Efficiency, customer preference, speed to contract finalisation, and significant cost savings are all benefits of paperless contracts. Are there restrictions?
The legal authority that paper is no longer required derives from Commonwealth legislation called the Electronic Transactions Act 1999. Each state and territory has passed similar legislation.
The key provisions of these Acts are as follows.
- A transaction is not invalid because it took place by means of one or more electronic communications.
- Any legal requirements can be met in electronic form including:
- a requirement to give information in writing;
- a requirement to provide a signature;
- a requirement to produce a document;
- a requirement to record information;
- a requirement to retain a document.
So that means that legal contracts can be created, signed, and stored without the requirement of any paper. A person can enter into a contract by clicking ‘I Agree’, or indicating consent in any other way. Most people have already entered electronic contracts by clicking ‘Place order now’ on internet purchase sites.
The Electronic Transactions Act does not specify how documents are to be signed. The Acts say that a requirement for a signature is satisfied if:So that means that legal contracts can be created, signed, and stored without the requirement of any paper. A person can enter into a contract by clicking ‘I Agree’, or indicating consent in any other way. Most people have already entered electronic contracts by clicking ‘Place order now’ on internet purchase sites.
- a method is used to identify the person whose signature is required;
- the method indicates that the person approves of the message’s contents;
- the method is as reliable as is appropriate for the purpose;
- the person consents to the method of electronic communication being used.
The key risk is in paragraph (c) above. It is essential to have some method of working out that the person who clicked ‘I Agree’ is the person intended to be bound. The rigour with which identification should be carried out depends on the importance and type of the contract. For example, a more rigorous identification regime is appropriate for banking transactions.
Unfortunately that is not the end of the story because there are a number of exceptions. In particular in relation to lending regulated by the National Credit Code, a specific form of consent to using electronic communications is normally required, and guarantees and default notices must be in paper form. The other exemptions vary from state to state and usually include things like:
- documents that are required to be witnessed by a particular law;
- requirements of Land Titles Offices for paper dealings (but that is progressively changing with the move to e-conveyancing); and
- state specific requirements for wills, codicils, and powers of attorney.
Except in South Australia, it is possible to create a binding contract to buy and sell land and even effect an equitable assignment of land without the need for paper. It is unusual that greater use has not been made of entering land sale contracts electronically.
Finally, a word of warning; the exemptions do differ from state to state and specific advice should be obtained on specific transactions.