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Australia esign legal guide

Introduction

In response to the coronavirus crisis, Federal Treasurer Josh Frydenberg MP has issued his first determination, which modifies the application of the Corporations Act 2001 (Cth) (the Act), allowing for electronic execution of documents by companies and split execution of documents by company officers.

6th May 2020 was the first day of the Corporations (Coronavirus Economic Response) Determination (No.1) 2020 (the Instrument). The Instrument temporarily permits companies to validly execute documents electronically using software such as Certinal, as well as “split execution” of documents by company officers – that is, company officers are not required to sign the same physical document to validly execute pursuant to section 127(1) of the Act.

The Instrument also amends the Act and the Corporations Regulations 2001 to allow annual general meetings and other meetings governed by the Act to be convened and conducted entirely online without the need for attendees to be physically present, provided that all persons entitled to attend are given a reasonable opportunity to do so. A separate alert will be issued on these changes.

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Australia eSignature laws

Definition of the instrument

Valid execution of papers by corporations under § 127 of the Act has become increasingly challenging, given that a strict interpretation of the law may need two company officers to execute the same counterpart at the same time (in the same room) to bind the company.

Article 6 of the Instrument temporarily resolves this issue by amending section 127 of the Act to permit:

Split Execution:

The Instrument allows directors to sign a copy or counterpart of a document in wet-ink or electronically without needing the signature of the other company official signing the document (split execution). For the next six months, the Instrument explains that split execution is a legitimate form of execution under § 127; and

Electronic eSignatures for directors

The Instrument allows directors to sign papers electronically under § 127, provided that a technique of signing is used to identify the person in the electronic signature and to express the person’s intention in relation to the document’s contents. Platforms like Certinal appear to meet this requirement; and the method used to sign electronically is “as reliable as appropriate for the purpose for which the company is executing the document, in light of all the circumstances, including any relevant agreement,” or is proven in fact to have identified the signatory and the signatory’s intention in respect of the document’s contents, either alone or in combination with other evidence (see the discussion under “Identification”).

Parties are entitled to assume that a document (including a document in electronic form) has been properly executed under s 129(5) of the Act if it appears to have been executed in accordance with s 127(1) of the Act, as modified by the Instrument. In other words, parties have the right to assume that a document was validly executed if it appears to have been executed in accordance with s 127 and the Instrument (which now expressly includes being electronically signed or “split executed”), as long as they do not know or suspect that the document was invalidly executed. When dealing with counterparties, however, a company’s signatories may seek to explain the circumstances of execution (rather than simply sending a copy of the signed document) – this can alert counterparties to potential execution irregularities, robbing them of the ability to rely on the s 129 assumptions.

Free Guide: Digital Signatures Vs Electronic Signatures

An on ground perspective

In practise, when a business executes under s 127 of the Act, this Instrument allows one director to sign one counterpart with wet ink or electronically, while the other director or company secretary signs another counterpart with wet ink or electronically. This eliminates the requirement for directors to sign contracts in the same room for the next six months. It also eliminates any doubt about the validity of split execution.

The Instrument also allows directors to sign electronically if the manner utilised clearly identifies the signatory and their intent. This can be accomplished in one of two ways:

  1. by using an application such as Certinal to create an electronic or digital signature, which would appear to be valid under the Instrument without further evidence because these applications use authentication technology to verify the signer’s identity; or
  2. by using a “e-signature,” such as “copying and pasting” an image of the signatory’s signature into a document. Given the danger that the e-signature is used without the signatory’s consent, it appears that this method would require further verification of the signatory’s identity and intent (for example, by a confirmatory email).

Companies should ensure that electronic signing procedures are trustworthy and appropriate for the type of document being signed, with the manner of signing expressly agreed in the document, to reduce the possibility of invalid execution. Given the potential for differing opinions on what is “as reliable as appropriate,” the safer course may be for companies to continue to “wet-ink” sign documents by requiring directors to sign separate counterparts of the document or to use electronic or digital signing applications such as Certinal, which can guarantee the identity of signatories using multi-factor authentication or a certificate-based digital ID.

A “document” for the purposes of § 127 of the Act also includes “a document in electronic form,” according to the Instrument. This could help to overcome a long-standing roadblock to electronic deed signing: the common law requirement that deeds be signed on paper (vellum or parchment now being of historical relevance only). Although it appears that Article 6(2) of the Instrument allows a deed to exist only in electronic form, in the absence of a judicial decision, it may nevertheless be wise to guarantee that where deeds are executed electronically pursuant to the Instrument, the document is printed off after signing (and this should be provided for in the deed).

Electronic Signature laws in Australia

Legality as per the Australian state and territorial law

  • The relevant legislation in each Australian State and Territory is:
  • Victoria: Electronic Transactions (Victoria) Act 2000;
  • New South Wales: Electronic Transactions Act 2000;
  • Queensland: Electronic Transactions (Queensland) Act 2001;
  • Western Australia: Electronic Transactions Act 2011;
  • South Australia: Electronic Communications Act 2000;
  • Northern Territory: Electronic Transactions (Northern Territory) Act 2000;
  • Tasmania: Electronic Transactions Act 2000; and
  • Australian Capital Territory: Electronic Transactions Act 2001.
  • As with the Commonwealth ET Act, in some States and Territories regulations set out which transactions and laws are exempt from that State or Territory’s electronic transactions legislation. The particular types of exemption are different in each State or Territory.
  • The main regulations are:
  • Victoria: Electronic Transactions (Victoria) Regulations 2010;
  • New South Wales: Electronic Transactions Regulation 2017;
  • Western Australia: Electronic Transactions Regulations 2012;
  • South Australia: Electronic Transactions Regulations 2017;
  • Northern Territory: Electronic Transactions (Northern Territory) Regulations 2001; and
  • Tasmania: Electronic Transactions Regulations 2011.

Learn more about : Electronic signature law in Australia

Conclusion

The federal character of Australia’s government makes regulations governing electronic transactions more complicated. The Electronic Transactions (ET) Act 1999, which applies to transactions controlled by Commonwealth laws, is the key legislation at the Commonwealth (i.e. national) level. The Electronic Transactions Regulations of 2000 specify certain transactions and Commonwealth legislation are exempt from the Act and hence require a traditional signature. In addition, each Australian state and territory has its own electronic transactions legislation, which largely mirrors the Commonwealth ET Act but has some unique exclusions that apply when a transaction is governed by the applicable State or Territory’s laws.

The legality of documents signed electronically has been established in several Australian court instances. The “reliability” criteria, on the other hand, has a low bar. The use of a stylus or finger on a computer trackpad to create a signature that looks like one received by fax, for example, has been upheld by the courts. Use of certificate-based digital signatures, such as cloud signatures, should be considered as part of the workflow risk management strategy when doing business with other jurisdictions where e-signature validity may be assessed differently or for unique compliance requirements.

Join the the eSignature revolution and eliminate the burden of having to physically sign a document. If you have any further questions or want more information about how Certinal could benefit you and your organization, please do not hesitate to book a demo with us or contact us at switchto@certinal.com.

 

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