‘Wet signing’ contracts can be difficult and impractical, we’ve always known that and it was sure apparent in COVID lockdowns.
The use of electronic signatures is increasingly becoming a necessity for businesses and government agencies. However, before signing documents electronically, it is important to understand the rules and complexities relating to electronic signatures to ensure the risks are appropriately mitigated.
When can electronic signatures be used?
In Australia, electronic signatures are generally acceptable as a valid way of executing contracts provided the legal requirements for a valid and enforceable contract are met. Additionally, there are specific requirements for the use of electronic signatures outlined in the Electronic Transactions
Act 1999 (Cth) (ETA). Each state and territory has its own Electronic Transactions Act which generally mirrors the Commonwealth Act.
The ETA provides the following criteria which must be met for an electronic execution to be valid:
Identifiable – the method of signing must identify the signatory and that person must indicate they intend to be bound by the terms. The signatory must include their name, and must insert their electronic signature into the document and must satisfy evidentiary requirements.
Reliable – having regard to all the circumstances of the transaction, the method of signing must be as reliable as appropriate for the purpose for which the electronic document was generated. The signature should be linked to the person signing and no-one else.
Consent – there must be consent by both parties to execute electronically. This can be achieved by including a clause in the contract which states the parties agree to execute electronically and intend to be bound by the terms or agreement in writing, prior to electronic execution.
Case law highlights the importance of confirming the identity of the signor and their intention to be bound by an electronically executed contract ¹.
What is an electronic signature?
An electronic signature is the electronic mark the person uses as their unique identifier. An electronic signature ranges from the typed name of the signatory, to a scanned image of the signatory’s ‘wet signature’ or authenticated signature (such as those generated by electronic signing software). Electronic signatures have different levels of security, and the risk of unauthorised use of electronic signatures should be considered.
What about s127 Corporations Act?
Section 127 Corporations Act
During the Coronavirus pandemic, the Commonwealth Government made important but temporary changes to allow documents to be executed by companies by electronic means.
Following a short interruption brought about by the expiry of those laws in March 2021, those changes have recently been re-introduced and expanded by the Treasury Laws Amendment (2021 Measures No. 1) Bill 2021 (the Bill), which received Royal Assent on 13 August 2021 and is now in force. The new rules will apply until 31 March 2022.
These rules will be welcomed by companies who have re-orientated their processes toward electronic execution during the pandemic.
What are the changes?
The amendments to the Corporations Act 2001 are an improved and updated version of the earlier measures contained in the Corporations (Coronavirus Economic Response) Determination (No. 3) 2020 (Determination No. 3), which expired on 21 March 2021.
The laws relating to the execution allows companies to execute company documents electronically.
The main effects of the amendments are:
Electronic execution of company documents – all documents executed by a company under section 127 of the Corporations Act 2001 may be executed electronically.
For this execution to meet the Act’s requirements, three conditions must be satisfied:
- the copy must include the entire contents of the document
- a method must be used to identify the person and indicate their intention to sign the document.
- the method used must be:
- as reliable as appropriate for the purpose for which the document was generated or communicated, in light of all the circumstances, including any relevant agreement; OR
- proven in fact to have indicated the person’s identity and intention.
The amendments take a technology-neutral approach and do not mandate the use of any particular type of technology as the ‘method’. This means the law is sufficiently flexible to allow for the use of other technologies that may be developed in the future.
A company may continue to execute documents in the traditional manner by applying wet signatures to the physical paper document.
Split execution – The amendments permit a document to be executed by signing different copies of it, as long as each copy is a complete copy (including any schedules).
They also permit a combination of different methods to be used to execute a company document. For instance, one director may physically sign a paper version of the document while the second director could sign an electronic copy of the same document using electronic means.
Use of common seal – The amendments apply to all documents executed by a company under section 127 of the existing law. This includes all:
- documents executed by a witness observing the fixing of a common seal to the document and signing the document (documents executed with a common seal); and
- documents executed by two directors, or a director and a secretary signing the document (documents executed without a common seal).
The application of the common seal may be witnessed in real time, by using electronic means such as videoconferencing to observe the person fixing the seal to a copy of the document.
Deeds – The amendments also apply to documents executed as a deed. This means that companies may execute company deeds by following the process outlined in section 127 and companies do not need to follow the established process for signing, sealing and delivering a deed under the common law.
Extension of assumptions – The assumptions that people dealing with companies are entitled to make under section 129 of the existing law (i.e. the presumption of regularity) extent to documents that appear to be executed in accordance with the new rules.
When When executing a contract (or other company document) electronically, we recommend the following tips to help manage the risk:
Include wording in the contract stating the parties intend to be Include wording in the contract stating the parties intend to be bound by their electronic signatures and electronic versions of the contract.
If executing under s126 of the Corporations Act (authorised rIf executing under section 126 of the Corporations Act (authorised representative) obtain evidence from the countersigning party that the signatory has authority to bind the company (e.g. replaceable rules or a board resolution).
To help meet the identity and reliability requirements of the ETA, obtain written confirmation from the signatory that they placed their Obtain written confirmation from the signatory that they placed their signature on the contract (or they authorised the use of their electronic signature) and intend to be bound by the terms. This will serve as a record of the signatory having personally authenticated their electronic signature on the contract.
Where possible, use electronic signature software (for example, Docusign or AdobeSign) as these create auditable and timestamped evidentiary trails.
To help avoid unauthorised or fraudulent use of electronic signatures, it is important that organisations have clear policies around the requirements for the use of electronic signatures, what documents electronic signatures can be used for and how authorisation is obtained from a signatory if required.
About the author
Sarah’s main areas of practice are government contracting and procurement as well as general commercial law. Sarah has extensive experience advising on government bid responses for vendors and understands the common concerns technology companies often seek to address in large technology contracts.
Sarah takes a pragmatic and practical approach to legal issues, while ensuring risk is managed appropriately.
Rachael is a highly experienced lawyer, having a primary skill set in banking and finance, Information Technology (IT), Intellectual Property and general commercial law.
Declan is a high performing Senior Advisor working across Proximity’s consulting, legal, and commercial service lines.
¹ (Williams Group Pty Ltd v Crocker  NSWCA 265).
² Coronavirus Economic Response Package Omnibus Act 2020 (Cth).
³ COVID-19 Legislation Amendment (Emergency Measures) Act 2020 (NSW).
⁴ COVID-19 Disease Emergency (Miscellaneous Provisions) Act 2020 (Tas).
⁵ COVID-19 Omnibus (Emergency Measures) Act 2020 (Vic).