"Signing" by email and other virtual means (including NSW amendments on 22 April) in Australia

By Hamish Fraser, Patrick Cordwell

04-2020

As a result of governmental responses to the ongoing COVID-19 pandemic, many companies have their employees working from home. This combined with "social distancing" creates substantial difficulties in executing documents with so called 'wet ink' signatures, and raises obvious questions about whether these transactions may instead be executed electronically and how to go about that.

This article briefly considers how Australian law governs the entering into and electronic execution of transactions, including contracts and deeds, at a time when parties may be forced to sign documents remotely. Laws considered by this article are current as of 23 April 2020.

As a general rule, transactions may be executed electronically

There is typically no statutory requirement that a contract be in writing or feature parties’ signatures. It is (and always has been) possible to enter into an agreement electronically providing that the general rules of contract are met.

Accordingly, entering a transaction by email, for example, will typically be sufficient in terms provided there is (as there has to be in any written form) the required elements of a contract: offer, acceptance, consideration and an intention to create legal relations. Of course it is useful if the email exchange contains some other practical terms of the arrangement.

However, in some instances, a signature may be affixed to an agreement, whether the parties simply prefer it as method of recording with certainty the agreement (useful in complex transactions) or because it is required by law. In such cases, parties can often rely upon the Electronic Transactions Act (Cth) (“ETA”) and the corresponding state statutes. Under the ETA, an electronic signature will have the same effect as a ‘wet ink’ signature provided that the following requirements are met:

  1. The method used to make the electronic signature must identify the person making the signature;

  2. The method used to make the electronic signature must be reliable and appropriate for the purpose of the document; and

  3. The counterparty must consent to the signing of the document by way of electronic signature.

These requirements can be satisfied in many ways, perhaps most reliably by using one of the variety of online execution platforms to affix electronic signatures.

In NSW, documents can now be witnessed virtually

Where a signature is affixed to an agreement, it is prudent for that signature to be witnessed in order attest to the validity of that signature. In addition, witnessing is a requirement for other document including deeds and statutory declarations.

On 22 April 2020, the NSW government made the Electronic Transactions Amendment (COVID-19 Witnessing of Documents) Regulation 2020 (NSW) ("Regulation"). Under the Regulation, audio visual links can now be used to witness signatures for the execution of deeds, agreements, and various other legal documents including affidavits and statutory declarations in New South Wales. An audio visual link is defined a technology that "enables continuous and contemporaneous audio and visual communication between persons at different places". This will include the video conferencing software that many businesses are already incorporating into their daily operations.

In order for a document to be validly witnessed under the Regulation, the person witnessing the signature via video link must:

  1. observe the person signing the document in real time;

  2. confirm that the signature was witnessed, either by signing either an identical counterpart of the document or a hard copy bearing the signatory's signature that is scanned and emailed;

  3. be reasonably satisfied that the document they signs as a witness is the same document or a copy of the document that was signed by the signatory; and

  4. endorse the document with a statement that specifies the method that was used to witness the signature and that the document was witnessed in accordance with the Regulation.

Under the COVID-19 Legislation Amendment (Emergency Measures) Act 2020 (NSW), the Regulations will operate for a maximum period of 6 months.

It is likely that other jurisdictions will introduce similar laws, with the Law Institute of Victoria has guidance on witnessing documents electronically notes that they expect comparable legislation to be passed in Victoria. In relation to documents and transactions governed by Commonwealth law, Schedule 5 of the recent Coronavirus Economic Response Package Omnibus (Measures No. 2) Act 2020 (Cth) permits ministers to make determinations that would vary, omit, or substitute signature, witnessing or attestation requirements. No such determination has yet been made.

In the meantime, caution should be exercised where witnessing is required in a transaction that is not under the law of NSW. It is possible that courts would accept an electronic signature from a witness on the condition that the witness was physically present to observe the signatory inserted their signature. However, given that the current intention of electronic execution is to avoid person-to-person contact, this requirement for a physically present witness may be problematic. In such cases, parties may consider either waiting for law reforms similar to NSW or, in relation to contracts, including some consideration and removing of a need for a witness.

Deeds

2018 amendments to the Conveyancing Act 1919 (NSW) and the Real Property Act 1900 (NSW) allow for deeds made under those pieces of legislation to be executed in electronic form. However, in all other cases the formal requirements for a deed mean that their ability to be executed electronically is uncertain. Under common law, a deed must be in writing on parchment, vellum or paper. While it is possible that courts may not rigidly apply this requirement, there is not sufficient judicial clarity on this issue to conclude that an electronic document would be satisfactory in all cases.

In light of this uncertainty, parties should consider the risks of electronic execution and, where possible, arrange for a paper document to be signed with wet ink. If this is not practical, another option is to consider whether the proposed deed may instead be executed as a contract (rather than a deed) under either the common law or the ETAs.

Agreements under section 127 of the Corporations Act

Some statutes, including the Corporations Act 2001 (Cth) (“Corporations Act”), are explicitly exempt from the operation of the ETA. As such, the ETA cannot be relied upon for agreements executed under section 127 of the Corporations Act, which provides that a corporation may execute a document without using a common seal.

This does not necessarily preclude a company from electronically executing an agreement under section 127. However, where more than one signature is required, it is generally accepted that each signatory must sign the same document (and not merely a counterpart). Some commentary suggests that an electronic execution platform (e.g. DocuSign) could be used to allow parties to affix their signatures to a single electronic document. However, recent case law casts doubt on whether this will not be sufficient.[1]

Another proposed alternative is "modified split execution". This involved the first signatory printing and signing the document, which they subsequently scan and email to the counterparty who would then affix their signature. Again, it is uncertain whether this method would satisfy the section 127 requirement of a single, static document.

However, even if the electronic execution of an agreement is held to be invalid under section 127, it may still be valid and binding under the common law. In such circumstances the counterparty will not be able to rely upon the assumption that the agreement has been validly executed under section 129.

Having regard to the uncertainty that exists in relation to these issues, a cautious approach should be adopted to ensure that agreements entered into under section 127 are enforceable.

The rules will continue to change

Both Federal and state governments have introduced emergency legislation that will allow for the modification of the rules that govern electronic transactions. Recent changes in NSW indicate that we should expect other jurisdictions to also introduce law reforms that clarify the existing uncertainties outlined above.

We will continue to provide updates on our website in response to any legislative changes as they are made.

Last reviewed: 23 April 2020

[1] Bendigo and Adelaide Bank Limited (ACN 068 049 178) & Ors v Kenneth Ross Pickard & Anor [2019] SASC 123