Will COVID-19 be the catalyst for essential changes to electronic signing?

In these unprecedented times caused by the COVID-19 pandemic, the basics of getting your documents signed can present real challenges. For a number of years we have been lobbying governments to create an effective electronic signing regime. We need it now more than ever.

The basics

An agreement is not invalid merely because it takes place by means of ‘electronic communications’ (e.g. documents executed using an electronic signature). However, that basic proposition may be affected if the document or communication is excluded by the applicable Commonwealth or State Electronic Transactions Acts, or the document can’t be signed electronically due to technical requirements for that type of document.  

Where the Electronic Transactions Acts apply, there are generally three key elements that must be satisfied for a valid electronic signature: 

1. Identification: you must be able to identify the person and show that by executing the person intends to be bound.
   
   
2. Reliability: the method of electronic signature must be reliable.
   
   

3. Consent: the recipient consents to the method of electronic communication being used. 

An electronic execution platform must be able to satisfy each of the above three general law requirements to be suitable. A properly established DocuSign process will satisfy these requirements, does not involve any greater risks (e.g. identity fraud) than wet ink execution and will generally be accepted by the courts. While the Electronic Transactions Acts govern most documents there are a few notable exceptions including, most importantly, documents executed under the Corporations Act.  

Execution by companies 

If an Australian company executes a document under section 127(1) of the Corporations Act by having it ‘wet-ink’ signed by two directors or a director and secretary, then the Corporations Act ‘assures’ the validity of its execution.[1] Unfortunately, as the Commonwealth Electronic Transactions Act does not apply to the Corporations Act, it is uncertain that a document electronically signed by two officers will comply with section 127. As a result, until the Treasurer changes the legislation lawyers will continue to take differing views as to whether companies can sign electronically and comply with section 127(1), with the more conservative view generally being adopted in finance transactions. 

Any counterparty to a document not executed under section 127 is not entitled to rely on the statutory assumptions as to valid execution. To ensure valid execution where a document is purported to be electronically signed by a company, many counterparties insist on other processes – required to enable a counterparty to take advantage of the common law ‘indoor management rule’ – to confirm valid execution. 

This includes reviewing a board resolution or delegation for express authorisation that a person or a nominated officer may sign documents. The counterparty may also wish to review the company’s constitution to ensure there are no provisions that preclude electronic execution. These additional processes are not always straightforward to complete or to review and often have the effect of putting the counterparty on notice of flaws in the corporate authorisation process.

It’s worth keeping in mind that even if a document is improperly executed it may still bind the company under numerous different contractual rules, for example, part performance or holding out.  

A practical solution, albeit one that may require a “wet ink” solution, is for companies to put in place powers of attorney. Bearing in mind that if you intend to execute deeds under a power of attorney, the power of attorney must itself be a deed. Alternatively, if your document is not a deed, the company may authorise an officer to sign as its authorised officer. Frequently documents that are not required to be executed as a deed are executed as deeds out of an abundance of caution. So a good starting point is to ensure that only those documents which should be executed as deeds are so executed.

There may also be issues with virtual signings where separate copies of a document are signed by officers of the same company, also known as ‘split execution’. While we understand there are instances of this occurring, there are differing views as to whether this would qualify as due execution under section 127(1) because it is not expressly covered. Until there is legislative amendment or clear case law, you may need to confirm valid execution through other processes as outlined above.

Documents that can and can’t be electronically signed

Set out below is a list of some common types of documents that can and can’t be signed electronically based on the Electronic Transactions Acts, the common law and practicalities associated with that type of document (e.g. stamping or registration). This is a high level summary only and the consideration of whether a particular document can be signed electronically needs to be carefully made on a case by case basis. This is particularly relevant where a document is required to be witnessed, in which case electronic execution is generally not practical.

*Note: Registration and lodgement requirements for conveyancing documents is a complex area and can differ depending on the type of document and local requirements. It is therefore advisable to obtain specific advice on each document.

Even if an electronic signature is legally enforceable, it is prudent to check whether the document will be accepted by your counterparty, government agency, court or bank. While banks are working hard to make electronic execution possible, they will not accept electronically executed deeds and have historically insisted on wet ink.

This publication is part of our insight series COVID-19: Navigating the implications for business in Australia and beyond. Please subscribe to get notified by email when new COVID-19 insights are released.