Electronic signatures may now be legal but there are risks
Recent changes in legislation mean that electronic signatures can now be used for a number of documents that previously had to be executed with wet signatures, but a legal expert warns these new rules can also be open to interpretation.
Nick Walker, a lawyer with DBA Lawyers, said under section 110A of the Corporations Act 2001, companies can now execute documents – including deeds – using electronic signatures, but he said although these changes appear to be more convenient, there are some limitations that apply.
For these documents to be validly executed electronically, Mr Walker said the legislation requires firstly that the electronic method identifies the person and indicates the person’s intention in respect of the information recorded in the document. Secondly, it requires that the electronic method is as reliable as appropriate for the purpose for which the information was recorded, in light of all the circumstances, including any relevant agreement.
“Failure to comply with these limitations can result in the document not being legally enforceable,” he said.
“There is always a concern that although the parties to a deed may intend to abide by the legislative requirements, the court may take a stricter approach.
“An example of this can be seen in Re Curtis [2022] VSC 621 where in witnessing a document being signed via video, the hand of the person signing was not visible on the screen. The court deemed that the document (in this case a will) was not properly witnessed.
“This conservative approach by the court regarding documents being signed/witnessed via electronic methods should act as a cautionary tale.”
Mr Walker said in regard to the second limitation, that the term “reliable as appropriate” is open to interpretation and while someone signing on behalf of their company may view it one way, it’s not a guarantee that a court would do the same.
“This is still a relatively new change to the law and we are yet to see how the courts will interpret it,” he said.
Constitutions present another challenge, he said.
“Some constitutions, particularly older ones, do not have provisions to authorise electronic execution,” he said.
“There may also be uncertainty if the express provisions of the constitution conflict with s110A.”
He said for companies to minimise their risk it’s best to update their constitutions to allow electronic execution.
Deeds can be even more complex as they often have one or more individuals in addition to a company as a party and additionally, the relevant state or territory’s legislation must also be considered.
“This is where things become complex, given we have six states and two territories in Australia with different rules,” he said.
“Moreover, not all jurisdictions have enacted legislation authorising a deed to be executed electronically by a natural person.
“For example, Victoria has section 12A of the Electronic Transactions (Victoria) Act 2000 (Vic) but Tasmania has not.
“Some jurisdictions only allow the traditional common law position of ‘wet ink’ signatures on a deed.”
He added that s110A of the Corporations Act 2001 (Cth) allows the parties to sign a document without necessarily signing the same form or using the same method.
“This means that one director could sign the physical version of the document, have it scanned, and another director can sign that same document electronically,” he said.
“It is tempting to think that this method could also be used by a natural person, at least where a deed can be signed electronically in certain jurisdictions.
“However, this is risky thinking unless the deed or legislation of the relevant jurisdiction provides an explicit basis for such action.”
To minimise risk Mr Walker said he advises clients to exercise caution.
“At DBA Lawyers we retain a strong preference for the old fashioned ‘hardcopy’ wet ink method where, among other things, each party signs in wet ink a full version of the document in hardcopy, preferably with the same pen in the same room,” he said.
