Commercial LawContract LawElectronic Signing of Contracts

April 8, 20210

Commonly, legal documents such as contracts and deeds were signed with ink and paper. This method is known as a ‘wet ink signature’.

Currently, electronic signatures are widely used as they reduce costs and increase efficiency. An electronic signature includes:

    • Checking a box or a ‘click to accept’ button
    • Typing a name
    • Pasting an image of a signature
    • Drawing a name or initial with a stylus or by hand on a touchpad
    • Electronically signing with a service such as DocuSign eSignature and Adobe Sign
When are electronic signatures enforceable?

The enforceability of an electronic signature can depend on the type of document signed.

For a contract to be legally binding in Australia, it must satisfy the following five elements:

    1. Agreement between the parties (offer and acceptance): A good or service is offered by one party and clearly accepted by the other party.
    2. Consideration: An exchange of value takes place (whether money or other).
    3. Capacity: The parties have legal capacity (age, sound mind). For corporations, this requires the signor to have authority to act on behalf of the corporation.
    4. An intention to create legal relations
    5. Certainty: The contract must be sufficiently clear and certain so that the parties understand their rights and obligations.

If all of these elements are satisfied, then a legally enforceable contract exists regardless of whether or not it is in writing. These principles similarly apply to electronic contracts. Of course, the practice of putting contracts into writing is widespread and recommended as it often evidences these elements and can significantly assist in enforcing the contract. Moreover, in some circumstances, legislation requires certain contracts to be in writing.

For the most part, Australian courts have enforced electronic contracts and signatures provided the elements of a contract are satisfied.

Additionally, in Australia, electronic transactions are governed at the federal level by the Electronic Transactions Act 1999 (Cth) (‘ETA’) and by various State-level legislation. These statutes broadly recognize the validity of electronic transactions and the use of electronic signatures where the parties have agreed to that method.

Notably, several migration and citizenship documents are exempt under the ETA.

Circumstances where validity is uncertain

Deeds

The valid use of electronic signatures for deeds is inconsistent and uncertain. Deeds are a particular type of legal document. A key difference between a contract and a deed is that a deed does not require consideration (the 2nd contract element listed above).

At common law, deeds have specific requirements, including the need to be written on (i) parchment, vellum, or paper, (ii) sealed, and (iii) delivered to the other party. The requirement to be written on paper has caused difficulties at common law with the use of electronic signatures and it is unclear whether the ETAs (both federal and state) override this paper requirement.

Currently, electronic deeds and subsequently electronic signatures on deeds are not enforceable in Australia except for some deeds in NSW. In NSW, the Conveyancing Act 1919 (NSW) allows for certain deeds to be electronically signed by people (not corporations). However, it remains unclear how the electronic signing is witnessed and the Conveyancing Act provides no clarification.

Consequently, the safest position to take throughout Australia to ensure the enforceability of a deed is to sign it with a wet ink signature.

Companies

It is still uncertain whether documents created under section 127 of the Corporations Act 2001 (Cth) are legally enforceable if they are electronically signed.

Under section 127, a corporation can execute a document, including deeds and agreements, if it is signed by 2 directors (or 1 director and the company secretary or the sole director who is also the secretary of a proprietary company). Whether or not a section 127 document must be a hard copy with a wet ink signature is not specified. Consequently, parties would need to investigate whether a document has been validly signed which creates uncertainty and additional costs. Ultimately, whether a section 127 document executed electronically would be enforced by the courts is unknown.

Temporary Covid-19 changes

Due to Covid-19, several temporary legislative changes have been introduced to reduce uncertainty around the validity of electronic signatures and facilitate working from home.

Companies

The Corporations (Coronavirus Economic Response) Determination (No. 1) 2020 (Cth) was made in May 2020  (‘the May Determination’). In September 2020, the Corporations (Coronavirus Economic Response) Determination (No. 3) 2020 (Cth) was registered and replaced the substantively similar May Determination (‘the September Determination’). It provides that for companies covered by the Corporations Act:

    1. Company officers can use electronic signatures
    2. Documents can be in electronic form
    3. Where more than one signatory is required, split execution is permitted (meaning the officers can execute separate identical versions of the document.

The September Determination expires on 22 March 2021.

Deeds

In NSW, Victoria, and Queensland deeds and agreements can be electronically executed by individuals. In NSW, deeds can be witnessed by an audio-visual link. Deeds in Victoria and Queensland do not need to be witnessed.

In the ACT, South Australia, Western Australia, and the Northern Territory, it is still not possible to validly execute deeds electronically. However, agreements can be electronically executed.

 

Witnessing

Many changes were also introduced to enable certain documents to be witnessed via audiovisual link. However, these vary according to jurisdiction. In NSW, an audiovisual link may be used to witness a will, a power of attorney, enduring power of attorney, a deed, an agreement, an enduring guardianship appointment, an affidavit (including annexures and exhibits), and a statutory declaration.

Expiration

The federal, state, and territory changes all expire on different dates and may well be renewed. Throughout the Covid-19 period, it is advised that you review the validity of electronic documents, signatures, and audio-visual witnessing in your jurisdiction to ensure your document is legally enforceable.

 

Conclusion

In Australia, electronic signatures are generally accepted at common law and under the ETA for the signing of contracts. However, electronically signed deeds are invalid in Australia except for some deeds in NSW. Additionally, it is not straightforward for corporations to sign section 127 documents electronically and creates risks of invalidity. During Covid-19, Federal, State, and Territory governments introduced changes to enable increased use of electronic documents and signatures.

Article by:

Varuni Weerasinghe, LL.B (London)

Paralegal

Velox Partners

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