In these challenging times of COVID-19, social distancing and working from home, the use of electronic signatures in contracts and deeds is likely to be more prevalent than ever.
It is important for businesses to be aware of both the practicalities and legalities around use of electronic signatures to ensure their contracts and deeds are binding and enforceable.
What are electronic signatures?
An electronic signature is a visible representation of a person’s name, initials or associated mark, which is placed on a document by electronic means. Examples include:
Are electronic signatures legally binding?
Unfortunately, the law has not always kept up with modern technology and business practice when it comes to the use of electronic signatures in contracts and deeds.
To answer the question requires consideration of:
Does the electronic transactions legislation apply?
The Electronic Transactions Act 1999 (Cth), and state and territory equivalents, contain provisions that provide that a transaction is not invalid merely because it took place wholly or partly by means of electronic communications. For example, online shopping transactions are not invalid merely because they take place by electronic means.
The legislation also states that if a person’s signature is required by a relevant law, that requirement is taken to have been met in relation to an electronic document if the following conditions are satisfied:
These processes (identification, reliability and consent) are likely to be practical and relevant in any situation involving an electronic signature (regardless of whether the Electronic Transactions Act applies or not).
Notably, the legislation does not apply to:
What type of document is to be signed?
When using electronic signatures, it is relevant to consider what type of document is being executed. Particular care needs to be taken when executing deeds (see description below).
In addition, if a document needs to be filed with a government authority after execution (eg a court or lands titles office or state revenue office), it is relevant to consider whether that authority will accept the document if it has been executed using electronic signatures.
Under the general law[i], a contract can be verbal or written and so the rules governing whether a contract is legally binding or not do not typically focus on whether the contract has been validly executed or not. Rather, the rules focus on matters such as:
Accordingly, individuals and companies have some flexibility when it comes to signing contracts using electronic signatures.
Deeds are documents setting out promises made by one party in favour of another. These promises become legally binding upon execution of the document. Examples include trust deeds, amending deeds, security deeds and deeds of guarantee.
Because the binding nature of a deed relies upon execution of the document, the formal execution requirements for deeds are more strict than they are for contracts. Also, the requirements differ depending on whether the deed is to be executed by an individual or a company, and in which state or territory the deed is to be executed.
In South Australia, the rules governing execution and attestation of deeds are set out under section 41 of the Law of Property Act 1936 (SA) (LPA). Under the LPA, if an individual executes a deed, they must sign in front of a witness who is not a party to the deed.
The witnessing of electronic signatures is a somewhat grey area of the law. However, best practice suggests the witness should follow a similar process to that observed when using ‘wet ink’ signatures. That is, the witness should:
In light of the above, currently there is likely little (if any) practical advantage to signing by electronic signature where a deed is required to be witnessed (compared with printing the deed and using ‘wet ink’ signatures).
The COVID-19 Emergency Response Act 2020 (SA) enables modification of witnessing requirements in response to COVID-19. It remains to be seen whether regulations will be passed to temporarily allow witnessing of documents by audio-visual link (as is the case in New South Wales, pursuant to the Electronic Transactions Amendment (COVID-19 Witnessing of Documents) Regulation 2020 (NSW)).
In South Australia, the LPA requires that a company execute a deed by affixing its common seal to the deed in accordance with the company’s governing rules (constitution) or by an attorney under a power of attorney. However, section 127 of the Corporations Act provides an alternative, which is commonly used. Under that section, a company may execute a document as a deed (with or without a common seal) if the document is expressed to be executed as a deed and the document is signed by two directors or a director and secretary of the company, or by a person who is the sole director and secretary of the company.
If a company executes a document under section 127 of the Corporations Act, other people are entitled to assume the document has been duly executed by the company (section 129(5) of the Corporations Act).
Some issues to note when using electronic signatures under section 127 of the Corporations Act include:
[i] However, legislation requires certain classes of contract to be in writing. Contracts for the sale and purchaser of land are an example.
[ii] See Bendigo and Adelaide Bank Ltd v DY Logistics Pty Ltd  VSC 558.
[iii] See Bendigo and Adelaide Bank Ltd v Pickard  SASC 123, at  (per Stanley J).
This article provides general commentary only. It does not purport to be legal advice. We recommend that you seek professional advice having regard to your own particular circumstances.
Tasha Naige, Senior Associate in our Transactions Team
Direct Telephone: +61 8 8210 2244
The author would like to thank Ryan Parker for his assistance in preparing this summary.