a PDF file. If only one page needs signing, the client might wish just print the one signing page.

Accordingly, I was again thrilled to see that Seddon on Deeds also tackled this important issue, writing:

Would it be sufficient to print out only the execution page and then for each party to execute that page? … It is possible that an Australian court could hold that such a practice is not sufficient for proper execution. A safer practice in Australia is to send the whole deed electronically as one document, and for it to be printed out as a whole and executed …

What is the value of a PDF version of a signed deed?

In light of the above, it begs the next question: is a PDF version of a signed deed of any value? For example, if a deed must be on paper, what happens if the original paper version is destroyed (eg, due to a fire or flood) but a PDF version survives on a back up?

I’ve also been of the view that a PDF version would be useful because it could be used to answer the evidentiary question of what a lost or destroyed deed looked like. Seddon on Deeds also addresses this, writing:

It is clear that an electronic copy of a properly executed deed could be treated as the best evidence of the existence of the deed

Practical implications for advisers with overflowing storage rooms

I think the practical course of action for advisers is as follows: If you instruct a lawyer to provide only a PDF version of a deed for execution, the deed should still be printed in full and then executed. A PDF scan of the executed deed can be retained by the adviser. If physical storage space is an issue for the adviser, the original can be given to the end client for their safe keeping so long as the adviser keeps a careful record of where the original is and it is impressed upon the end client that an original deed is a very valuable document and should never be lost or damaged.

On a side note, it’s probably already clear from this article that I think Seddon on Deeds is a great book. In my opinion, anyone who works with deeds should get a copy and read it in its entirety as the portions I’ve extracted in this article only represent a very small amount of its scholarly wisdom.

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This article is for general information only and should not be relied upon without first seeking advice from an appropriately qualified professional.

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