The Electronic Transactions Acts
The majority of contract negotiation is done online, by email or over the phone but it still remains the norm to print contracts out and sign them by hand. The Electronic Transactions Acts have been around for over 15 years but electronic contracts are still not commonly utilised by businesses. If we have the technological capability to exchange and complete contracts entirely electronically then why are businesses so slow to make shift towards paperless contracts, and is it justified?
What are the Electronic Transactions Acts?
Each Australian state and territory has substantially similar electronic transactions legislation that generally mirrors the Commonwealth Electronic Transactions Act 1999 (together the 'Acts'). Collectively, the Acts:
- establish the validity of electronic communication; and
- authorise the following requirements to be met in electronic form:
- give information in writing;
- provide a signature;
- produce a document;
- record information; and
- retain a document.
Many businesses are keen to utilise the Acts because going paperless would save money, resources, storage space and time. However, the long list of statutory exclusions and lack of consideration by the courts have cast doubt about the enforceability and effectiveness of electronic transactions. This means e-contracts are generally seen as too risky for important business dealings, particularly regarding security, enforceability and authentication. Below are two examples of these barriers.
Example 1: Statutory Exclusions
The exclusions to the Acts are long and inconsistent among different jurisdictions. If an exclusion applies, the electronic signature cannot be used instead of a standard original signature in writing on paper. In the Electronic Transactions Regulation 2000 (Cth) there are 157 exclusions of Commonwealth legislation contained in Schedule 1 that significantly limit the use of electronic transactions. This means that if businesses wish to exchange and settle matters on an electronic signature, they need to vigilantly check that the relevant transaction is not captured by any exclusions.
One exempt piece of legislation is Corporations Law.1 This means that handwritten signatures remain the usual method for companies to sign legal documents because they can rely on the assumption that documents are enforceable and have been duly executed if they are signed in accordance with the Corporations Act.2
Additionally, there is currently no authority for executing documents electronically in the presence of others. As a result, many state Acts exclude wills, codicils, trust documents, deeds and power of attorney transactions because they require the presence of a witness.
The exclusions prohibited or restricted by the Acts are likely to be removed as the law catches up with technology. Watch this space.
Example 2: Electronic signatures
The Acts state that electronic signatures are valid and binding if they satisfy the following elements:
- Identification: a method to identify the person and to indicate the person's intention is communicated;
- Reliability: the method is either:
- as reliable as appropriate in the circumstances; or
- fulfils the functions of identification in (a) either by itself or with further evidence; and
- Consent: the person whose signature is required consents to using electronic signing methods.
Despite this legislation, there are still concerns that electronic signatures are unsecure and cannot satisfactorily confirm the identity of the signor and their intention to be bound by the content of the contract. Although an electronic signature can simply be a scanned image of a signature or a typed name, digital signatures that use public key infrastructure are becoming increasingly popular and secure. Software is being developed, and increasingly used, to produce identity verification reports that confirm the identity of the signor in certain electronic transactions.
Upon first glance, the Acts suggest a shift away from pen and paper and towards the digital world. In practice however, the enabling features of the Acts are weakened by exclusionary provisions and lack of confidence that electronic transactions will be legally enforceable.
The Acts may not provide comprehensive legal framework with absolute certainty but they do reframe the traditional law of contracts to incorporate electronic transactions. Despite the present scepticism about the enforceability and legality of electronic transactions, it is clear that going paperless is the way of the future.
1 Electronic Transactions Regulations 2000 (Cth) schedule 1 item 30; Electronic Transactions Act s7A.
2 Sections 127 Corporations Act 2001.
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.