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The use of electronic signatures in a social-distancing environment

By Kim Hinton and Chris Kamp / 26 March 2020
6 min.
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Worthwhile read for: Company signatories, CEO, CFO, COO, Board,

The shift away from paper-based transactions towards digital commerce is nothing new. The rapid uptake of electronic conveyancing in recent years, as discussed in our recent article, is one example. Another is the use of electronic signatures (sometimes utilising digital signing platforms such as DocuSign) on contracts and other legal documents. Recent circumstances have only hastened this trend.  Parties are seeking solutions to continue to transact, while minimising face-to-face interaction in light of the COVID-19 outbreak.

However, while systems for electronic conveyancing are now well-established in most Australian jurisdictions, the use and acceptance of electronic signatures in commercial transactions has faced a number of legal obstacles. 

Legislation has been implemented both at the Commonwealth level and across all Australian States and Territories to provide for the recognition of electronic signatures. This does not mean, however, that an electronic signature can be used in place of a “wet ink” signature on all types of documents and in all circumstances.

There are a number of requirements that must be satisfied in order for the legislation recognising the effectiveness of electronic signatures to apply. Further, even if those requirements are satisfied, there are a range of exceptions which mean that, for some purposes, an electronic signature may not be binding or may not have the same effect as a physical signature.

General requirements

Subject to certain exceptions (some of which are discussed below), legislation in all Australian jurisdictions provides that where a law of that jurisdiction requires a person’s signature, an electronic communication can be sufficient if specified requirements are met. Those requirements may differ to an extent between jurisdictions, but generally include the following:

  1. A method must be used to identify the signer and indicate their intention in respect of the information communicated.
  2. The method used must be reliable and appropriate for that purpose in the circumstances, or must be proven to have fulfilled that purpose.
  3. The person to whom the signature is required to be given must consent to the requirement being met using that electronic method.

Electronic signatures come in various forms, from something as simple as an email signature or a scanned copy of a physical signature to the various digital signing platforms which use cryptographic methods to enable a signer to be identified. Which of these forms may be considered “reliable and appropriate” will vary depending on the particular circumstances of a transaction.

Exceptions

Even where the requirements discussed above may be satisfied, there are exceptions to which the legislation allowing for electronic transactions does not apply. Some of those exceptions are discussed below.

Deeds

At least in Queensland, the relevant legislation is unlikely to enable execution of deeds by electronic means. The Electronic Transactions (Queensland) Act 2001 (Qld) allows many types of documents to be signed electronically by the parties to them, but does not allow for a witness to a document to sign electronically. This is problematic where a deed is to be executed by a natural person, which typically requires witnessing.

Additionally, nothing in the Queensland or Commonwealth legislation overrides the requirement at law that a deed be written on “paper, parchment or vellum”. Accordingly, a document that is signed only in electronic form, without a “wet ink” signature on physical paper, is unlikely to have effect as a deed.

Execution by corporations

Issues also arise in relation to the execution of documents – whether deeds or agreements – by corporations.

 Section 127 of the Corporations Act 2001 (Cth) (Corporations Act) sets out a method for execution of documents (including deeds) by a corporation. While compliance with that section is not the only way  in which a corporation can execute a document, it does have certain advantages – including allowing a counterparty to rely on the assumption under section 129 of the Corporations Act that the document has been duly executed, as well as avoiding the need for compliance with certain formalities that would otherwise apply to the execution of a deed.

The provisions of the Electronic Transactions Act 1999 (Cth) that generally allow for electronic signatures do not apply to the Corporations Act and, consequently, it is questionable whether the requirements of section 127 of the Corporations Act can be satisfied by electronic means.

The case of Bendigo and Adelaide Bank Ltd & Ors v Kenneth Ross Pickard & Anor [2019] SASC 123 considered section 127 in the context of electronic signatures. Relevantly, it was held that inserting the electronic signatures of two company officers in an electronic version of a document did not satisfy the requirements of section 127 and, consequently, the company had not validly executed the document as a deed.

The case would also seem to suggest that where signing by two company officers is required, both must sign the same physical original of a document in order to satisfy the requirements of section 127. Two officers signing separate counterparts (or one signing a scanned and printed copy of a counterpart signed by the other) may not be sufficient. 

Keep in mind that this relates to two officers signing for the same company, not the well-established practice of different parties signing separate physical counterparts of a document, which is generally effective provided that the document contains an appropriate “counterparts clause”.

Conclusions

Given these limitations and uncertainties, what is the position for commercial parties wishing to take advantage of the convenience and efficiency offered by electronic signing methods?

Electronic signing methods, if used in the wrong circumstances or if not implemented in a manner that satisfies all relevant legal requirements, can risk invalidating a document. Additionally, some contractual counterparties (including financiers) will commonly insist on “wet ink” signatures for their perceived reliability (including the ability to rely on assumptions under section 129 of the Corporations Act), even in circumstances where the requirements for a valid electronic signature could potentially be met.

That said, in some contexts and for some types of documents, an electronic signature (if used correctly) can be as binding as a “wet ink” signature. Parties entering into a large volume of contracts, or for whom physical signing creates significant inconvenience or expense, should seek advice as to whether and how an appropriate method of electronic signing could be adopted in their particular circumstances.
 

Authors
Kim Hinton
Special Counsel
Kim is a Special Counsel who practices in all areas of banking and finance law with a focus on corporate and business finance.
Chris Kamp
Associate
Chris is an Associate in our Banking and Finance team.
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