Despite the growth of e-commerce, the norm for signing formal legal documents – such as contracts and wills – remains a handwritten signature on paper.
Commonwealth and state and territory laws are not all that accommodating of electronic signatures. Each law contains hurdles which must be cleared before an electronic signature binds the parties.
Any person who wishes to sign a legal document electronically should be mindful of these hurdles – including the requirement that the recipient of the signature consent to the method used to electronically sign the document (such as email).
The Commonwealth and each state and territory have substantively similar ‘electronic communications’ legislation. An ‘electronic communication’ is essentially any transmission of information by electronic means – by data, text, images and/or speech.
The laws deal with a wide range of matters, such as when legal requirements to provide information ‘in writing’ and to ‘produce’ documents can be satisfied electronically.
The laws apply to all laws of the relevant jurisdiction, unless exempted.
This article only discusses one aspect of the laws — how (and when) they allow for electronic signatures to bind the parties.
What is an ‘electronic signature’?
An ‘electronic signature’ is any electronic method which carries the intention of being a signature, for example:
- Inserting a scan of a person’s signature into a Word version of a contract;
- Sending an email which states that the email itself is a person’s signature to a document attached to the email; and
- Typing a name or other mark (for example, ‘X’) in a section of an online form and identifying this as a signature (for example, by marking an acknowledgement to this effect).
An ‘electronic signature’ is a broader concept than that of a ‘digital signature’, which is a mathematical process for determining the authenticity of a digital message. A digital signature is a kind of electronic signature.
What do the laws mean for electronic signatures?
The laws apply to:
- When signatures are required under another law of the relevant jurisdiction (for example, for the Victorian or NSW law, when a law is required under any other law of that state); and
- The formation and performance of contracts in that jurisdiction.
By way of example, in Victoria and NSW, the law has 2 main effects:
- Validity: that a transaction is not invalid because it took place wholly or partly by means of one or more electronic communications; and
- Signatures: if a person’s signature is required by a law of that state or concerning the formation or performance of a contract, that requirement is taken to have been met in relation to an electronic communication if three broad concepts are satisfied:
Identification: A method is used to identify the person and to indicate the person’s intention in respect of the information communicated.
Reliability: The method used is ether:
- As reliable as appropriate in the circumstances for the purpose for which the electronic communication was generated or communicated; or
- Fulfils the functions described in ‘Identification’ above as proven by itself or together with further evidence.
Consent: The person to whom the signature is required to be given consents to that requirement being met by the method used.
How do the laws work in practice?
If a party wishes to sign a legal document electronically, whether this will be effective will depend on:
- The jurisdiction — what law applies to the document or transaction?
- The transaction — is the legal requirement excluded from the electronic communications laws?
- The method used — does it identify the signatory? Is it reliable?
- The signatories — do the parties consent to the method used?
If all of these are satisfied, the electronic signature will bind the parties.
The legal requirement must not be excluded
The laws exclude specific laws or transactions from their operation. If an exclusion applies, an electronic signature cannot be used in place of a standard original signature on paper. The signing party will need to check that the relevant transaction is not captured by an exclusion.
The exclusions vary considerably across the jurisdictions – both in how they apply and their scope. At the Commonwealth level, 157 different laws – some entirely, others in relation to only specific sections – are excluded from the electronic signature provisions of the law.
The NSW and Victorian laws use a different approach. Rather than excluding specified laws, broad categories of transactions are exempted from the laws. Further complicating matters, the kinds of transactions that are excluded differ between the states and territories – by way of example, the Victorian law excludes wills from the kind of documents that can be ‘signed’ electronically, whereas NSW does not.
Identification and Reliability: It must be a valid electronic signature
The electronic signature must be effected by a method which:
- Identifies the signatory;
- Indicates their intention in respect of the information communicated (for example, for a contract, their intention to be bound by the terms of the contract); and
- Satisfies the ‘Reliability’ criterion above.
The laws do not say what is (and what is not) a ‘reliable’ method. Parties can potentially use any electronic method they wish, but the requirements include that the method is as reliable as appropriate in the relevant circumstances — and so it depends on the particular communication.
Take as an example email stating Please accept this email as my signature’ to sign a contract. An address which identifies the signatory, and attaches the relevant document may be sufficient. However an identical email from an unknown email address, which does not identify the signatory, may not be sufficient regardless of whether the relevant document is attached.
Consent: The parties must consent to the method used
The consent – which must be unconditional – can be either:
- Given by express consent (for example, a written acknowledgement of consent),or
- Inferred from a person’s conduct ( for example, behaviour consistent with consent).
In practice, this will likely require some prior familiarity and agreed process between the parties to the document.
Some Examples of how the laws work
Example 1: A Victorian will
In Victoria, a will is not valid unless it is, among other things, in writing and is signed by the testator or by some other person with the direction and in the presence of the testator/
As noted above, any transaction which seeks to create, execute or revoke a will, codicil or testamentary instrument is excluded from the Victorian law.
Therefore a valid will cannot be signed by an electronic communication, such as by a testator attaching a scan of their signature to the document. The testator must sign a paper version of the will.
Example 2: A trust deed governed by NSW law
Whether an electronic signature will be effective depends on who is signing the deed — as the requirements are different for bodies corporate and individuals.
- Companies: There are rules surrounding the execution of documents by comranies. As set out in this resource, companies can execute documents either.
- Under section 127 of the Corporations Act — by either 2 directors, one director and one secretary or one director who is also the secretary signing (depending on the number of directors); or under section 126 of the Corporations Act — in any other way, for example, by power of attorney.
As noted above, the Commonwealth law excludes specified laws from the operation of the electronic communications laws. The entire Corporations Law is excluded from the electronic signatures provisions.
Therefore an electronic signature cannot be used to satisfy the requirement that directors or secretaries ‘sign’ the document under section 127 of the Corporations Act. The directors and secretaries must sign a paper version of the deed.
To sign under section 126, the position it not clear. However that lack of clarity is largely academic because, in practice, most documents of significance are required by the parties to be signed under section 127.
Individuals: Each state and territory has their own law governing how individuals must execute deeds. In NSW, an individual signatory must sign and seal the deed, and have a witness (who is not a party to the deed) attest to their signature.- ‘Sealing’, which refers to a historical formality of placing a seal on documents, is satisfied if the document is expressed as being a deed, an indenture and/or as sealedP
The NSW law does not exclude the execution of deeds by individuals and so — at first glance — an electronic signature could be used to satisfy this requirement for a ‘signature’, provided the Identification, Reliability and Consent requirements are satisfied.
However — importantly — this will only be sufficient to satisfy the requirement to sign’ the document. NSW law also requires the individual’s signature to be witnessed. The NSW electronic communications law does not apply to any requirement under a NSW law for a document to be witnessed/ Accordingly, the requirement to have a person who is not party to the deed ‘witness’ the signature cannot be satisfied by an electronic communication.
This example shows the difficulties in applying the laws in practice — and perhaps gives the best explanation as to why, despite the existence of the electronic communications laws, the standard method of signing legal documents remains a handwritten signature on paper.
Example 3: Appointment of company director
When a company appoints a director, it must notify ASIC within 28 days of the appointment. The notification must be made by lodging an approved form, signed by a director or secretary of the company, with ASIC.
As noted above, the entire corporations law is excluded from the provisions which deal with electronic signatures. The director or secretary must sign a paper version of the form.
Example 4: Alteration of Victorian incorporated association rules
By way of contrast, when a Victorian incorporated association wishes to change its rules, it must apply to the Registrar of Incorporated Associations at Consumer Affairs Victoria (CAV) for approval of its proposed new ruIes. This application must be made by the secretary lodging an approved form, signed by the secretary, with CAV.
The Victorian law does not exclude such applications from the electronic communications laws. It is therefore within the scope of the laws, provided that the 3 requirements are satisfied. Importantly, CAV has indicated its consent to the use of an electronic signature in the form of the secretary typing their name in a ‘Signature’ section of a Word version below a declaration by the secretary that:
I acknowledge that Consumer Affairs Victoria will accept this communication as containing my signature for the purposes of the Electronic Transactions (Wctoria) Act 2000.
The secretary can therefore electronically sign the Word version of the form, or sign a paper version. Risks and tips
An electronic signature will only be sufficient to satisfy a legal requirement to sign a document if all of the requirements are satisfied. The above discussion and examples highlight the difficulty in navigating the requirements of the electronic communications laws.
Signatories to legal documents should be wary of adopting a standard approach to electronic signatures in all documents, regardless of context and recipient. They should also be conscious of other any other requirements for signing the relevant document — such as whether the signature (electronic or not) needs to be witnessed, which may raise further legal (and practical) issues.
A person should only electronically sign a document to satisfy a legal requirement where:
- The requirement is not excluded from the electronic communications laws;
- The signature will be effected by a method that satisfies the Identification and Reliability requirements; and
- The parties have given clear and unconditional consent to the method used, by an express declaration of consent in the document.
If a signatory is in doubt about any of the above, they should obtain legal advice.