The world we live in is always developing and adapting to new technology. It has become normal in businesses to use an electronic signature, for example on an email or letter. However, is an electronic signature on a formal contract sufficient to bind a party to that agreement?
Generally, an electronic signature is regarded as being legally binding if it meets the requirements under the Electronic Transactions Act 2000 NSW ("Act"). The requirements that need to be met are:
- a method is used to identify the person and to indicate the person's intention to approve the contract;
- the method of signing is reliable as appropriate for the purpose for the communication; and
- both parties consent to the use of electronic signatures.
Please note that there are exclusions under the Act for when an electronic signature can not be accepted, for example when the type of transaction applies to specific legislation outlined by the Act. Further to this, you will be unable to accept an electronic signature where the document is required to be witnessed.
A few other tips for accepting electronic signatures:
- Normally you are unable to accept a signed signature from a director/secretary of a company signing under s127(1) or (2) of the Corporations Act. However, given the current COVID-19 pandemic, the Government has recently introduced the Corporations (Coronavirus Economic Response) Determination (No. 1) 2020, which takes effect on 6 May 2020 (Determination) to enable companies to sign documents electronically. This can only occur until 6 November 2020. After this date, companies will be unable to sign electronically in any circumstances in NSW. Please refer to our recent article for more information.
- If the other party is located outside of NSW then you will need to check the requirements of their jurisdiction for accepting an electronic signature.
There is some debate around whether signing electronically is reliable for the purposes of a formal contract and as such caution should be used when accepting an electronic signature. Before accepting an electronic signature you should receive legal advice to ensure that all requirements under the Act are met.
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.