The trend for more documents to be ‘signed’ online has grown substantially in recent years. Online signatures are a natural extension of the interconnected world facing advisers who often have many documents, deeds, application forms to transact with time-poor clients.
Against this fast-growing move to online documents is the speed bump that is the common law. Although legislators have taken some steps to legitimise online documents in the face of the natural conservatism of the legal framework, the common law remains a real halter on the universal adoption of online documentation in Australia.
Signing documents electronically should be approached with extreme caution, as the legal implications of signing a document electronically could render that document invalid. Whether a document can be signed electronically depends on:
- Whether the document can legally exist electronically in the first place (or does it at law have to be printed on paper);
- Whether the jurisdiction’s Electronic Transactions Act applies to permit electronic signing; and
- Whether any other legislation or the common law applies to permit the electronic signing.
While a number of jurisdictions have amended the definition of a ‘deed’ to enable a deed to exist in electronic format, the majority of jurisdictions have not and so the common law requirement that a deed exist on ‘paper, parchment or vellum’ still exists to make electronic deeds in those jurisdictions invalid.
Many jurisdictions have legislation amending the common law requirements for execution of a deed. Where a witness is fundamental to the execution of a deed, in those jurisdictions that have excluded witnessing from their Electronic Transactions Act it would be necessary to show that an electronic witnessing of the document is permitted under the common law.
The ability to execute a will by electronic signature is not available in any state or territory in Australia except the ACT, because all those states and territories have either excluded wills from their local electronic transactions legislation or have laws banning the electronic signing of documents by witnesses (witnessing being an absolute necessity for compliance with the formal requirements for wills). A document that has been ‘signed’ electronically and ‘witnessed’ electronically could be admitted to probate as an ‘informal will’, but not until after a lengthy and expensive court application.
As advisers and accountants work with more digital transactions, they need to know what kind of signatures they are collecting. So, what is difference between an electronic signature and a digital signature? And what is the importance of that difference?
While over half of all businesses now place orders via the internet, electronic signature usage in Australia has had a relatively low adoption rate. However, a recent report predicts that by 2020 more than 100 million e-signature transactions will be made annually.
An electronic signature is any method of electronically indicating that a person has ‘signed’ an electronic or online document. While a scanned signature inserted into a Word document is an electronic signature, it is effectively an electronic ‘picture’ of a person’s signature that can be readily inserted into a document.
A digital signature, on the other hand, is a type of electronic signature that can be verified using a specific process that validates and connects the signature to a specific person.
Like a handwritten signature, which can be forged, a digital signature can also be forged if the person does not protect their personal key, thereby allowing unauthorised use and the ability to impersonate the alleged signatory.
The distinction between a simple electronic signature and a digital signature rests in the verification process, a process that some laws require in order for the ‘signature’ to meet the necessary legislative benchmarks to be effective.
Verification is another skill set that the advice industry is mastering in the online world, and a recent court case brought to a head the need to validate whose signature could be applied online. This NSW case highlights difficulties associated with electronic signatures when all parties are not on the same page.
Electronic signatures: Court action has begun
A director’s electronic signature placed on a guarantee without his knowledge led to court action by a company seeking recovery of a debt from the director personally.
In Williams Group Australia Pty Ltd v Crocker  NSWCA 265, Mr Crocker was one of three directors of a company that supplied building modules. His company filled in and completed a credit application to Williams Group Australia Pty Ltd, which provided building materials to the company.
The credit application contained the electronic signatures of all three directors of the company and was also accompanied by a guarantee that contained the same three electronic signatures. The electronic signatures were applied to the documents via an online system where users receive login details and are able to upload their electronic signatures in order to apply it to documents.
During all relevant times, Mr Crocker did not change his initial password that was given to him, so anyone who knew or had access to his original login details could have accessed and affixed an electronic signature on any document on behalf of him. It was not until the company went into liquidation and Williams Group sought recovery of money owed to them that Mr Crocker became aware that his electronic signature had been applied on the credit application and guarantee.
The Supreme Court held that Mr Crocker was not liable under the guarantee as his electronic signature was placed on the documents without his knowledge and authority.
On appeal, Williams Group accepted that there was no actual authority given by Mr Crocker to another person in the company to affix his signature to the document, however, Williams Group argued that person had ‘ostensible authority’ (i.e. Mr Crocker held out to Williams Group that whoever placed his electronic signatures on the documents and forwarded them to Williams Group was authorised by him to do so).
The judges on appeal held that the failure of Mr Crocker to change his password in relation to the online system and Mr Crocker’s use of that system on a number of other occasions did not amount to authorisation of another person to use his electronic signature to bind him to the obligations under the credit application and guarantee.
The use of electronic signatures may seem to offer an efficient and convenient way to have documents or agreements signed and returned to another party. However, the desire for expediency must be balanced against the need to protect and treat electronic signatures as if they were your real signature. The potential for fraudulent misuse may be greater than simple forgery of a signature.
Advice professionals should treat electronic signing carefully and be aware that in NSW it is not permitted to witness a document by electronic signature.
Peter Townsend is the Principal at Townsends Business & Corporate Lawyers