One consequence of the COVID-19 pandemic is that, increasingly, business is being conducted remotely. In these circumstances, securing ‘wet ink’ execution of documents can be difficult.
Electronic signatures can provide a solution to this problem. However, there can be pitfalls, and care should be taken when providing and accepting electronic signatures. This note sets out where you need to be careful, and also provides some practical tips.
Note that most Australian jurisdictions are currently changing their laws in relation to electronic signatures – make sure you are up to date.
What are electronic signatures?
An electronic signature is a method by which a person or entity commits to a legal obligation electronically, in the absence of a physical, written, wet ink signature.
Electronic signatures can be created in a number of ways, including:
- using an electronic execution platform (such as DocuSign or Adobe Sign);
- signing a pdf on screen with a stylus;
- agreeing in the body of an email to an attached document; or
- providing an electronic copy of a document with a picture of your signature – or simply your typed name – in the execution block.
The legal position
Subject to some legislative and form requirements, a ‘signature’ (of any kind) is not actually necessary for a contract to be formed.
However, one of the requirements for forming a contract is that the parties demonstrate an intention to be legally bound, and traditionally, wet ink signatures give strong evidentiary support for that. Basically, wet ink signatures are great evidence.
The requirement that parties demonstrate an intention to be legally bound is as relevant to electronic signatures. So the real question is – how good are they as evidence?
The answer to that has been somewhat clarified by laws that the Commonwealth and each state and territory passed to complement the common law, and provide greater certainty.1
These Acts are very similar, but, inconveniently there are some nuanced differences, so it’s important to consult the Act relevant to the jurisdiction at hand.
In general, each Act confirms that an agreement can be in electronic form, and can be executed electronically. An electronic signature will meet the legal requirements of a signature if it:
- shows the identity of the signatory and their intention to be bound;
- is as reliable as appropriate for the purpose of the document, having regard to the circumstances; and
- is consented to, as a valid signature, by the person receiving it.
Which – apart from confirming that electronic signatures can be valid - which was not really in doubt - doesn’t really advance matters terribly far; although it does give the concept some credibility.
Whether a particular method of electronic signing meets these requirements will depend on the circumstances of each document. We set out some tips below. Before that however…
Electronic signatures are not always appropriate:
- Deeds: The general position is that deeds need to be on paper. This requirement means electronic execution of deeds is problematic (absent specific legislative support, for example NSW law permits individuals to execute deeds electronically). Technical workarounds are possible but in most cases traditional wet ink is likely to make most sense.
There are several situations where deeds are legally required. Deeds are often used when there is no consideration, or consideration is hard to prove. For example, deeds are often required for financial guarantees, indemnities, one-way confidential information sharing, escrow arrangements and for amendments to existing contracts. In addition, some transactions are required to be by deed. For example, and it varies from state to state, but generally transactions involving an interest in land must be by deed.
- Registrable documents: Some documents that need to be registered or otherwise lodged with a government body are required to have wet ink signatures. This includes some documents lodged with ASIC and ASX forms.
- Section 127 execution under the Corporations Act 2001 (Cth): Case law suggests that execution under section 127 requires both officers to sign the same document (and if the document is a deed, there is the further requirement of paper as noted above). This does not preclude electronic execution entirely, but to make it work significant care needs to be taken in relation to the signing process to ensure all technical requirements are met. Companies can execute in other ways, of course (and this will often be simpler), however be aware that if section 127 execution is not used, the parties will not be able to rely on the sometimes handy assumptions in section 129(5) of the Corporations Act.
- Non-standard counterparty: Where the counterparty to the document is a foreign company, a statutory authority or other special body, there may be specific requirements that make electronic signing problematic.
There may be non-electronic workarounds for these situations, depending on the circumstances. For example, powers of attorney can be useful in getting agreements executed in this climate (although powers of attorney that authorise the execution of deeds must themselves be executed as a deed).
For assistance in developing your internal guidelines, or for more information on this topic, please contact us.
- Electronic Transactions Act 1999 (Cth), Electronic Transactions Act 2001 (ACT), Electronic Transactions (Northern Territory) Act 2000 (NT), Electronic Transactions Act 2000 (NSW), Electronic Transactions (Queensland) Act 2001 (Qld), Electronic Communications Act 2000 (SA), Electronic Transactions (Victoria) Act 2000 (Vic) and Electronic Transactions Act 2011 (WA)
The contents of this publication are for reference purposes only and may not be current as at the date of accessing this publication. They do not constitute legal advice and should not be relied upon as such. Specific legal advice about your specific circumstances should always be sought separately before taking any action based on this publication.
© Herbert Smith Freehills 2021