As businesses make the switch to paper-free workplaces it is more important to understand the requirements for valid and enforceable electronic execution of documents.
What are electronic signatures and electronic execution?
Electronic signatures are simply defined as a visual representation of a person’s name or signature used in an electronic document. This can include the use of a digital image of a person’s physical signature, signing a digital copy of a document using a finger on a touchscreen or a person typing their name into an email or document.
An electronic execution takes place when the parties to a transaction or agreement “sign” the document without ever actually putting pen to paper.
When is electronic execution valid?
Under the Electronic Transactions Act, an electronic signature is taken to have met the requirements of a physical signature if:
- it exhibits a level of reliability that is adequate given the purpose of the electronic communication and the circumstances;
- it identifies the person and indicates the person’s intention in respect of the information communicated; and
- the person to whom the signature is required to be given has consented to that requirement being met by way of an electronic signature.
As well as these requirements, the typical elements of a valid physical signature also apply to electronic signatures. For example, in Williams Group Pty Ltd v Crocker  the New South Wales Court of Appeal confirmed that a company director’s electronic signature was not valid as it had been placed on the document by an unknown person without the director’s knowledge or authority.
Despite the widespread push away from the usual pile of papers involved in commercial transactions, the law has not been made clear regarding the validity of electronic executions in situations where the document being signed is required to be witnessed. For instance, the various state Acts in NSW, Queensland, Western Australia and South Australia, have not overruled the common law position on deeds, which requires a deed to be written on parchment, vellum or paper.
Also, many regulatory authorities refuse to accept electronically executed documents, such as land title offices, the Australian Securities Information Commission, the Australian Stock Exchange and stamp duty authorities.
Many lawyers also remain steadfast in the view that electronically executed signatures and documents do not constitute execution as required under s127 Corporations Act 2001.
Risks associated with electronic execution
The identity of the person who places an electronic signature in a document can rarely be verified with one hundred percent accuracy. Therefore, the potential for electronic signatures and executions to be forged or tampered with is significantly greater than the potential for someone to forge a written signature that is witnessed and signed contemporaneously by all parties.
Further, in the modern day office where technology is relied on so heavily, the issue of cyber security must be considered when dealing with transactions in a purely electronic fashion. Even personal signature identification technology is only as good as the security that guards the passwords and access to people’s computers.
How to ensure the accuracy and validity of electronic executions?
The legislation regarding electronic execution remains largely untested, as such, parties to electronically executed transactions should consider the wide array of safeguards designed to eliminate some of the risk associated with paperless transactions.
The first step in ensuring the electronic execution of a transaction runs as smoothly as possible is to obtain the consent of all contracting parties. This will ensure all parties are aware that signing such documents has the same effect as a physical signature.
The use of verification technology such as biometric identification, timestamps and email and IP tracking can provide much needed clarity to the parties to an electronically executed transaction.
One of the simplest and most effective methods of legitimising electronic executions of documents is the use of digital signature notification systems, in which the only valid signature for any given person is linked to certain information which can be verified.
Finally, whether or not an electronic execution is appropriate will depend mostly on the parties to and the nature of the transaction. For instance, in situations where large sums of money are involved, the parties may not want to run the risk, or conversely, in situations where transactions take place on a frequent basis between parties who operate businesses interstate (or indeed, around the world), the convenience of electronically executed contracts makes the risks associated with electronic execution far more worthwhile.
If you have any questions regarding electronic execution or are a party to an electronically executed transaction and require advice as to the validity and enforceability of the documents involved, contact Morrissey Law & Advisory on (02) 8077 0668.
Disclaimer: This publication by Morrissey Law & Advisory is for general information and commentary only and should not be considered or relied upon as legal advice. Formal legal advice should be sought in relation to any matters or transactions that may arise in relation with communication.