A question that clients often ask us is 'can I sign this document electronically?' It is important to know the answer given the emergence of providers of electronic signature software, who tout the ease of use and convenience of applying an electronic signature to documents.
Unfortunately the law has lagged in keeping up with developments in technology, and there is no simple answer to this question. In short, the answer is "it depends on the type of document being signed and the laws that apply to that document".
Complications arise when accepting electronic signatures because:
- Although there have been laws in place permitting electronic transactions for almost twenty years, certain documents are expressly excluded from these laws and still require "wet ink" signatures. For example some documents such as statutory declarations and last wills and testaments are excluded under the existing framework and need to be physically signed.
- Some documents and forms to be lodged with regulatory authorities need to be 'original' documents and in these instances the authority does not accept electronic signatures.
- Different, often overlapping, laws apply in each State and Territory, as well as at the Commonwealth level.
Some good news
The good news is that recent amendments to laws in New South Wales have expanded the category of documents that can be electronically signed to include 'deeds'. The changes are part of a larger package amending laws affecting the sale of property and aimed at facilitating electronic conveyancing. You can read more about the other changes to the law here.
A 'deed' is a specific type of agreement that might be prepared by a lawyer, and can be distinguished from a simple 'agreement' because there is no requirement for any consideration to pass for the deed to be legal and binding. Consideration is something that is given up by the counterparty to make an agreement contractually binding, for example the promise to pay a purchase price. Deeds also differ from agreements in that they generally have longer limitation periods (meaning that there is a longer period for a legal claim to be made in relation to a deed than there is for an agreement).
For a number of years, there has been ambiguity about whether a deed can be signed electronically. This is because traditionally a deed needed to be signed, sealed and delivered (generally in the presence of a witness) on paper, parchment or vellum.
Changes to the law in New South Wales effective from 22 November 2018 now mean that deeds can be signed and witnessed electronically provided that they are signed in accordance with the requirements under the Electronic Transactions Act 2000 (NSW) (NSW ETA). Under the NSW ETA, a signature is taken to be given in an electronic communication if:
- A method is used to identify the person and to indicate that person's intention regarding the information communicated.
- The method used was reliable or factually proven to have identified the person and indicated their intentions regarding the information communicated.
- The person to whom the signature is being given consents to use the agreed method of identifying the person and indicating their intention.
The new laws do not specify the way in which the document must be electronically signed or witnessed, so it is presently up to the parties to the document to agree to this. Regulations could be introduced in the future to provide guidance about how electronic signing and attestation of documents should take place.
Companies signing deeds
Whilst signing of deeds is governed by State/Territory law, signing of documents by companies is governed by Commonwealth law.
Generally, under the Corporations Act 2001 (Cth) a company can execute a deed without a seal (and if it has a seal, then with that seal) if the deed is signed by:
- two directors of the company;
- a director and a company secretary; or
- if a proprietary company has a sole director who is also the sole secretary, then that person.
This is known as the section 127 requirement.
A company is not limited to signing a deed in this way, but if a document is signed in accordance with the section 127 requirement, then the other party is entitled to make certain assumptions including that document has been signed in accordance with the company's internal requirements and that the document is binding on the company. This is why in any significant transaction, lawyers usually insist on the section 127 requirement being satisfied.
The Federal law regarding electronic transactions excludes certain sections of the corporations legislation from its application, but the timing of amendments has left some ambiguity about whether the the Federal electronic transactions legislation still facilitates the section 127 requirement and whether the counterparty to a contract will be entitled to make the same assumptions and be afforded the same protections if a company signs a deed or other document electronically.
Risks of accepting electronic signatures on deeds
The new laws in NSW have removed any doubt about whether a deed can be signed electronically, at least by an individual. For companies, doubt remains and a risk of invalidity arises.
Further, electronic signatures are not immune to the traditional risks that apply to wet-ink signatures such as fraud and forgery. If you are interested in reading more about the risks applying to electronic signatures, please refer to this article.
Finally, although signing of deeds electronically may now be permissible, the parties will need to ensure that they comply with the requirements of the NSW ETA outlined above.
Unfortunately, the law is still lagging behind developments in technology. Until such time that the law is clearly amended to allow electronic signing of all documents by people and companies alike, there is still a lot of uncertainty about the circumstances in which it might be appropriate to accept an electronic signature on a document.
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.