Electronic Transactions Act 1999 (Cth)
Generally, electronic signing of documents is governed by the Electronic Transactions Act 1999 (Cth) (ETA). The relevant States and Territories have adopted similar legislation to implement/reflect the Commonwealth ETA.
Section 10 of the ETA specifies that if, under a law of the Commonwealth, the signature of a person is required, that requirement is taken to have been met in relation to an electronic communication if:
- in all cases – a method is used to identify the person and to indicate the person’s intention in respect of the information communicated; and
- in all cases- the method used was either:
- as reliable as appropriate, in the light of all the circumstances, including any relevant agreement; or
- proven in fact to have fulfilled the identification requirements in subparagraph (a) above, by itself or together with further evidence; and
- if the entity receiving the documents requires the method used as mentioned in subparagraph (a), the method must be in accordance with particular information technology requirements i.e. the entity’s requirement has been met; and
- the person to whom the signature is required to be given consents to that requirement being met by way of the use of the method mention in subparagraph (a) above.
Corporations Act 2001 (Cth)
The Corporations Act is excluded from the ETA (and the equivalent State and Territory legislative instruments) i.e. those pieces of legislation specify that they do not extend authority for electronic signing and documents to the Corporations Act.
Most documents signed by corporations do not require a witness provision as parties tend to rely on section 127 of the Corporations Act and the assumptions in sections 128 and 129 of the Corporations Act e.g. that directors have been duly appointed and have the power to enter into the contract.
Section 127 of the Corporations Act provides that a document, including a deed, is deemed to be executed by a company without using a common seal if it is signed by:
- 2 directors of the company; or
- a director and a company secretary of the company; or
- for a proprietary company that has a sole director who is also the sole company secretary – that director.
Subsection (3) states 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 subsection (1) or (2)” (subsection (2) being in relation to signing under company seal).
While the ETA does not apply to the Corporations Act, subsection (4) of section 127 states that the section “…does not limit the ways in which a company may execute a document (including a deed).”
It is generally advisable that where companies are signing documents electronically, the intention between the parties should be expressly stated early that:
- documents can be signed electronically under section 127 of the Corporations Act;
- an electronic copy of the document be printed once signed to satisfy any need for a “physical document”; and
- parties should be prepared to provide evidence of “authentication” (see below) if the other party requires further assurances that the document has been correctly executed in accordance with section 127 of the Corporations Act. Or they should provide it contemporaneously.
The issue – looking behind the digital signature
As the Corporations Act is exempt from the ETA, issues do arise given the secondary need for authentication. In essence, contracting parties need to 'look behind' the digital signature.
The recent case of Bendigo and Adelaide Bank Limited (ACN 068 049 178) & Ors v Kenneth Ross Pickard & Anor highlights the need for reform. In that case, the electronic signatures of the company secretary and a director were placed on a loan document by employees. There was a board resolution which authorised electronic signatures for this purpose (which the lender had relied upon), however, the Court found that the resolution was limited to formally accepting loan applications. The Court ultimately decided that the company secretary and director had no personal involvement in the production or authentication of the loan deed upon which their electronic signatures where placed. As such, section 127 of the Corporations Act had not been complied with and the loan document was found to have not been duly executed.
The judgment highlights the problem with executing documents electronically in accordance with section 127 of the Corporations Act, namely the need for further authentication i.e. that the individual whose signature appears accepts they are bound. Without that further authentication, counterparties cannot safely assume an electronically signed document is binding. They are unable to rely on the statutory presumptions under section 129 of the Corporations Act, which provides that a document which appears to have been signed under section 127 of the Corporations Act has been duly signed and is enforceable as against the corporation.
The potential issue has been highlighted by current social distancing requirements imposed due to COVID-19, resulting in electronic execution becoming much more commonplace.
Corporations (Coronavirus Economic Response) Determination (No. 1) 2020
On 5 May 2020, the Treasurer made a determination modifying the operation of provisions of the Corporations Act, the Corporations Regulations 2001, the Insolvency Practice Rules and the Passport Rules (Determination).
The Determination is a temporary modification – it expires after 6 months – in relation to the operation of certain Corporations Act provisions to mitigate the impact of COVID-19. Importantly, it provides for the modification of section 127 of the Corporations Act to facilitate electronic execution of documents.
Section 6 of the Determination modifies section 127(1) of the Act as follows:
- the definition of “document” now includes a document in electronic form.
- section 6 authorises execution of a document without a common seal if each person specified in section 127(1), as the case requires, of the Act e.g. director / company secretary:
- signs a copy or counterpart of the document that is in a physical form; or
- complies with subsection (4) (see below) in relation to an electronic communication (within the meaning of the Act) e.g. emails; and
- the copy, counterpart or electronic communication must include the entire contents of the document, but need not include the signature of another person signing the document nor any material included in the document because of subsection (4) of this particular section (see below); and
- subsection (4) of section 6 provides that a person complies with section 6 if:
- a method is used to identify the person in the electronic communication and to indicate the person’s intention in respect of the contents of the document; and
- is as reliable as appropriate for the purpose for which the company is executing the document, in light of all the circumstances, including any relevant agreement; or
- the method is proven in fact to have fulfilled the functions required in relation to identification of the person and the person’s intention.
Critically, section 7 of the Determination sets out the assumptions that can be made about the execution of the documents under s 129(5) of the Act, and provides that a reference to a document appearing to have been signed in accordance with section 127(1) of the Act includes a reference to a document (including a document in electronic form) appearing to have been executed in accordance with section 127(1) of the Act operating as modified by section 6 of the Determination. A contracting organisation may therefore assume that a document has been duly executed by a corporation if the document appears to have been signed in accordance with subsection 127(1) of the Act, as modified by section 6 of the Determination set out above.
Section 7 also allows for the assumption that anyone who complies with subsection (4) of section (6) of the Determination above and is identified in the electronic communication as the sole director and sole company secretary of the company occupies both offices.
The law is a welcome development. It does not mean that parties relying on electronic executions by corporations do not need to still look behind the digital signature, but it does make it easier for them to take this action.