BURROWS, Mr Mark, Executive Committee Co Chair, Technology and Innovation Section, Law Institute of Victoria [by video link]

[11:43]

CHAIR: I now welcome the representative of the Law Institute of Victoria. Thank you for appearing before the committee today. Information on procedural rules governing public hearings has been provided to witnesses and is available from the secretariat. I advise that answers to questions on notice should be sent to the secretariat by 5.30 pm on Wednesday, 16 June 2021. My fellow senators with me today are Senator Brockman and Senator Walsh. Do you wish to make a brief opening statement?

Mr Burrows : That would be great; thank you. As Co-chair of the Technology and Innovation Section, I appear on behalf of the Law Institute of Victoria, representing over 18,500 solicitors, law students and affiliated people in the legal profession. We have provided our written submission to the inquiry, which has drawn on the advocacy of the Technology and Innovation Section and the LIV more broadly. I appear today to stress the five recommendations that form part of the LIV's written submission. Firstly, the LIV recommends making the amendments contemplated under this bill permanent to ensure the continuation of business and mitigation of the economic impact of the pandemic beyond 16 September 2021. The LIV is concerned that the proposed amendments are unlikely to be in effect for a meaningful period. I seek to convey the significant confusion amongst the legal profession regarding the validity of electronic signatures and document execution which was addressed, albeit temporarily, by the measures under the Corporations (Coronavirus Economic Response) Determination (No. 3).

At the expiry of determination No. 3 the state of the law has again become unclear and has reverted to pre-COVID-19 conceptions and processes. In the LIV's view, the consultation process preceding the temporary measures was sufficient to warrant the current amendments being introduced on a permanent basis.

Secondly, there were also two paragraphs of the explanatory memorandum—namely, paragraphs 1.2 and in the first row of the table beneath paragraph 1.7—that the LIV recommends be amended or clarified. As currently drafted, in the LIV's view, these statements misconstrue the current state of the law. These statements suggest that it is currently the case that all company documents must be executed by all parties physically signing the same document or hard copy. Without amendment, these statements do not reflect a balanced view or the uncertainty arising from recent cases concerning the validity of electronic signatures.

Whilst there is significant uncertainty in the legal community as to whether deeds can be executed electronically, these are a small subset of company documents more broadly. There's no legal basis to suggest that physically signing hard copies of all company documents is the correct starting point, nor is there a basis to read into section 127 a requirement of physical signatures. Recent cases have proceeded on the assumption that an electronic signature or other forms of signatures not made with a pen are incapable of meeting the requirements of section 127 of the Corporations Act, provided that all signatories sign the same static document.

Thirdly, whilst new subsections 127 3A and 3B are welcome, the inclusion of section 127 subsection 3B ought not purport to be the sole basis for the validity of electronic execution, and the LIV recommends including an explanatory note stating that non-compliance with section 127 subsection 3B does not necessarily mean that the electronic execution is invalid or that the statutory assumptions in section 129 can't be relied upon. A person or persons may have electronically signed a document and intended to be bound, even where a method was not used. Whether or not a person or persons have signed a document within the meaning of section 127 is a question of fact, and compliance with the new deeming provisions should not be the end of the inquiry.

Fourthly, the LIV also welcomes the bill's expansion of participation requirements in virtual meetings to specifically include the right to speak, both orally and in writing. However, the bill reverts to the position that only requires a company to afford the members as a whole a reasonable opportunity to participate in the meeting rather than the position under determination No. 3 which required the company to afford all persons entitled to attend a reasonable opportunity to participate.

In virtual meetings there needs to be a delicate balance with potential limitations on the members' opportunity to meaningfully participate. Reasonable opportunity to participate should thus be applied strictly, with the relevant benchmark being what would otherwise be available to members at a physical meeting. Accountability issues would arise if, for example, written questions were submitted through private channels, as it lacks transparency and risk members' questions being curated by company officers.

Finally, the LIV, together with our peak legal body counterparts as constituents of the Law Council of Australia, have formed a consensus view regarding the need to harmonise the presently divergent approaches by each state and territory in relation to electronic execution and remote witnessing. The LIV has been involved in the implementation of e-signature and remote-witnessing processes at the state level. LIV members reported many benefits of the temporary measures under the various omnibus pieces of legislation in Victoria, and this feedback informed imminent changes to electronic execution and remote witnessing under the Justice Legislation Amendment (System Enhancements and Other Matters) Act 2021. However, each jurisdiction has implemented similar changes in relative isolation.

Given the fact that commercial and personal transactions occur at a higher frequency across Australia's borders, the need to harmonise the different positions of each jurisdiction is obvious. The LIV recommends taking this opportunity and the current impetus to look at these issues to consider consolidating some of the divergent requirements and working with the state governments to harmonise these requirements.

Thank you for your time. I'm happy to take any questions.

CHAIR: We appreciate that opening statement. I'll hand over to Senator Walsh to open the questioning.

Senator WALSH: Thank you for attending today. You have taken us through some of the issues around electronic signatures in your opening comments and in your submission. Temporary measures in relation to electronic signatures and related matters expired back in March. Since then what has been the experience of uncertainty around these issues that the Law Institute is concerned about?

Mr Burrows : There's been a lot of confusion, to put it fairly. I guess in the lead-up to the pandemic and in the years preceding that, there was sort of a growing level of comfort in relation to electronic execution. There were probably a number of firms and practitioners, it's fair to say, that weren't that comfortable but it was progressing in a good way. Then, when the pandemic hit, it's fair to say that, for those who weren't yet familiar with using electronic execution processes, they were required to come to grips with what was required, given the pandemic and given that everyone was working remotely and their clients weren't able to leave their home. So that was fantastic. To the extent that it was required, the temporary legislation was great in that it provided a level of certainty that some of those more conservative firms or practitioners were looking for to give their clients or themselves comfort that electronic execution under the corps act was valid, even though there was a consensus view as well that it could be done without it. But the clarification in the temporary legislation was very helpful.

So when that repealed, a lot of people interpreted that to mean a positive, I guess, statement, if you like, on behalf of the Commonwealth that there was no certainty without it and that we had to resort to, I guess, a retrograde step of what the case was previously and that maybe there wasn't any real certainty. Therefore, lawyers being lawyers and taking the conservative view, they would just be advising their clients to execute in red ink where they weren't able to rely on any express clarification to the contrary.

Senator WALSH: I understand that ASIC has advised that it's not seeking to proactively enforce this issue at the moment. But from a legal perspective you're saying that your members wouldn't be comfortable with providing advice to clients that they should rely on that and, instead, in the intervening period, in general you would be advising people to return to physical execution of documents?

Mr Burrows : That's certainly the case with a number of firms and practitioners. As I said, with the differing views amongst the profession and given the uncertainty often when you're dealing with a counterparty or their lawyers or a number of counterparties or their lawyers, usually we would resort to the most conservative view. For example, if you've got five parties to a transaction, four of whom are comfortable with executing a document electronically and the fifth firm acting for their client is not comfortable giving their client a sign-off that those executions can be relied upon, it would often force the transaction to proceed to awaiting execution. Obviously a lot of efficiencies would be lost and a lot of time would be lost, with documents being sent around the country a number of times for directors and office holders to sign in red ink, which is obviously not expedient or a great situation to be in.

Senator WALSH: The Law Institute of Victoria is comfortable with schedule 1, as it is, being made permanent. Do you have any particular sorts of amendments or areas of interest in relation to that?

Mr Burrows : We're certainly comfortable with schedule 1. As I said, it largely reflects what was in the temporary legislation. The big-ticket item for us is ensuring that it becomes permanent and not having what happened recently with the temporary legislation's repeal where there was a change at sunset with certain data expiring; then again, it all becomes relevant and practitioners start getting uncomfortable again. I understand that it's probably an attempt to perhaps extend these measures beyond that date anyway. But rather than building a hard date into this legislation, we think it just should be made permanent now. In terms of schedule 1, the only clarification, if you like, that we recommended was to, I guess, preserve what was the case previously and to make it abundantly clear that, whilst the new—if I could call them this—deeming provisions that deem electronic execution valid if those criteria are followed, it's not the be-all and end-all. If, for example, a particular method in terms of the criteria in a new subsection wasn't followed, it doesn't necessarily equal that the execution hasn't been in compliance with section 127 generally.

Section 127, as it is now, is technologically neutral, which I think is a good thing. It doesn't require a hard copy signature or red ink signatures on a hard-copy document. I think it's great to have the facility of a new subsection which says that, if you meet these requirements, you'll be deemed to have complied with section 127. But that's not necessarily to say that, if you don't or you fall foul of one of these requirements, it's still a question of fact whether, in fact, two directors have signed a document in accordance with section 127. So I think an explanatory note to that effect—and the Technology and Innovation Section agrees—would be helpful material that could be included in the legislation.

Senator WALSH: I'll just share with others and anyone who may be out there listening that I'm having quite the lockdown experience of very heavy rain in my background and some difficulty in hearing but I hope that the background noise is not affecting others. Going to the issue of virtual AGMs, some stakeholders have expressed concerns around transparency, the ability to evade questions from individual shareholders and just the general ability to be able to hold directors to account in physical AGMs. Your submission is mostly focused on the electronic execution of documents but you do have a section there on participation requirements in virtual meetings. Can you tell us what your recommendations are to ensure that we can use the technology but also have the transparency that we need as well?

Mr Burrows : Yes. At a high level our section's position is that we support the ability of each other to conduct meetings virtually and that really there shouldn't be any difference in substance between a meeting held virtually and physically, other than the way in which it's held. If there are any indirect consequences that flow or that could flow from having a meeting held virtually that would be detrimental to the interests of members, those interests are appropriately protected. We cited one example, which is consistent with the LCA's submission, of the potential for questions that are put in writing being curated or not read out or if there are requirements for large meetings, even just with people being on mute, having to raise their hand but then not being afforded the ability to ask a question and those sorts of things; whereas in a physical space it may be that they would still be able to ask such a question.

I do not think we went into specific detail in our submission as to what the provisions themselves should say or look like. Whilst we are supportive of meetings being held virtually, it is an important consideration to keep in mind—particularly for members who might not be tech-savvy—that systems are in place to ensure that they are not disadvantaged by virtue of the fact that the meeting is held virtually.

Senator WALSH: Is there anything else we have not been through in your submission in relation to schedule 1?

Mr Burrows : The only thing I want to reiterate—I am not sure whether it is within the scope of this inquiry; I assume it is—are the terms of the explanatory memorandum that I called out in the opening statement, which I see as corrections which should be made to the EM. That would mean that an updated version of the EM will be issued prior to the bill being tabled. It is about having those points corrected.

CHAIR: Mr Burrows, thanks for making the time to appear before us.

Mr Burrows : Thank you.

CHAIR: We will now take a lunch break.

Proceedings suspended from 12 : 02 to 13 : 15