Use of electronic signatures
10 April 2018
Most documents used in day-to-day business can be signed electronically in Australia. The Electronic Transactions (Victoria) Act 2000 (ETA) governs electronic transactions in Victoria.
The ETA does not contain a prescribed definition of what would be an ‘electronic signature’. Therefore, an electronic signature may take the form of an image of an individual’s handwritten signature, a typed name or a digital signature. There may be other forms as well. For example, the courts have held that a name appearing at the bottom of an email in normal typeface is a valid electronic signature.
Section 9 of the ETA sets out three requirements for an electronic signature, being identification, reliability and consent:
- Identification is a question of fact, as the recipient must be able to identify the person signing (however, no formal verification of identity is required), and confirm that the person signing intends to be bound by the information communicated.
- Reliability is objectively determined by considering all the relevant circumstances and the purpose for which the electronic signature is required.
- Consent requires the counterparty to the document being electronically signed to agree to the signing party signing the document electronically. The case law demonstrates that this requirement is unlikely to require anything more than the counterparty using the chosen electronic mechanism, or engaging with the electronic execution process.
Digital signatures are a type of electronic signature which use cryptographic authentication technology. E-signing software can generate audit trails that track each step of the signature process which can be used in court to help prove who signed the document and when they signed it.
Like any other form of signature (electronic or otherwise), digital signatures can be susceptible to fraud. However, digital signatures are more secure than handwritten signatures and other types of electronic signatures because of the technical skill and knowledge required to bypass their security features.
Documents which require more consideration before being signed electronically include:
- Signatures which need to be witnessed: Most e-signing software does not make provision for witnessing, but instead allows for signatures to be entered in a specific order, by tracking the location at which actions in the signing process have occurred (in most instances). However, this does not of itself necessarily meet the witnessing requirements, as the witness needs to be present with the person signing, and see the physical act of electronic execution, before attesting that they have done so by themselves signing the document. As electronic witnessing is yet to be tested by the courts, the use of wet-ink signatures remains the preferred option.
- Deeds: One of the traditional and somewhat antiquated legal requirements for an instrument to amount to a deed is that it must be written on ‘parchment, vellum or paper’. There is nothing in the Victorian ETA which overcomes the above requirement and on that basis, we do not suggest that deeds be signed electronically until there is case law or legislative reform which expressly permits them to be signed electronically in Victoria.
- Documents which need to be registered: While an electronic signature may be legally enforceable, if a third party such as a government agency or a bank will not accept it, then you will need to re-execute the document with wet-ink signatures in order to achieve registration. It would therefore be prudent to first check with the relevant authority as to whether it will accept an electronically signed document and to ascertain any further requirements.
- Documents signed pursuant to s 127 of the Corporations Act 2001 (Cth): There is some uncertainty surrounding the electronic execution of documents under s 127 of the Corporations Act 2001 (Cth) (Corporations Act), which is the usual way in which companies execute documents. This is because:
- certain sections of the Electronic Transactions Act 1999 (Cth) (Commonwealth ETA) do not apply to the Corporations Act. However, given that s 127(4) of the Corporations Act makes it clear that s 127 of the Corporations Act does not limit the ways in which a company may execute a document, it is our view that even though certain provisions of the Commonwealth ETA do not apply to the Corporations Act, this does not of itself prevent an Australian company from using an electronic signature if the company’s constitution does not forbid it, and the relevant signatories have been duly authorised by the company to execute the document electronically (for example by company resolution).
- there is some risk that the assumption under s 129(5) of the Corporations Act (namely that a person may assume that a document has been duly executed by a company if the document appears to have been signed in accordance with s 127(1)) will not be available in connection with documents that were signed electronically. A way around this may be to set out the assumption in the document or alternatively, in relation to contracts only, for an agent or another authorised person to make, vary, ratify or discharge the contract on behalf of the company under s 126 of the Corporations Act.
- when executing under s 127(1) of the Corporations Act, two signatories must sign the same document, unless the company has one sole director and/or secretary. The use of e-signing software may be advantageous in this regard as it usually has the ability to create a single document for execution, thereby eliminating the risks associated with parties signing separate documents. However, we note that there is currently no case law on this point.
Relevance to property transactions
One area where electronic signatures have great relevance and potential is in relation to property transactions, particularly those of a high volume nature such as off-the-plan apartment sales and stream leasing of shopping centre premises. In those scenarios, vendors and property managers often have access to template contracts or leases intended to be executed in bulk, with minimal amendments.
In this context, many vendors and property managers like the ability to ‘strike when the iron is hot’, by ensuring that documents are readily available to be signed within short timeframes, for example on a tablet or laptop. However, it is important to remember the above risks in relation to the use of electronic execution procedures in property transactions, particularly given that leases are often executed as deeds. Although the potential to use e-signatures in order to create efficiencies is high, it is important that template documents are tailored to ensure they are appropriate to be signed electronically. It is also important to ensure the e-signing platform you are using has the necessary efficiencies and security features already inbuilt, to ensure you are getting the most out of it.
Risk management tips
Prior to signing a document electronically, parties should:
- Check relevant laws, regulations and policies of the relevant body to test whether electronic signatures will be binding. E.g. wills and codicils cannot be signed electronically in Victoria.
- Insert a clause into the agreement stating that the parties intend to sign electronically and will be bound by their electronic signatures.
- Have an internal policy setting out which agreements can be signed electronically and which agreements must contain wet-ink signatures.
Antoine Pace, Partner
Brihony Boan, Partner
John Darmanin, Associate
Cassandra Krylov, Lawyer
This update does not constitute legal advice and should not be relied upon as such. It is intended only to provide a summary and general overview on matters of interest and it is not intended to be comprehensive. You should seek legal or other professional advice before acting or relying on any of the content.