As technology advances, opportunities to update business practices are offered. However, the law is often one step behind, making it difficult for companies to employ new efficient business practices. Although many transactions are now conducted electronically, there are several exceptions to the validity of electronic signatures which limit the use and effectiveness of electronic communications. Business must keep these limitations in mind.
There are almost identical laws in each jurisdiction in Australia, which govern electronic transactions:
- Electronic Transactions Act 1999 (Cth)(Commonwealth Electronic Transactions Act);
- Electronic Transactions Act 2000 (NSW);
- Electronic Transactions (Victoria) Act 2000;
- Electronic Transactions (Queensland) Act 2001;
- Electronic Transactions Act 2000 (SA);
- Electronic Transactions Act 2011 (WA);
- Electronic Transactions Act 2001 (ACT);
- Electronic Transactions (Northern Territory) Act 2011; and
- Electronic Transactions Act 2000 (TAS).
Validity of electronic signatures
A transaction is defined in the legislation to include a contract, agreement or other arrangement. So long as specific criteria are met when electronically signing a document, the transaction will be valid. There are three standard criteria that need to be satisfied in all Australian jurisdictions to ensure the validity of an electronic signature:
- there is a method used to both identify the person signing and to indicate the person’s intention to be bound by the transaction;
- in light of all the circumstances, the method is as reliable as is appropriate for the purposes of the electronic communication; and
- the recipient consents to the method of the electronic communication.
The first criterion would be satisfied if the person indicated their approval of the information in the communication (which evidences the transaction) via a mark, or signature. The second criterion relates to the appropriateness of the signature method and several factors may be taken into account e.g. the type of transaction, the sophistication of the communication system, the value and importance of the information in the electronic communication. There have been cases in Australia where electronic signatures have been used reliably to create binding agreements. In Getup Ltd v Electoral Commissioner  FCA 869 the court found that a signature provided by a digital signature was valid on an electoral enrolment claim form. The final criterion requires the parties to reach an agreement in advance regarding the use of the particular electronic communication.
However, even if these criteria are met, the transaction may not be valid if an exception applies.
Exceptions to validity of electronic signatures
In each State and Territory different exceptions apply to the use and validity of electronic signatures. There are five main categories of exceptions that may or may not be applicable in different States and Territories:
- documents that are required to be witnessed;
- documents to be personally served;
- court documents;
- powers of attorney; and
In New South Wales, Queensland, South Australia and Western Australia, documents that are required to be witnessed cannot be executed validly by electronic signature. As most deeds executed by an individual are required to be witnessed, deeds should not be signed electronically in these States.
Powers of attorneys cannot be electronically signed in Western Australia, Northern Territory and Tasmania. In addition, in New South Wales, Queensland and South Australia, enduring powers of attorney must be witnessed meaning that electronic signatures of these documents will not be valid.
In all States and Territories, documents that are to be personally served cannot be executed by electronic signature. In New South Wales and Queensland court documents cannot be executed by electronic signature.
In Victoria, Western Australia and Tasmania wills cannot be validly executed by electronic signature. Although there is no specific exception for wills in New South Wales, Queensland and South Australia – wills in these states are required to be witnessed and so cannot be executed electronically.
The Corporations Act is exempt from the Commonwealth Electronic Transactions Act. The Corporations Act outlines how companies may execute documents without using a common seal under section 127(1) if signed by:
- two directors of the company; or
- a director and a secretary of the company; or
- for a proprietary company that has a sole director which is also the sole company secretary – by that person.
When a document appears to have been signed in accordance with section 127, the other party can rely on the statutory assumptions in section 129 of the Corporations Act, namely, that all relevant internal requirements of the company have been complied with and that the document is binding on the company. If a document is electronically signed in accordance with section 127, the counterparty cannot rely on the section 129 assumptions because the entire Corporations Act is exempt from the application of the Commonwealth Electronic Transactions Act. There are other execution options for companies and a counterparty to a transaction can investigate the authority of an individual to execute a document on behalf of a corporation. However, if a counterparty wants to rely on section 129 of the Corporations Act in relation to a corporation, the safest course of action is to obtain signatures of the directors and/or company secretary of the corporation using pen and paper.
The number of different exceptions to the validity of electronic signatures that run across the States and Territories limits the use and effectiveness of electronic transactions. If parties engage in electronic transactions they should be mindful of these exceptions and only use electronic signatures where valid.