Are electronic signatures valid? Signing Contracts in the Age of COVID-19
Is typing your name the same as signing on paper? How do you make sure your business is doing electronic signatures right?
· Business Contracts,Legal Tips,Entrepreneurs,COVID-19,Start-ups
You've just received an important document via email, asking you to sign. You spin around, looking for an all-in-one printer, scanner, fax machine… before remembering you work from home.
Welcome to the age of electronic signatures, where you, your clients and most modern businesses rely on keyboards - not pens - to make things official. But is typing your name a legally-binding substitute for the real thing?
Find out below, where we discuss the legalities, requirements and grey areas of electronic signatures - so you can feel confident conducting business online in the time of COVID-19.
A landmark case + a PM's commitment
As Harrison J stated in the landmark case, Stuart v Hishon [2013] NSWSC 766: "Mr Stuart typed his name on the foot of the email. He signed it by doing so. It would be an almost lethal assault on common sense to take any other view."
But common sense hasn't been enough to convince people that electronic signatures count. Many people still find the issue confusing, so let's take a look at the historical events and frameworks underpinning the validity of digital contracts.
As far back as 1997, former PM John Howard understood the growing importance of e-signatures for getting things done in a digital age. In his 'Investing for Growth' statement, he developed a regulatory framework aimed at increasing business and consumer confidence in electronic commerce. This resulted in the Electronic Transactions Act 1999 (Cth) ("ETA") being legislated.
Broadly, the ETA provides a framework that:
1. Recognises the importance of the information economy to the future economic and social prosperity of Australia
2. Facilitates the use of electronic transactions
3. Promotes business and community confidence in the use of electronic transactions
4. Enables businesses and the community to use electronic communications in their dealings with government
The stage was set for electronic signatures and digital transactions to take their place in the online economy, but there remain two significant things for entrepreneurs and business owners to be aware of: the "No Invalidity" and "Signing" provisions.
What is the No Invalidity provision?
Let's generalise: electronic signatures have the same legal effect as written signatures.
The "No Invalidity" provision makes it clear that, "any contract or agreement is not invalid merely because it took place wholly or partly by electronic means".
Common law has (slowly) followed suit, as reflected in the case eBay International v Creative Festival Entertainment (2006) 170 FCR 450, in which Rares J equated the act of checking a box to accept terms and conditions with the signing of a written contract.
So, now we know that just because an agreement is electronic, it's no less powerful than a paper contract.
However, life's not black and white.
The "Signing" provision unpacks the risks and vagaries of electronic signatures to ensure everyone's on the same page - even if it's digital.
What is the Signing provision?
There are inherent risks in electronic transactions. Things like unauthorised signatures and forgery, identity theft and unreliable e-systems can undermine the validity of an agreement.
To address these hazards, the ETA put forward three key criteria which must be satisfied in order for electronic signatures to count.
1. Identification. The recipient must be able to identify the signing person and confirm that they intend to be bound by the information communicated. For example, this identification can be achieved through digital certificates or fingerprints.
2. Reliability. The signing method must be reliable in obtaining that identification. For example, it was held in a recent case that a digital pen used to sign an electoral enrolment form, and an online fax service used to send the form to the Electoral Commission, were reliable signing methods.
3. Consent. The counterparty must agree to the document being electronic signed. Case law demonstrates that this requirement is unlikely to require anything more than the counterparty using the electronic mechanism or engaging with the electronic execution process. The person signing consents by virtue of the method.
But wait! There are some documents which you should avoid signing electronically.
For certain documents, it's up for debate whether electronic signatures are valid or not - so it's best to avoid executing them electronically to be on the safe side.
In Bendigo and Adelaide Bank Limited v Kenneth Ross Pickard [2019] SASC 123, an electronically signed deed was found invalid on account of the following:
a) The electronic signature could not be authenticated; and
(b) The signed deed was not on paper, which was a requirement for deeds.
The Courts adopted the traditional view that deeds must be executed on paper, parchment or vellum. This is because deeds are a unique class of documents, capable of assigning obligations without consideration.
In simple terms, a person signing a deed takes on a heavy burden, given that the law still requires the performance of obligations - even when that person may get nothing in return.
Despite this case, the legal community remains divided on the question of whether you can use electronic signatures for deeds. On one hand, some lawyers see this case as a sign that electronic signatures are to be avoided altogether. On the other, some lawyers think this rule can be overridden by printing an electronically signed deed and treating the printed copy as the original. It's murky. Go for pen and paper (or parchment, if that's your thing).
Signatures that need to be witnessed
Certain documents, such as statutory declarations, must be witnessed. This involves having another person physically present as the signing occurs. Most e-signing software doesn't have a provision for witnessing. At best, some allow signatures to be entered in a specific order while tracking the location where signatures occur. However, this is unlikely to meet the standards set by the law.
Documents signed pursuant to s127 of the Corporations Act 2001 (Cth) ("CA")
Electronic signatures are dubious for documents executed under s127 of the CA, as some sections of the ETA don't apply to the CA. However, in s127(4) of the CA, it is made clear that the CA does not limit the ways in which a company may execute a document. Hmmm.
As such, many lawyers take the view that there's nothing stopping Australian companies from using electronic signatures if the company's constitution doesn't forbid it. Nonetheless, it's a grey area. Be mindful.
Electronic transactions are the new normal, especially as businesses adapt to a post COVID-19 world [hyperlink to post covid-19 article]. While signing stuff online might feel rather informal, by meeting the three key signing provisions of Identification, Reliability and Consent (and sidestepping particular documents such as stat decs and deeds), what you or your clients sign online is legally binding.
Keep in mind, things change. Legislation is constantly shifting and this is an underdeveloped area of the law. Before you set out to transact electronically, search for new conditions which could affect the collection of digital signatures.
And with that, we're signing off. Sing out if you need savvy advice on all things signatures: call us on +61 2 8880 9383 or email metis_at_metislaw.com.au.
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