The vexed question of execution

Stephen Harvey and Emily Pritchard, current as of: 21 March 2019.

The Acis Legal Services team is seeing a significant increase in documents that are incorrectly executed, leading to unnecessary costs, delays and inconvenience for end clients. We recently conducted a review of trust deeds held by a large regional firm and found issues in at least 25% of them requiring some remedial action.

Signing legal documents can be technical and difficult to comprehend, so it’s no surprise that mistakes are made. We’ve provided some guidance below on the issues we’re coming across; however, be warned, this is not an exhaustive summary of all potential defects.

Why is execution important?

For any document to be legally binding and enforceable, it must be signed by each of the parties to it. While that may sound self-evident, it’s not just a case of putting a signature on the correct page. It’s critical that documents are executed correctly to ensure they take effect as intended.

How does this apply to deeds?

In the world of Acis, our primary concern is with deeds as they are used most commonly to establish trusts, including super funds.  For a document to be a deed it must:

  1. be in writing and on paper;
  2. signed by the parties to it; and
  3. sealed and delivered.

Failing to complete each of these steps can lead to a document not taking effect as a deed, and consequently not achieving its desired outcome. While we don’t need to explain the first two points, it’s worth detailing what we mean by “sealed and delivered”:

  • Sealing historically has meant applying a wax seal or rubber stamp to the deed. While a physical seal is no longer required in Australia, most jurisdictions require deeds to be sealed using words like “executed as a deed” or “signed sealed and delivered”.
  • Delivery does not require the actual delivery of the document to another person, but instead requires an indication that the person signing the deed intends to be bound by it. This is usually achieved by using words like “signed, sealed and delivered”.

The one time these rules don’t apply is where a company executes a deed – the Corporations Act 2001 states that a company is taken to have executed a deed where it is signed by two directors, a director and a secretary or a sole director who is also the sole secretary.

In most States and Territories, the proper execution of deeds also requires that an independent witness attests the signing by each signatory. Again, this does not apply to companies.

Some of the issues we’re seeing

We’ve seen numerous instances of defective execution of deeds where:

  1. The deed isn’t executed by all parties.
  2. It’s signed without a witness.
  3. Parties to the deed witness each other’s signatures.
  4. Any party to a deed acting in multiple capacities hasn’t executed the deed in each of those capacities.
  5. A company is a party to a deed but has:
    • not executed the deed in accordance with its constitution or the Corporations Act. It is worth noting that while a company’s constitution may stipulate documents executed by a sole director alone are valid, third parties (usually banks) will still enforce strict compliance with section 127 of the Corporations Act.  It is for this reason that we always encourage clients setting up a sole director company to appoint the director as the secretary also.
    • not had persons sign the deed who are actually directors of the company at the relevant time.
    • not had at least two officers sign the deed when there is more than one.

The takeouts? Get on the front foot before someone else does.

Don’t wait for someone else (like a bank or other third party) to identify a problem while a pending settlement is fast approaching. 

At Acis, we always review the execution of deeds to ensure questions relating to validity should not arise in the future.  If, in our view, execution could be called into question, we raise it with our clients, giving them the option to ratify a defective execution while we are undertaking the work for which we originally received instructions. 

As we’ve always said, non-lawyers should never prepare deeds of amendment – especially if they use a robotic supplier – as there is no proper legal review to identify the sorts of issues we’ve outlined. As such, any future amendment or action could be invalid if the formalities of signing are not followed. This is an issue we’ve raised previously.

We also caution readers about the electronic signature of deeds, particularly by companies. See our previous Acis All Areas here.

The main takeout is to take the time at the outset to ensure deeds supplied to, and signed by your clients are correctly executed.

And remember that the Acis power of attorney service for the settlement of trusts removes risks associated with execution as we fully execute the documents here. More details on this service are available here.

As always, don’t hesitate to get in touch with our Legal Services team for any deed reviews. Better to play it safe and double check the execution.