Electronic signatures (or e-signatures) have been around for a long time and are legally recognised in Australia.
At the federal level, the Electronic Transactions Act 1999 and Electronic Transactions Regulations 2000 govern e-signatures. There are also state and territory laws and regulations, including:
- Electronic Transactions (Queensland) Act 2001
- Electronic Transactions Act 2000 (NSW).
To be valid under federal and state laws, an e-signature must:
- identify the signor and indicate their intention to approve the contract
- be an appropriate signing method for the purpose
- be approved by both parties as an appropriate method.
However, there is still a question about whether signing contracts with an electronic signature is legally binding. The laws around this are changing, so we’ll explain it simply for you.
What is a contract?
For a contract to be legally binding in Australia, it must meet five criteria:
- Agreement – One party makes an offer and another party accepts it.
- Consideration – An exchange of value occurs (whether money or other).
- Intention – The parties intend to create a legal relations.
- Capacity – The parties are legally capable of entering into a contract (i.e. of sound mind).
- Certainty – The contract is clear and certain enough for all parties to understand their rights and obligations.
However, contract documents are divided into two categories: agreements and deeds.
- A deed indicates a party’s promise to do something. It doesn’t need to meet the ‘Consideration’ criteria and parties are bound the moment it’s executed.
- An agreement covers all other documents that create legal relations between two or more parties.
In Australia, courts recognise agreements with e-signatures as valid contracts. However, the laws around deeds are in flux – and this is creating some confusion. But first, what is an e-signature?
What is an electronic signature?
Most of us have used an e-signature by now. You might have signed a document by:
- Clicking a ‘click to accept’ button
- Typing a name
- Pasting an image of a signature
- Using a finger or stylus to draw a name
- Using technology like DocuSign or an encrypted key.
It’s very important to understand digital signatures (a type of electronic signature), as these are central to the debate about e-signatures in contracts.
A digital signature is like a fingerprint embedded in a document. When the signor applies their digital signature to the document, their digital certificate is attached to the data in a fingerprint.
This technology is making electronic signatures more acceptable because it can:
- Prove the authenticity of the document and its source
- Ensure the document hasn’t been changed in any way
- Prove the identity of the signer.
In contracts, these criteria are essential for creating valid contracts. So digital technology is reducing the instances where an e-signature isn’t feasible.
For example, during the pandemic, people were still getting physical documents signed by company directors and secretaries, as required under section 127 of the Corporations Act. The Australian Government created a temporary reform to allow electronic signing and execution of these documents (among other reforms).
Now the Corporations Amendments (Meetings and Documents) Bill 2021 has made these reforms permanent. So why is there still debate about e-signatures?
When e-signatures are problematic
As discussed, there are two types of contracts: agreements and deeds. While agreements can usually be signed electronically, the ongoing debate is about deeds.
Certain formalities must be met for a deed to be valid and enforceable. Until recently, this included creating a paper deed with an ink signature (often physically witnessed). However, COVID-19 made this difficult, if not impractical.
So during the pandemic, some governments – like Queensland, Victoria and NSW – introduced temporary measures to allow parties to create electronic deeds and sign with an e-signature (and have a remote witness where a witness is required).
Again these had to be able to prove the signor’s identity, and document and source authenticity, to be valid, as well as meet the criteria for being a contract.
Now Victoria and NSW have made these temporary arrangements permanent and Queensland is following in 2022. But not every Australian jurisdiction is on board – and this may not apply overseas where laws may be different. So depending on the parties involved and where they’re located, an e-signature may not be acceptable and a deed may not be legally valid.
Getting legal advice about e-signatures
Obviously, the issue of e-signatures on contracts is a complex area and the law is continuing to evolve. Before signing contracts with an electronic signature or before you accept an electronic signature, get a contract lawyer, like our team at Main Lawyers, to give you the right advice and make sure you meet all your legal requirements.
Contact us today to find out how we can help.