Out of Sight Out of Mind Is Ignorance

Out of Sight, Out of Mind; Is Ignorance Really Bliss? The challenges of remote signings under Australian law BFSLA Conference, August 2014 Bruce Whittaker Partner, Ashurst AUSTRALIA BELGIUM CHINA FRANCE GERMANY HONG KONG SAR INDONESIA (ASSOCIATED OFFICE) ITALY JAPAN PAPUA NEW GUINEA SAUDI ARABIA SINGAPORE SPAIN SWEDEN UNITED ARAB EMIRATES UNITED KINGDOM UNITED STATES OF AMERICA

Outline 1 Background to the project 2 Our proposed approaches to remote signings 3 How they apply to different types of document 4 Giving closing opinions on remote signings 5 Conclusion 2

Remote signings – a fact of modern commercial life • Face-to-face signings all but extinct • Usual for execution versions of documents to be distributed and executed remotely • No settled consensus on what "works" under Australian law 3

A spectrum of options The "very careful" end Remote parties print out and sign full copies of all documents The "flexible" end Remote parties sign unattached signature pages before the documents have been negotiated 4

Need to find the right balance Commercial convenience Formal requirements for proper execution 5

Authors of the draft protocols 6

Disclaimers • Protocols are still in draft • Protocols are only some "safe harbours", not exhaustive • Nobody is to blame for the paper, but me 7

Developments in the UK – Mercury Tax (2008) • Switching of signature pages from incomplete drafts of deeds to (different) final documents, with signatory's consent • Party tried to rely on 1923 CA decision, Koenigsblatt v Sweet – contract for sale of land altered after signing – vendor later approved the changes – court held later ratification the changes retroactively validated them • Court held in Mercury Tax that Koenigsblatt did not apply – on the basis that altering a signed document is different to taking the signature pages from one document and attaching them to another 8

The UK response – City of London Guidelines (2009) • Mercury Tax not well received by UK practitioners • Joint working party published guidance note on remote signings, settled by senior counsel – proposed three options for remote signings – sought to confine Mercury Tax to its facts 9

Our protocols – similar, but not identical • We also propose three options, depending on the type of documents involved • Differences to Co. LGs driven largely by two factors – not confident that all the legal analysis underpinning the UK protocols would apply here – desire to provide more practical guidance 10

The options in a nutshell Choice of approach depends on the type of document Document Approach 1 Approach 2 Deeds Yes Real property mortgages and other registrable real property documents Yes Other documents that affect land Yes Guarantees Yes PPSA security agreements Yes Documents executed under CA s 127(1) or (2) Yes Other simple contracts Yes Approach 3 Yes (Again, this is not to say that these are the only ways that will work under Australian law. ) 11

Approach 1 – for all documents 1. Co-ordinating law firm emails a final execution copy of the document to the remote party. 2. The remote party prints the entire document and signs it. 3. The remote party emails back a PDF of the entire document, or of the signed signature page from the document. 4. The return email confirms a number of factual matters, including whether the signed document is to take immediate effect, or only on satisfaction of specified conditions. 12

Approach 2 – guarantees, unregistrable real property documents, PPSA security agreements and simple contracts 1. Co-ordinating law firm emails to the remote party a final execution copy of the document, and a separate copy of the signature page. The signature page contains identifying features that clearly link it to the document it comes from. 2. The remote party prints the signature page, and signs it. 3. The remote party emails back a PDF of the signed signature page. 4. The return email confirms a number of factual matters, including whether the document to which the signature page relates is to take immediate effect, or only on satisfaction of specified conditions. 13

Approach 3 – PPSA security agreements, and simple contracts (unless signing is in reliance on CA s 127(1) or (2)) 1. Co-ordinating law emails unattached signature page to the remote party. The signature page should identify (eg by name) the document it will ultimately relate to. 2. The remote party prints the signature page, and signs it. 3. The remote party emails back the signed signature page, and sends in the original by courier. 4. When the document has been negotiated and the transaction is ready to close, the co-ordinating law firm sends the remote party an email with the final form of the document. 5. The remote party confirms by reply email that the document is agreed and binding (or will be on satisfaction of specified conditions), and that the original signed signature page may be inserted into a hard copy. 14

Deeds – only Approach 1 "The history of solemn deeds and the authorities above referred to make it plain that the essential element of a deed is that it be the most solemn act that a person can perform with respect to a particular piece of property or other right. " - Manton v Parabolic Pty Ltd, NSWSC, 1985 "A writing (i) on paper, vellum or parchment, (ii) sealed and (iii) delivered, whereby an interest, right, or property passes, or an obligation binding on some person is created, or which is in affirmance of some act whereby an interest, right, or property has passed. " - Norton on Deeds 15

Does a deed need to be a physical instrument? • Norton says "yes", but is (very) pre-internet. • City of London Guidelines say "no". • Electronic Transaction Acts don't clearly help. • In the absence of clearer legislation or authoritative case law, the protocols assume "yes", ie that a deed needs to be a physical instrument. 16

What can constitute "delivery"? • Any act that demonstrates an intention to be bound. • Can be unconditional (ie immediate), or conditional (ie as an escrow). • If delivery is by an agent, authority needs to be under seal. 17

Delivery of deeds (cont'd) • Challenge for remote signings is that the actual signatory may not send the return email – The protocols avoid this problem – Possible alternative path: Hooker Industrial Developments, and Longman v Viscount Chelsea 18

Guarantees, and other agreements affecting real property – Approach 1 or 2 • Statute of Frauds (all jurisdictions except NSW, SA and the ACT) • Section 4 applies to guarantees: "No action shall be brought. . . whereby to charge the defendant upon any special promise to answer for the debt, default or miscarriage of another person. . . unless the agreement upon which such action shall be brought, or some memorandum or note thereof shall be in writing, and signed by the party to be charged therewith, or some other person thereunto by him lawfully authorized. " • Similar language applies to real property documents (see the paper) 19

Joinder of documents • Writing must contain the terms of the guarantee. • Possible to "join" separate documents for this purpose. • The signed writing must refer sufficiently clearly to the document to be joined to it, or at least to the transaction that the other document is part of. • Approach 2 relies on this principle, by allowing the remote party to just print and sign the separate signature page, rather than the whole document. 20

Emails • An email can also be a sufficient "signed writing" for the Statute of Frauds – Mehta, and Golden Ocean Group • Sender needs to manually insert their name into the email, as a signature – the "authenticated signature fiction" • Proforma email traffic for Approach 2 adopts this, as a fallback. 21

Registrable real property documents – only Approach 1 Two challenges: • • Statute of Frauds and other legislated writing requirements (including the requirement in some cases that the document be a deed) Titles Office requirements The solution (at least to the second challenge) is to insist on wet-ink originals. 22

PPSA security agreements – Approach 1, 2 or 3 • Security agreement needs to "cover the collateral". This means it needs to be evidenced by writing that is: – signed by the grantor; or – adopted or accepted by the grantor by an act, or omission, that reasonably appears to be done with the intention of adopting or accepting the writing. • The "adopted or accepted …" option means that Approach 3 can be used for PPSA security agreements, as well as Approach 1 or 2. 23

Documents signed by a company – only Approach 1 or 2, even if a simple contract • Corporations Act ss 127(1) and (2) – ways in which a company "may execute a document". • A company could execute a pre-signed signature page in this way under Approach 3, but the "document" at that stage would just be the signature page. • Under Approach 3, the operative step that makes the whole document binding is the sending of the second email. To rely on s 127(1) or (2), that email would probably need to be signed in accordance with the section as well. This is not practicable. 24

Closing opinions Remote signings may require some additional factual assumptions, eg: – deeds – did the remote party sign a full copy? – agents – did they have the required authority? – emails generally – were they sent by the purported sender? – conditions – have any conditions to effectiveness been satisfied? 25

Conclusion • As noted earlier, the Approaches are not intended to be exhaustive, but a set of safe harbours. • The working group will continue to refine the protocols, then release the final version. • We hope that they will prompt broader discussion, and ultimately form the basis of a market-wide consensus. 26

This presentation material is intended to provide a summary of the subject matter covered for training purposes only. It does not purport to be comprehensive or to render legal advice. No reader should act on the basis of any matter contained in this presentation without first obtaining specific professional advice. AUSTRALIA BELGIUM CHINA FRANCE GERMANY HONG KONG SAR INDONESIA (ASSOCIATED OFFICE) ITALY JAPAN PAPUA NEW GUINEA SAUDI ARABIA SINGAPORE SPAIN SWEDEN UNITED ARAB EMIRATES UNITED KINGDOM UNITED STATES OF AMERICA 230951748