E-signatures during COVID-19, Proximity Insights

insights Article Two | May 2020 | proximity.com.au

E-SIGNATURES DURING COVID-19 When can electronic signatures be used?

by Sarah Colman Special Advisor Proximity

With a significant portion of the Australian workforce now working from home in an effort to reduce the spread of COVID-19, ‘wet signing’ contracts can be difficult and impractical. The use of electronic signatures is increasingly becoming a necessity for businesses and government agencies. Before signing documents electronically, it is important to understand the rules and complexities relating to electronic signatures to ensure the risks are appropriately mitigated.

In Australia, electronic signatures are generally acceptable as a valid way of executing contracts provided the legal requirements for a valid and enforceable contract are met.

Additionally, there are specific requirements for the use of electronic signatures outlined in the Electronic Transactions Act 1999 (Cth) (ETA). Each state and territory has its own Electronic Transactions Act which generally mirrors the Commonwealth Act. The ETA provides the following criteria which must be met for an electronic execution to be valid: Identifiable – the method of signing must identify the signatory and that person must indicate they intend to be bound by the terms. The signatory must include their name, and must insert their electronic signature into the document and must satisfy evidentiary requirements.

Reliable – having regard to all the circumstances of the transaction, the method of signing must be as reliable as appropriate for the purpose for which the electronic document was generated. The signature should be linked to the person signing and no-one else.

Consent – there must be consent by both parties to execute electronically. This can be achieved by including a clause in the contract which states the parties agree to execute electronically and intend to be bound by the terms or agreement in writing, prior to electronic execution.

Case law highlights the importance of confirming the identity of the signor and their intention to be bound by an electronically executed contract.¹ ¹Williams Group Pty Ltd v Crocker [2016] NSWCA 265

E-SIGNATURES DURING COVID19 1

proximity insights

Article Two | May 2020 | proximity.com.au

What is an electronic signature?

Deeds

An electronic signature is the electronic mark the person uses as their unique identifier. An electronic signature ranges from the typed name of the signatory, to a scanned image of the signatory’s ‘wet signature’ or authenticated signature (such as those generated by electronic signing software). It is important to note electronic signatures have different levels of security, and the risk of unauthorised use of electronic signatures should be considered.

In Australia, the electronic execution of deeds is not yet recognised as valid execution with the most common view being that a ‘wet signature’ is required for the valid execution. This is because of the common law requirement for a deed to be on “paper, parchment or vellum” which an electronic document does not meet. There is an argument that once printed, an electronically executed deed may then meet the requirements of being on “paper, parchment or vellum”, however this is yet to be tested in court.

What about s127 Corporations Act and deeds?

Section 127 of the Corporations Act There are differing views on whether electronic execution of documents under section 127 of the Corporations Act 2001 (Cth) (Corporations Act) is valid. The Corporations Act is not covered by the ETA, however neither does the Corporations Act expressly invalidate the use of electronic signatures. Section 127 requires execution of “a document”.

Some lawyers have interpreted this narrowly, to mean a paper document only. Others are of the view that “a document” in the digital age of 2020 includes an electronic document. Both directors (or one director and one company secretary) have to sign the same document (and cannot execute in counterparts or split execution) to meet the requirement of “a document”.

However, in response to COVID-19, the Federal Treasurer has issued the Corporations (Coronavirus Economic Response) Determination (No.1) 2020 (the Determination) which is valid for 6 months and modifies the application of s127 of the Corporations Act, explicitly providing that execution under s127 can be undertaken by: ɚ counterparts or split execution – meaning both directors do not need to sign the same document; and

Arguably, the Determination permits electronic execution of deeds under s127 of the Corporations Act as it defines “a document” as “a document in electronic form”. This may provide some guidance on the issue of electronic execution of deeds, meaning electronic execution under s127 could be a be valid method of execution for the period of the Determination.

Given electronic execution of deeds is unsettled, ‘wet signatures’ should, where possible, continue to be preferred.

If ‘wet signatures’ are not possible, consider whether the deed could be converted to a contract to enable electronic execution (noting the requirement of consideration would then be required).

If neither a ‘wet signature’ nor conversion to a contract is possible, electronic signatures could be used (with more certainty if signed under s127 of the Corporations Act while the Determination is in force), provided it is clear the parties agree to execute the document as a deed using electronic signatures. This approach does carry with it some risk and will depend on the formal requirements based on the type of deed, so legal advice should be sought to ensure the risks associated with any electronic execution are properly considered.

ɚ electronic signatures – provided the directors comply with the criteria in the ETA (set out above).

The Determination further clarifies that parties are entitled to rely on s129(5) of the Corporations Act, being the assumption that a party has duly executed the document in accordance with s127(1) provided at the time they did not know or suspect the document was invalidly executed.

E-SIGNATURES DURING COVID19 2

proximity insights

Practical tips When executing a contract electronically, we recommend the following tips to help manage the risk:

1.

2.

3.

4.

Include wording in the contract stating the parties intend to be bound by their electronic signatures and electronic versions of the contract.

If executing under s126 of the Corporations Act (authorised representative) obtain evidence from the countersigning party that the signatory has authority to bind the company (e.g. replaceable rules or a board resolution).

To help meet the identity and reliability requirements of the ETA, obtain written confirmation from the signatory that they placed their signature on the contract (or they authorised the use of their electronic signature) and intend to be bound by the terms. This will serve as a record of the signatory having personally authenticated their electronic signature on the contract.

Where possible, use electronic signature software (for example, Docusign or AdobeSign) as these create auditable and timestamped evidentiary trails.

Article Two | May 2020 | proximity.com.au

To help avoid unauthorised or fraudulent use of electronic signatures, it is important that organisations have clear policies around the requirements for the use of electronic signatures, what documents electronic signatures can be used for and how authorisation is obtained from a signatory if required.

Emergency legislation has been enacted in the Commonwealth², NSW³, Tasmania⁴ and Victoria⁵ which permits the creation of regulations and legislative instruments to facilitate the electronic execution of documents during the COVID-19 pandemic. NSW has subsequently introduced regulations clarifying that certain documents can be witnessed via audio visual link⁶ and the Commonwealth has issued the Determination which has confirmed that electronic execution under s127 of the Corporations Act is a valid means of execution. To date, no bills have been introduced in the other states and territories that address electronic execution Given the current self-isolation requirements and accompanying rapid evolution of digitisation, we may see the use of electronic execution requirements evolve (either by legislation or case law) to reflect the digital world we are now living in.

Sarah Colman | Special Advisor | Proximity Sarah’s main areas of practice are government contracting and procurement as well as general commercial law. Sarah has extensive experience advising on government bid responses for vendors and understands the common concerns technology companies often seek to address in large technology contracts.

Sarah takes a pragmatic and practical approach to legal issues, while ensuring risk is managed appropriately.

² Coronavirus Economic Response Package Omnibus Act 2020 (Cth). ³ COVID-19 Legislation Amendment (Emergency Measures) Act 2020 (NSW). ⁴ COVID-19 Disease Emergency (Miscellaneous Provisions) Act 2020 (Tas). ⁵ COVID-19 Omnibus (Emergency Measures) Act 2020 (Vic). ⁶ Electronic Transactions Amendment (COVID-19 Witnessing of Documents) Regulation 2020 (NSW).

E-SIGNATURES DURING COVID19 3

proximity insights

Article Two | May 2020 | proximity.com.au

Proximity is a leading professional services organisation providing legal, commercial and governance advisory solutions.

James Dunn Director

Sean King Director

0407 888 894

0408 167 542

james.dunn @proximity.com.au

sean.king @proximity.com.au

We provide high quality services to public and private sector clients, with a focus on government and regulated industries. Our multidisciplinary team includes highly experienced specialists in law, procurement, governance, technology, finance and engineering.

We are a truly innovative organisation, leading the market in service delivery, business management and staff engagement.

For enquiries or to understand how this insight may apply to your situation, please contact us on 1800 959 885 or email enquiries@proximity.com.au

E-SIGNATURES DURING COVID19 4