There has been a trend recently, especially during the pandemic, of increased use of electronic signatures to sign documents. We have seen a wide range of practises in terms of how people do electronic signatures, some of which meet the level requirements and some of which do not. This article summaries those requirements in New Zealand and Australia and gives some practical tips.
What law applies?
Generally speaking, the law of the place where the person is resident or where the company or other body is incorporated will govern how that person or body can validly execute a document. So if you have a New Zealand company, New Zealand law will apply. If you have an Australian company, Australian law will apply. There may be situations where you have to consider both the country where the company is based, and also the law in the place where the document is going to take effect. For example, an assignment between two New Zealand companies that is going to be registered in China will need to comply with the laws around how New Zealand companies can sign documents, but also the requirements in China for a valid assignment.
The rules around electronic signatures in New Zealand are now contained in Part 4 of the Contract and Commercial Law Act 2017, although they are the same rules that were previously in the Electronic Transactions Act 2002. Generally, the Act permits the use of electronic signatures wherever normal written signatures are required, although there are some documents for which electronic signatures cannot be used such as wills, affidavits and powers of attorney.
Under section 226 of the Act a legal requirement for a signature is met as long as the electronic signature:
- adequately identifies the signatory and adequately indicates the signatory’s approval of the information to which the signature relates
- is as reliable as is appropriate given the purpose for which, and the circumstances in which, the signature is required.
That section goes on to say that if the signature relates to information that is legally required to be given to a person, the person must consent to receiving the electronic signature. In the case of agreements and deeds, there is not generally any legal requirement that the information be given to the other person, so the consent requirement does not usually apply.
Electronic signatures can be used whether the signature must be witnessed or not. Best practice is for the witness to be physically present, even when an electronic signature is required. However, there have been some practises put in place in order to permit virtual witnessing, especially during the pandemic. These require additional safeguards and evidence to show that the witness actually saw the signature being applied, even though they were not physically present.
The law in Australia is less permissive and also less clear.
Electronic signatures are generally acceptable for signing agreements in Australia, where there is consideration. However:
- generally deeds cannot be signed electronically, except for some deeds in New South Wales
- there is not rule permitting companies to sign documents electronically under section 127 of the Corporations Act, although there are temporary permissions in place until March 2022.
We therefore recommend that if you are dealing with companies or persons in Australia, and signing deeds, that electronic signatures are not used. We also recommend that electronic signatures are not used where an Australian company is purporting to sign in accordance with section 127 of the Corporations Act.
For agreements, that are not deeds, the rules are similar to those in New Zealand. There are three requirements:
- a method must be used to identify the signer and indicate the signer’s intention to sign the document
- the method used must be as reliable as appropriate for the purposes of the communication or as proven to identify the person and indicate their intention
- the signer has consented to the method used but such consent can be expressed or inferred.
When signing a contract in either New Zealand or Australia, it is not sufficient to simply copy and paste the signature into the document. While that may be appropriate for sending a letter (as long as the letter does not communicate legally required information), for an agreement we recommend using a service that provides more assurance that the person signing the document is who they said they are and that that person has applied the signature to the document.
If you are going to use electronic signatures to sign legally binding documents, we recommend using a service that provides a clear record of who has applied the signature to the document, so the signature of the document by the appropriate person can be proven. As far as we know, there has not been any legal precedent on what services are appropriate to be used. Clients of ours frequently use DocuSign and we have not seen any issues raised with that, but any other service that provides a similar level of rigour to the process should also be acceptable.
Counterparties do not often disclose that they have used an electronic signature. We recommend that when you receive a signed document from someone, you look at the signature that has been applied to it and see if you can tell if it has been applied electronically or not. For example, if you have a document with two signatures by the same person, and those signatures are identical, that often indicates that the signature has been copied and pasted into the document. In that case we recommend asking the counterparty to either re-sign using a wet signature or, if permitted by the applicable law, to use a more formal electronic signature service to apply the signature.