---  English Contract Tips and Traps Series_ No. 2

By JZ

Have you ever paid attention to the difference between a Deed and an agreement or contract?  A Chinese trained lawyer may not be able to tell the difference between a Deed (契约) and an agreement (or contract) (协议或合同), as there is no such distinction under Chinese law. 

Under common law system, deed (also known as “specialty”) is a special type of binding promise or commitment to do something, with some key features distinct from a normal agreement.  Among other things, the main differences are as follows:

1. Consideration:  Consideration (对价) is required for a contract to be valid and enforceable, but not required for a binding Deed.  It is for this reason that arrangements involving one party receiving benefit or promise from someone where it is not giving anything in return may take the form of Deed.  These may include for example pledge, financial guarantee, deed of novation, and indemnity deed, etc.  Where there is doubt whether consideration exists, you may also consider using deed to avoid such challenge.
2. Limitation Period:  Length of statute of limitation (or limitation periods诉讼时效).  Under Chinese law, the statute of limitation is two years for contractual disputes (actually the same two-year period for almost all types of disputes).  Common law jurisdictions generally have a longer limitation periods.  For example, the limitation period for contract related disputes is six years in Australia (except in its North Territory), Hong Kong and UK.  In contrast, deed related disputes have a much longer limitation period of twelve years in Hong Kong, UK and most states and territories within Australia (the limitation period is 15 years in South Australia and Victoria, and 20 years in Western Australia).  
3. Formality and Procedural Requirements:  Special formality and procedural requirements for the execution of deed.  Historically the execution of a deed was a very solemn act, and had some special formality and procedural requirements – the deed needed to be sealed, witnessed and delivered to the other party.

Modern rules in most jurisdictions have relaxed some of the requirements such as sealing of the deed.  Nevertheless, compared with contract, the execution of deed still has some extra formality requirements, which shall be determined in accordance with the applicable rules in different jurisdictions.   Generally speaking, the document shall make it clear on its face that it is intended to be a deed, and signature, attestation and delivery would be required.  Delivery of a deed does not necessarily connote physical transfer of the instrument, but can comprise any unilateral act or statement by the party concerned which signifies that he adopts the deed irrevocably as his own and operates as a representation that the deed has been duly signed and attested. [FN1]

More specifically, when an individual is executing a deed, (a) he shall sign on the deed, and (b) his (her) signature shall be attested by a competent person (e.g, a person will full legal competency), and (c) the deed shall be delivered to the counterparty.   

When a corporation is executing a deed, the common seal of the corporation shall be affixed on the deed in the presence of two directors, or one director and one company secretary (please note this shall be distinguished from the usual office secretary.  More appropriately translated, this shall mean 董事会秘书, or 董秘).  In some countries (e.g., Australia and UK), now it is possible for two directors or one director and the company secretary to sign a deed on behalf of the company without the need of affixing the common seal.  Similar to the discussion above regarding execution by individuals, delivery of the deed is required. 

It is also possible for a company to authorize someone to sign the deed on its behalf.  In such case, it is important to make sure that the power of attorney is duly executed and the individual concerned is authorized to sign the deed on behalf of the company.  As a matter of best practice, attestation of the authorized representative’s signature would be required as well. [FN 2]

It is worth noting that some companies may have specific internal approval requirement sfor the execution of deed or legal documents exceeding certain amounts or involving major transactions such as mergers and acquisitions, sales of substantial assets, etc.  It is recommended that board resolution authorizing the execution of the relevant deed (or legal documents in other cases) be provided to make sure that the execution complies with the company’s internal procedures and approval requirements.  Where major transaction is involved, it may also be advisable to obtain separate legal opinions from lawyers qualified in the relevant jurisdictions to check and confirm whether all the relevant requirements for authorization or execution have been met, and the document executed will be binding and enforceable as contemplated by the parties.

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FN1: Kevin Gray & Susan Francis Gray, ‘Land Law’, published by Oxford University Press, 2007 at 148.

FN2: Pursuant to the Company Ordinance of Hong Kong, Sect 34, or the Companies Act of India, Sect 48, it is unclear whether attestation of the authorized representative’s signature would be required.  Nevertheless, it would be a good practice to require attestation of the signature under such circumstances.