An estimated 100 million electronic signature (e-signature) transactions will be made annually in Australia by 2020. Organisations around the world are replacing manual processes with electronic alternatives to increase efficiency and reduce costs. In response, evolving Australian laws now allow you to e-sign most agreements. In a world that takes online commerce and electronic communication for granted, this trend should not be surprising.
So how come a recent study has found that less than 20% of Australian businesses are ready for the transition to e-signatures? Businesses and in-house teams are increasingly aware of the benefits of integrating technology into legal documents (for example, through document automation). However, there is less of a focus on the ‘back-end’ processes when it comes to executing the documents. Signing a document electronically remains a cause of discomfort and is largely unexplored, as parties doubt the enforceability and underestimate the benefits.
What is an E-Signature?
A signature is a legal concept, capturing the signatory’s intention for the document they are signing to bind them. It is a visible representation of that person’s name or mark, placed on the document. E-signatures are a form of signature that can take the form of a person:
- pasting a digital version of their physical signature into the document;
- using e-signing software (such as DocuSign);
- signing a soft copy of a document on a touchscreen (using a stylus or their finger); or
- typing their name in an email.
The broad category of e-signatures includes digital signatures, which require cryptographic authentication technology.
A digital signature is unique to each signatory, similar to a handwritten signature. This is possible through the use of a specific protocol called Public Key Infrastructure. Such technology provides additional security, as it also marks the document with the time at which it was signed and invalidates the signature if the document is altered.
Is it Legally Valid to Sign a Document Electronically?
Yes, it is legally valid to use an e-signature, most of the time.
In Australia, there are a number of cases that support the validity of e-signatures for most purposes. Additionally, e-signatures get validation from the Electronic Transactions Act 1999 (Cth) (the Act) if they comply with the following requirements:
- identification: The method of signature must enable the person to be identified and indicate the person’s intention in respect of the document;
- reliability: The method must be as reliable in light the circumstances, including the type of agreement the person is signing;
- consent: The other party to the document must consent to the person signing the document using an e-signature. This requirement is generally met by that party also signing the document electronically.
However, certain types of documents are specifically excluded from the Act. For other documents, the legislative framework remains untested. This does not necessarily mean you cannot use an e-signature, but you would have to communicate with the other party. These include:
- documents that you need to register or lodge with a governmental agency; and
- documents that a company needs to witness or execute under the Corporations Act.
Why is it Worth Switching to Electronic Execution?
In-house lawyers often rely on external law firms to manage the initial phase of creating legal documents (i.e. drafting and negotiating). However, when it comes to the execution of these documents, in-house teams often control this process, because it is better for them to do so from a relationship management perspective. Like any disruptive technology, electronic execution may require you to adapt and adjust some of your practices. However, in-house teams are in a strong position to lead transformation in this area.
Adopting e-signature solutions will help them with:
- time management;
- control over the status of the transaction;
- improved security;
- simplified record-keeping;
- reduced costs;
- reduced carbon footprint;
- less room for incorrect execution; and
- better client (and lawyer) experience.
Firstly, printing, faxing, mailing, copying, scanning and filing in paper formats is extremely time-consuming. Using e-signatures also releases some of the time pressure associated with executing a document, where the stakeholders sometimes only have a small window in which to sign the document physically.
Control Over the Status of the Transaction
Secondly, pre-execution, the rights and obligations of the parties are not yet enforceable. In the context of a transaction involving a high volume of documents and different stakeholders, not knowing the status of the transaction can be stressful. E-signing platforms can, therefore, provide a clear picture of what’s outstanding and generate reports.
Once you affix a digital signature on a document, you cannot alter it. Otherwise, the signature may be invalid. The requirement of paper documents means a risk of loss, destruction and incompleteness, since documents sometimes travel around the country to reach signatories. The process of electronic execution reinforces the security around executing documents.
Simplified Record Keeping
E-signed documents allow you to search or edit them if the parties decide to amend the document. As soon as the parties properly execute the document, each party has access to it, therefore eliminating the usual delay in providing final documents to each party. There is also no longer a need for bulky physical storage space, where originals risk being damaged or lost.
The advantages not only improve the overall efficiency of the process, but significantly reduce operational costs. Depending on the scale of the transaction, the execution process can require a full-time paralegal and a storage facility to archive the documents, plus administrative costs such as mail and filing. An electronic process cuts out the need for many of these costs.
Reduced Carbon Footprint
Legal documents are commonly printed single-sided, amounting to high volumes of paper. While this is not environmentally friendly, it’s also impractical and unnecessary given the fact that, in most cases, people scan the documents and use the electronic copy for most purposes.
Less Room For Incorrect Execution
If you receive a document through an e-signing software or platform, the sender will clearly identify throughout the document whether you should:
- tick a box; or
- enter a date.
Ironically, although many people still see e-signatures as controversial, electronically executed documents are more likely to be properly executed, and therefore enforceable, than wet-ink signed documents.
Better Client (and Lawyer) Experience
Finally, most lawyers have experienced standing in a room with a client or a colleague while they were signing piles of documents – this is not a particularly pleasant moment. E-signing contributes to an improved overall experience for all parties.
E-signatures are only going to become more common. In-house teams can access a long list of benefits by transforming their document execution processes, including reduced costs, increased accuracy and security and a better experience for all parties. Australian law is also encouraging this transition. Having an internal policy setting out which agreements can be signed electronically and how will help provide certainty around this new process.
LegalVision offers managed legal services, which means we help in-house teams with the entire workflow of a project. Therefore, if your in-house team would like help managing the execution process and transitioning to e-signatures, get in touch with our Legal Transformation team on 1300 544 755 or fill out the form on this page.
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