Australian companies are quickly embracing electronic and paperless transactions, and the legal industry is no exception.

The future is here: Electronic contracts

Australian companies are quickly embracing electronic and paperless transactions, and the legal industry is no exception.

However, with the emergence of new technology and electronic signatures, it pays to know when you can form a contract electronically and when you’ll need to put pen to paper.

According to Australian and international law, electronic signatures are a valid way of executing some agreements. Difficulties with electronic signatures arise when evidence is required to confirm the identity of the signatory, and their intention to be bound by the content of contract. Digital signature tools which incorporate technically accepted identity verification and authentication methods (such as public key cryptography) can satisfy these requirements. However, there are still important issues to consider.

Duties Online

A recent example of the law embracing paperless transactions is the emergence of the Duties Online form in property and conveyancing. From 1 July 2017, taxpayers and their representatives have been required to use the digital duties form for all contracts or agreements for land transfer duty entered into on or after this date. This form can be signed electronically and has decommissioned a number of paper based forms.

Electronic Signatures

An electronic signature can be defined as a signature used on an electronic document or transmission. It is recognised under Australian and international law as having the same effect as a handwritten signature, subject to the Electronic Transactions Act 2000 (Vic) (ETA).

The ETA

A method must be used to identify the person and to indicate the person’s intention in respect of the informationcommunicated. This method, in accordance with the ETA, must be:

(i) As reliable as appropriate for the purpose for which the electronic communication was generated or communicated, in the light of all the circumstances, including any relevant agreement; or

(ii) Proven in fact to have fulfilled the functions described in paragraph (a), by itself or together with further evidence; and

(iii) 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.

Digital Signatures

A digital signature is a term used by some to describe a type of electronic signature.  Digital signatures utilise technology that associates the signature with hidden data which can be used in electronic communication.  The main difference between an “electronic” and a “digital” signature is that:  

  • A digital signature is linked to certain information and can be verified; whereas
  • An electronic signature may just be text in an email.

Digital signatures are therefore unique electronic “identities” which make them a more trusted and secure way of verifying the author of a document.

Many, if not all, digital signatures rely on public key cryptography as their identity verification core – including popular products like Adobe EchoSign, and DocuSign. The basic theory behind this method is that a code-generated private and public key (being a randomly 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 else on the receiving end of the document containing 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 message.  That code is embedded in the document and becomes the digital signature.  Usually an image attached to the digital signature is calibrated as the visual aspect of the signature, such as an electronic copy of the signatory’s paper signature.  This is not legally necessary, however it does provide more security and integrity to the signature.

Exceptions

Beware, some documents do not permit an electronic signature. The law still requires traditional pen to paper signatures for certain documents such as Wills, Oaths, and court forms.

Furthermore, companies should also be aware that while directors can theoretically sign electronically on behalf of an organisation, they may run into issues dealing with the presumptions laid down by the Corporations Act 2001 (which is exempt from the ETA). Similarly, ambiguity abounds as to whether Deeds can be executed electronically, and if a document can be witnessed through the computer screen.

For more information on the specifics of electronic contracts, contact Dangerfield Exley Lawyers or call 13 20 33.

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