Information and communication technology constantly evolves changing the way we conduct legal relations and enter into contracts. Electronic signatures are now increasingly used by businesses of all sizes, banks and other financial institutions as well as individuals.
Signing of contracts has become faster and easier with the use of emails, online platforms and software products that allow parties to affix their electronic signatures without printing and handwriting their wet ink signatures on paper execution copies. Current trends clearly indicate that transacting and signing documents electronically will be growing and become commonly acceptable practice of how businesses operate.
What follows is an outline of the legal background, advantages and risks associated with the use and reliance on electronic signatures which you should consider when entering into contracts electronically.
What is an Electronic Signature?
An electronic signature can be defined as symbols or other data attached to an electronic document as verification of the sender’s intention to sign the document. An electronic signature may be just a typed name or an image of the handwritten signature in an electronic file.
A subset of electronic signatures are digital signatures. A digital signature utilises encryption technology so that a person who receives a digitally signed document can accurately determine that the document was signed by the use of the sender’s unique private key.
Legal Background
For a contract to be validly formed and legally enforceable, there must be an intention to create contractual relations, acceptance of an offer and consideration. Under the Electronic Transactions Act 1999 (Cth), State and Territory Electronic Transaction Acts, satisfaction of these elements is not invalid just because a transaction took place by electronic means.
In addition, for a contract to be in writing you have to ensure that the parties agreed to receive information electronically and that a written contract subsequently formed electronically is stored appropriately and can be accessed for future reference.
Furthermore, electronic signatures will have the same effect as handwritten signatures subject to the following:
- a method is used to identify the signatory and to indicate the signatory’s approval in respect of the electronic document; and
- in the light of all the circumstances, that method of signing is as reliable as appropriate for the purpose for which the electronic document was produced; or, alternatively,
- evidence of the identity of the signatory and the signatory’s approval of the electronic document is self-evident in the document itself or otherwise available together with further evidence; and
- the person to whom the signature is provided consents to receive it electronically by the use of that meth
Given the above, electronic signatures are generally a valid way to enter into contracts in Australia unless an exemption applies. However, you need to consider advantages of electronic signatures together with the risks associated with their use.
Advantages and Risks
There are a number of advantages associated with signing contracts electronically, including:
- convenience – particularly when it is not possible or practical for all signatories to be in one place to sign documents;
- cost savings, speed and efficiency – including a possibility to pinpoint who signs where, avoid mistakes and missed signatures, maintain a paperless office and the ease of locating necessary documents;
- possibility of smooth integration with the other electronic processes of your business;
- improved experience of your customers or clients.
At the same time, the use and reliance on electronic signatures are prone to risks for the following reasons:
- no guarantee from fraud, forgery or unauthorised use – someone else may fraudulently sign the contract electronically without authority of the intended signatory;
- difficulties with obtaining evidence to prove the identity of the signatory and the signatory’s intention to be legally bound;
- no practical way to verify the signatory’s identity with 100% certaintyunless face to face identity verification undertaken;
- a possibility for the content of the electronic document to be electronically altered after signing.
In a recent NSW Court of Appeal case Williams Group Australia Pty Ltd v Crocker [2016] NSWCA 265, it was demonstrated that the use and reliance on electronic signatures are prone to risks. In that case, Mr Crocker, director of a company, was using an electronic password-protected system allowing users to sign documents electronically. Mr Crocker’s electronic signature appeared on a personal all-monies guarantee for the company. The NSW Court of Appeal has found that Mr Crocker had no knowledge of the guarantee, did not authorise the placing of his electronic signature on it and an unknown person must have done so. Mr Croker was not bound and successfully defended the proceedings.
The issue in that case was that Mr Crocker did not do anything to provide the system or the actual signatory with any evidence of his authority to sign the guarantee. Furthermore, an unauthorised person could place his signature on a document just by having access to Mr Crocker’s username and password to the system. The case highlighted the need for convincing documentary evidence that a person actually authorises the placement of his or her signature on a contractual document or at least has represented to the benefitting party that a particular person was properly authorised to place the signature.
Cross Border Transactions
If you have cross border transactions with the parties domiciled in other jurisdictions, this may affect whether the use of technology to sign contract documents electronically is an option for you. If the law in the country of your contracting counterparty is different from the electronic signature law in Australia, this may be an issue even if you choose an Australian jurisdiction law as governing law of your cross border contract.
Though the UN Electronic Communications Convention provides that electronic signatures are treated in the same way as signatures written by hand, not all countries have ratified the Convention. Furthermore, some countries may have very different statutory requirements and governmental policies still requiring wet ink signatures and wet seals affixed to contracts for them to be valid.
What it Means for You
Before deciding to use and rely on electronic signatures to enter into contracts, you need to assess the risks and consider the advantages in your particular circumstances.
This includes the possibility of a signature being affixed without authority and the other contracting party denying his or her signing of the documents electronically and not being bound by them. To proof the validity of electronic signature. you need to be prepared to provide additional evidence that the signatory did actually sign or properly authorise the use of his or her signature on a particular document.
Digital signatures utilising technology linking the signature to unique identity verification data (such as public key cryptography) can mitigate these risks. However, they are not always practical and may not work for you.
Having access to records of a particular e-signing platform showing the steps taken in the process can assist with the evidence in case of a dispute. This can be a certificate produced on completion of the signing process showing each step undertaken. Additional security features can include access to documents only via the signatories emails, SMS security codes, security questions, IP addresses and geolocations.
Alternatively, you may find that in particular circumstances of your business and its use of technology and electronic signatures to enter into contracts, their advantages outweigh the risk of contracting parties denying their signing or giving someone else an authority to sign for them.
Commercial Lawyers Sydney at Pavuk Legal can advise you on the use or potential use of electronic signatures and assist you with any disputes that have arisen concerning electronic signatures.
Many other essential hot topics for business owners is all found in the book Nobody Else’s Business. Nobody Else’s Business is about helping business owners live the life they want to live, now and in the future. It is the ultimate guidebook for succession planning of modern Australian businesses.
To purchase your own copy of Nobody Else’s Business please follow the link http://www.nobodyelsesbusiness.com.au/
For the full range of Legal Services that Pavuk Legal offers please go to: www.pavuklegal.com/services/
