Signing on the Dotted Line in a Digital Age

Electronic Transactions and Signatures

Now that the majority of all communications take place via email or some other form of electronic communication, contracts may come into existence without any paper or other tangible record.  Courts have held that contracts can be contained in emails or other electronic forms of communication.

In the event that a dispute arises as to whether a contract has been concluded, or some other form of transaction effected, electronically, the provisions of the relevant Evidence Act of a State or the Commonwealth will govern the admissibility and requirements for proof of electronic communications.

Apart from questions of proof, issues of validity can arise if a signature of a party is required for a contract or other document.  A signature may be required, for example, for:

  • a contract to be accepted by a party if the contract document itself envisages acceptance by signature;
  • contracts or documents which, by law, require a signature, such as a contract for the sale of land (under Section 26 of the Law of Property Act 1936 (South Australia)) or a guarantee; and
  • a deed which a natural person executes “by signing, or making a mark, on the deed” (Law of Property Act, s.41).

Historically, the concept of a signature was the signing of a person’s name, or the making of a mark, on a paper or other copy of a document.  With the advent of computers, it is necessary to consider electronic and digital signatures (which are not the same, as noted below).

Digital and Electronic Transactions Acts

The Electronic Transactions Act 1999 (Cth) was enacted to implement the United Nations Commission on International Trade Law (UNCITRAL) Model Law on Electronic Commerce 1996 which provided a set of internationally accepted rules to remove legal obstacles and provide a more secure environment for electronic commerce.   As the Electronic Transactions Act 1999 (Cth) is restricted to Commonwealth laws, each State and Territory has also enacted their own Electronic Transactions Act (the relevant South Australian Act being the Electronic Transactions Act 2000 (SA)).

Each of these Australian statutes establishes the general rule that a transaction is not invalid because it took place wholly or partly by means of an electronic communication.  However, this general rule does not apply in respect of a transaction to the extent that a more specific provision of the legislative framework applies, as it does in the case of electronic signatures.

When a law requires the signature of a person, the electronic signature must adopt a reliable method for identifying the signatory and that signatory’s intention in relation to the relevant document.

Electronic Signatures

Electronic signatures often take the form of a digitalized image of a person’s handwritten signature. However, they are more generally a sound, symbol or process attached to a document as a means, and with the intent, of the person signing the document.

In order to rely on an electronic signature, parties need to be able to show that they can identify the signatory and be able to indicate that the signatory knew and agreed to the document they were signing, and be able to show that the method used to affix the signature was reliable.

Digital Signatures

Digital signatures are a more advanced type of electronic signature that involve a link to certain verifiable information which determines their authenticity.  They might also be described as an electronic fingerprint which contains a unique coded message to ensure the authenticity of the signer.

Most digital signatures rely on public key cryptography as their identity verification core.  Essentially, a cryptographically-generated private and public key (a random generated set of digits) is used for identity verification purposes.  The private key is only used by, and known to, the person associated with it.  The related public key is shared publicly and visible by anyone receiving the document which contains the digital signature.

To create a digital signature, the private key is used to generate a unique code from a combination of the private key and the contents of the document itself, and that code is then embedded in the document.  Usually an image attached to the digital signature is calibrated as the visual feature of the signature, such as an electronic copy of the person’s handwritten signature.

If the document is amended in any way after a digital signature has been affixed, the signature will no longer be valid, ensuring a higher level of security and accountability.  A digital signature will typically also have a greater level of evidential strength than an electronic signature in any dispute or litigation.

How Does Digital Signature Software Work?

The most well-known digital signature software products are DocuSign and Adobe EchoSign, which both operate using a similar process.  You simply upload your document to the program and then tag the places in the document where the signatures eventually need to go.  The software program sends the marked up file to your specified recipients who then sign it with a few clicks, either with standard cursive fonts or with a scrawl they draw using their mouse (or a finger, using a tablet).  The signed file is then sent back to you.   You can also set reminders that follow up your recipients to e-sign, and set documents to expire if they aren’t signed in a timely manner.  A simple dashboard allows the user to keep track of all their outstanding and completed contracts.

Legal Risks

It is important to note that while digital signatures are generally more secure than electronic signatures, there is still a risk that the identity of the person using the private key is not accurate.  There is not currently any practical way to determine the identity of the person making the digital signature with one hundred percent certainty.  Nor is there any way of ensuring that the private key of a signatory is kept secret.  For these reasons, one might argue that a handwritten signing is still a superior method of execution as an ink signing can be contemporaneously witnessed and verified by another person.

Additional security techniques, such as biometric authentication, chain of custody features, timestamps and email and IP address tracking, have been developed to mitigate against these risks.  Reputable digital signature software products encourage verification of the signatory’s identity by a certification authority, being a secure online database that can only be accessed by subscribed users.  Each subscribed user, after providing verification information, is issued with a digital signature certificate that is stored online.  The recipient of a digital signature can then locate a person’s digital signature certificate and compare the public key on that certificate with the one they have received on the document in order to verify the other parties’ identity.

Businesses which rely on electronic signatures should consider investing in reputable digital signature software, at least for their more important documents, and should ultimately aim to be satisfied with both their verification practices and those of the other party.

Execution of Contracts

Where a contract is required, either by its terms, or by law, to be signed, the way that this often occurs now, in practice, is that pdf copies of a document are printed by parties and signed by the parties.  These counterparts are usually then sent electronically by email to other parties.  If this does happen, the fact that copies are transmitted by email (or otherwise electronically) is not actually an electronic transaction, nor is there an electronic signature.  Rather, a paper copy of the document is signed.  Although this may seem old‑fashioned, in the era of electronic and digital signatures, it is a relatively safe (if conservative) way to ensure documents are validly signed.

Documents can be signed by an individual or on behalf of a company in this way.  This can also allow for the signature of witnesses, if required.

If a contract, or other document, is to be signed by a company it may be possible for this to be done by two directors, or a director and secretary, or a sole director, using digital signatures or electronic signatures under section 127(2) of the Corporations Act, but it may be necessary to satisfy other parties that the signatures are effective.

So even in a digital age, producing a paper document to sign, even if this is then scanned and sent electronically, may be the simplest way.

For more information, please contact:
Sandy Donaldson

Sandy Donaldson
Director
p.  +61 8 8124 1954
e.  Email me

This communication provides general information which is current as at the time of production. The information contained in this communication does not constitute advice and should not be relied upon as such. Professional advice should be sought prior to any action being taken in reliance on any of the information. Should you wish to discuss any matter raised in this report, or what it means for you, your business or your clients' businesses, please feel free to contact us.

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