Court casts doubt on the use of electronic signatures

18 December 2019

The decision in Bendigo and Adelaide Bank Limited & Ors v Kenneth Pickard & Anor [2019] SASC 123 is a useful reminder about the importance of precise compliance with the requirements for execution of contracts and other documents as laid out in the Corporations Act 2001 (Cth).

The facts

The case involved a claim for money owed under a guarantee. The guarantee, which comprised a loan deed, was signed on behalf of the guarantors by a company that had been appointed under a power of attorney.

The signatures of two directors of the company were affixed to an electronic copy of the loan deed. Neither of the directors personally authenticated their electronic signatures on the deed. However, the directors had resolved in a directors’ meeting for their electronic signatures to be affixed to certain classes of documents.  The resolution did not expressly refer to the loan deed in question.

The guarantors sought to avoid liability under the guarantee on the basis that the loan deed had not been executed in accordance with the requirements contained in section 127 of the Corporations Act, and accordingly the guarantee was not enforceable.

The decision

Section 127 of the Corporations Act states that a company may execute a document by two directors (or one in the case of a sole director company) “signing” the document.

The Court determined that the manner in which the loan deed was signed did not satisfy these requirements and accordingly the guarantee was unenforceable.

In the course of examining what it means to “sign” a document, the court expressed the view that:

  • company officers must either physically sign the same copy of a document (although they need not do so in each other’s presence) or personally authenticate the marks appearing on the document as their signatures;
  • there must be a single, static document and it is not permissible to copy and paste electronic signatures on an electronic document one after the other;
  • where electronic signatures are affixed simultaneously to an electronic document the officers must take the additional step of personally authenticating their signatures;
  • copying and pasting a facsimile signature onto a document will not comply with section 127 if this is done by an unknown person.

The outcome

Whilst the judge’s findings in this case may be at odds with the ever-increasing commercial world it is best practice for deeds and other agreements to be signed personally by company officers on a single, static document.  Failure to do so may result in the document being unenforceable.

This article provides general comments only.  It does not purport to be legal advice.  Before acting on the basis of any material contained in this article, we recommend that you seek professional advice.

 

Author: Kylie Dunn, Senior Associate in our Disputes Team

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