The rise of electronic transactions
All Australian jurisdictions have Electronic Transaction Acts (ETAs) providing for the use of electronic communications and electronic signatures to sign agreements and to give information for authorities and for other purposes, such as presale disclosure obligations for contracts.
The first ETA was passed by the Commonwealth Government in 1999. The various States and Territories have followed suit and most of them quite soon afterwards. But while the legislation has been around for a while, it is only the last few years that have seen electronic transactions making substantial inroads for property transactions long dominated by the printed document.
What is an electronic transaction?
There are two basic categories:
- the more traditional form where documents are printed, signed and scanned and then emailed or faxed to other parties to create the agreement
- agreements where the contract terms and the signatures are purely electronic. This can be as simple as an email with the printed name of the party placed at the bottom of the email as their signature. There are a number of electronic signing and exchange platforms now provided by technology companies. Perhaps the most commonly used is DocuSign.
It is important to distinguish between the formation of the agreement for the transaction and the performance of the agreement. The classic idea of the smart contract is that it is self-executing when the performance conditions in the contract terms are triggered. You can foresee a development path where at least simple property conveyancing moves to smart contracts formed electronically through a real estate sales platform (using something like DocuSign for the contract exchange) and then automatically executed through an Electronic Conveyancing and Lodgement Network such as PEXA.
What do the Electronic Transactions Acts provide?
The Electronic Transactions Act 1999 (Cth) is the model for the relevant legislation in each other jurisdiction. It relevantly:
- has the object of facilitating and promoting confidence in the use of electronic transactions
- states that for a law of the Commonwealth, a transaction is not invalid because it took place wholly or partly by electronic communications
- validates the provision of information or a document for a law of the Commonwealth if certain conditions are fulfilled
- states the circumstances in which a requirement for a signature can be satisfied in an electronic communication
- specifies the time an electronic communication is taken to be given and to be received
- contains a set of specific rules relating to contracts formed through electronic communications, with a particular focus on the dangers inherent in automated contracting systems
- is subject to various exceptions.
In all cases for communications and transactions between parties, there must be consent to the use of the electronic communication for the purpose.
In all cases for the validly of signatures provided in an electronic communication:
- there must be consent to the use of the electronic communication to provide the signature
- there must be a method to identify the person signing and to show their intention
- the method must be either:
- reliable for those purposes in all the circumstances; or
- subsequently proven to have fulfilled those functions.
There is an old saying that a verbal contract is as good as the paper it is written on. In most areas of commerce that statement is more about the difficulty involved in proving a verbal contract. But for property transactions it has been literally true since the original Statute of Frauds was passed by the English Parliament in 1677.
The essence of the ETA is that a computer file exchanged by email or other electronic means is as good as a paper contract signed and exchanged the old-fashioned way, provided that the computer file includes something clearly intended to be an electronic signature for each party showing they intend to be bound by the contract.
What transactions and documents are excluded?
In most jurisdictions, instruments required for lodgement with a land registry must be originally signed unless the transaction is conducted through an Electronic Lodgement Network in which the relevant instruments are electronically signed and lodged.
In Queensland scanned documents may be lodged electronically for most common dealings, but the original wet-signed document must be held by the practitioner.
In most jurisdictions, a deed must be wet-signed. In NSW, the Conveyancing Act has permitted electronic signed and witnessed deeds since 22 November 2018.
Section 127 of the Corporations Act 2001 is a statutory expression of the indoor management rule and a party can rely on execution by a corporation that is consistent with section 127. The Commonwealth ETA does not apply to the Corporations Act, which means that electronic signatures are arguably not signatures to which s.127 applies. This does not mean that Corporations cannot use electronic transactions. Instead, parties need to ensure that the method of signing used for the transaction is otherwise sufficient. For example, a wet-signed document can be scanned and emailed and s.127 will then apply, though it is important to ensure both signatories for a company sign the same document.
Electronic transactions remain relatively novel and some institutions and law firms still refuse to accept electronic transactions.
In day-to-day practice it is better to profit from the mistakes of others. The cutting edge of legal theory can be an uncomfortable place. Until the various issues are clarified by clear and authoritative court decisions and legislation, discretion is the better part of valour. All organisations should have an electronic signing and transactions policy giving clear guidance to when the organisation will permit the use of electronic signatures and transactions.
This publication does not deal with every important topic or change in law and is not intended to be relied upon as a substitute for legal or other advice that may be relevant to the reader's specific circumstances. If you have found this publication of interest and would like to know more or wish to obtain legal advice relevant to your circumstances please contact one of the named individuals listed.