How do Electronic Signatures work?

Have you signed an electronic contract and are now wondering about your rights and the enforceability of the contract? Are you unsure about whether electronic signatures operate in the same way that pen-to-paper signatures work? It is important that you are aware of your contractual rights when entering into contracts electronically, and whether or not your electronic signature is binding. Follow this guide on electronic signatures in Australia to get a better understanding of how they operate and whether they operate differently to other means of entering into a contract with another party.

What is an electronic signature?

An electronic signature can be defined as any electronic method carrying the intention of being a signature, for example, a scan of a person’s signature into a contract.

An ‘electronic signature’ is a broader concept than that of a ‘digital signature’, which is a mathematical process for determining the authenticity of a digital message. Keep in mind, however, that a digital signature is a type of electronic signature.

What are the applicable laws?

Electronic signatures are governed by a wide range of laws in Australia, under both Commonwealth and state legislation:

• Commonwealth: Electronic Transactions Act 1999 (Cth);
• NSW: Electronic Transactions Act 2000 (NSW);
• Queensland: Electronic Transactions (Queensland) Act 2001 (Qld);
• Victoria: Victoria: Electronic Transactions (Victoria) Act 2000 (Vic);
• ACT: Electronic Transactions Act 2001 (ACT);
• South Australia: Electronic Transactions Act 2000 (SA);
• Western Australia: Electronic Transactions Act 2011 (WA);
• Tasmania: Electronic Transactions Act 2000 (Tas);
• Northern Territory: Electronic Transactions (Northern Territory) Act (NT).

Is an electronic signature binding?

If a party wishes to sign a legal document electronically, whether this will be effective will depend on:

• The jurisdiction — what law applies to the document or transaction?
• The transaction — is the legal requirement excluded from the electronic communications laws?
• The method used — does it identify the signatory? Is it reliable?
• The signatories — do the parties consent to the method used?

If all of these criteria are satisfied, the electronic signature will most likely be binding on the parties to the contract.

The legal requirements must not be excluded

The laws exclude specific laws or transactions from their operation. If an exclusion applies, an electronic signature cannot be used in place of a standard original signature on paper. The signing party will need to check that the relevant transaction is not captured by an exclusion.

The exclusions vary considerably across the jurisdictions — both in how they apply and their scope. At the Commonwealth level, 157 different laws — some entirely, others only in relation to specific sections — are excluded from the electronic signature provisions of the law.

The NSW and Victorian laws use a different approach. Rather than excluding specified laws, broad categories of transactions are exempted from the laws. Further complicating matters, the kinds of transactions that are excluded differ between the states and territories — by way of example, the Victorian law excludes wills from the kind of documents that can be ‘signed’ electronically, whereas NSW does not.

Identification and Reliability: It must be a valid electronic signature

The electronic signature must be effected by a method which:

• identifies the signatory;
• indicates their intention in respect of the information communicated (for example, for a contract, their intention to be bound by the terms of the contract); and
• satisfies the ‘Reliability’ criterion above.

The laws do not say what is (and what is not) a ‘reliable’ method. Parties can potentially use any electronic method they wish, but the requirements include that the method is as reliable as is appropriate in the relevant circumstances — and so it depends on the particular communication.

Take as an example an email stating ‘Please accept this email as my signature’ to sign a contract. An address which identifies the signatory, and attaches the relevant document may be sufficient. However an identical email from an unknown email address, which does not identify the signatory, may not be sufficient regardless of whether the relevant document is attached.

Consent: The parties must consent to the method used

The consent, which must be unconditional, can be either:

• given by express consent (for example, a written acknowledgement of consent), or
• inferred from a person’s conduct (for example, behaviour consistent with consent).

If, for whatever reason, the recipient does not consent, the electronic signature will not be effective. In practice, this will likely require some prior familiarity and agreed process between the parties to the document.

Conclusion

If you are entering into a contract electronically, consult a contract lawyer at LegalVision to have the terms of the contract reviewed so that you know whether or not they are enforceable. If you need a contract drafted, simply call 1300 544 755 and get a fixed-fee quote from our Client Care Team.