Risk Watch: Going electric a sign of the times

Going electric a sign of the times

MERCEDES EYERS-WHITE, PROFESSIONAL INDEMNITY INSURANCE RISK MANAGEMENT COORDINATOR

Whilst “the new normal” may have become a hackneyed phrase, it is undeniable that the advantages of electronic communications and tools in this age of physical distancing have really come to the fore. Business, including the business of law, has only increased its use of technologies during this time and whilst all should be alive to the increased risk of cyber-based fraud, it is perhaps timely for practitioners to revisit the current state of the law when it comes to electronic signatures and the execution of agreements. No one wants to be embroiled in an argument about valid execution, let alone caught out by an unenforceable agreement.

WHAT IS AN ELECTRONIC SIGNATURE?

A working definition of an electronic signature is that it is a visible representation of a person’s name or mark, placed by a person on a document or in a communication by electronic and/ or mechanical means, to identify the person and indicate that they have put their mind to adopting the document or communication. Some commonplace examples include typing your name in an email or word document, pasting a digitised image of your physical signature, signing an electronic document with a stylus or finger on a touchscreen, or using a digital signing platform (e.g. DocuSign).

The Electronic Communications Act 2000 (SA), as in most states, essentially mirrors the provisions in the Electronic Transactions Act 1999 (Cth), although practitioners should take care to note that the law is not uniform throughout the country. Some jurisdictions exclude particular transactions from the operation of the Act, for example where a document is required to be attested by a witness or where documents must be served personally.

Under the SA Act an electronic signature will be deemed effective under s9 if it meets three conditions, namely: • it identifies the signatory and indicates their intention to sign the document; • the method of signing is either as reliable as appropriate for the purpose of the document or transaction, or is proven in fact (by itself or with other evidence) to identify the signatory and their intention to sign; and • the person to whom the signature is provided consents to the method of signing.

The use of electronic signatures is not without risk, particularly if it is a matter of cutting and pasting a digitised image of a signature. Where such a method is employed by someone other than the signatory, it will require obtaining and retaining the authority from the signatory to affix their signature to a particular document. Section 9 requires there be some method employed to verify the identity of the signatory, which is where digital signing platforms are particularly useful.

In general terms an electronic signature is just as enforceable and admissible as the traditional “wet ink” signature, but there are important exceptions and jurisdictional subtleties. Where the document is to be registered, it is also prudent to consider whether there are registration requirements that impact whether an electronic signature is appropriate.

WHAT ABOUT COMPANIES?

As most would be aware, s127 of the Corporations Act 2001 (Cth) provides that a company may execute a document without using a common seal if the document is signed by two directors or a director and a company secretary (or where a sole director is also the sole company secretary – by that director). Where a document appears to have been signed in accordance with s127, a counterparty is entitled under s129 to assume that all internal requirements have been met and the document is binding on the company, unless it has actual knowledge, or suspects that assumption is incorrect. The Act also provides that a company may execute a document as a deed if the document is expressed to be executed as a deed and is executed in accordance with those signing procedures.

However, the Corporations Act is excluded from the operation of the

Electronic Transactions Act, so the electronic execution of an agreement or deed is not generally considered a valid method of execution under s127. A valid agreement can still have been made under common law despite failing to properly execute it but this is less likely in the case of a deed where a distinguishing feature is the lack of consideration.

The practice of split execution, where each company offi cer signs a copy or counterpart of the document in wet ink or electronically, should be avoided. In Bendigo and Adelaide Bank Limited & Ors v Kenneth Ross Pickard & Anor [2019] SASC 123, Stanley J considered that s127(1) contemplates a document being executed by two offi cers signing it and is therefore “good reason to consider that there must be a single, static document rather than a situation where two electronic signatures are sequentially applied to an electronic document… it is insuffi cient that two signatures appear on different counterparts or copies of the same document because no one counterpart or copy would be properly executed by the company under s127 (1)”.

To promote the continuance of regular business during the period of physical distancing requirements, the Treasurer issued the Corporations (Coronavirus Economic Response) Determination (No. 1) to provide specifi c relief in this respect. Under the Determination, the operation of s127 was modifi ed to allow a company to execute a document by signing a copy or counterpart of a document that is in physical form. It also alternatively allowed a signatory to use a reliable and appropriate electronic method to identify themselves and to indicate their intention to execute the document. Whichever method was chosen, the physical or electronic communication must have included the entire contents of the document i.e. not just the signature page. It did not, however, need to include the signature of another person signing the document physically or electronically. It also extended the defi nition of ‘document’ to include one in electronic form. This relief expired in April, 2021, and the position has reverted to the pre-COVID requirements.

WHAT ABOUT DEEDS?

In South Australia the Electronic Transactions Regulations 2017 exclude, amongst other things, any transactions under a law of the state requiring a document to be witnessed, attested, verifi ed or authenticated under the signature of a person other than the author of the document, from the operation of the Act. Therefore, the requirements set out in s41 of the Law of Property Act 1936 (SA) relating to the execution and attestation of deeds still need to be met. South Australia did not introduce any regulations to allow for remote witnessing as was done, for example, in NSW, Victoria and Queensland. The position remains that witnesses must be physically present to certify that the document was signed by the signatory. For individuals, the validity of witnessing of electronic signatures is a somewhat grey area but may be possible where the witness is physically present, sees the signatory affi x their electronic signature to the deed and then affi xes their own electronic signature to the same version of the document at the same time.

Beyond doubt the safest course and most conservative option is to sign paper in wet ink, as the practical value of witnessing electronic signatures is fairly limited.

CHECK THE DETAILS

Whilst in this age of electronic commerce it may seem a little anachronistic for the law to continue at times to insist on pen and paper, it is well to remember that it sometimes does. With the lapsing of temporary COVID-related variations and with only some jurisdictions enacting permanent amendments, executing deeds in particular will require a cautionary approach. Moves to permanently enshrine the recent variations to the Corporations Act have been fl agged.

As always, it is prudent to check the details before signing.

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1 The Regulatory Functions and Powers of the Society are set out in: 1. Legal Practitioners Act 1981 and Legal Practitioners Regulations 2014; 2. Chapter 17 of the Supreme Court Rules; and 3. Appendix C to the LPEAC (Legal Practitioners Education and

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