With increased safety precautions of social distancing and restricted business opening hours in place, many employees are working from home. One consequence is that many projects may stall if there is an inability to sign contracts that require renewal or documents to complete transactions. This raises the question of how company contracts can be signed remotely and what are the risks. Are electronic signatures a solution?
What is an electronic signature?
A broad definition is that it is a visible representation of a person’s name or mark, placed by a person in a communication or on a document to indicate their assent. This may range from a typed name of the sender, a scanned image of a handwritten signature or clicking “I agree”. Each has a varying level of security and encryption, which may be vulnerable to copying and tampering.
Under common law, an agreement can be in electronic form and executed electronically. There is additional validation from the Electronic Transactions Act 2000 (NSW) if the signature complies with specific conditions relating to the identity of the person, reliability of the signing method, and consent of the person to whom the signature is given. The law does not provide guidance on how electronic and attestation of documents should take place, and there still remain circumstances in which parties and lawyers are unwilling to accept electronic signatures.
Execution of documents by companies – section 127 of the Corporations Act
There are specific requirements for companies signing agreements. Ordinarily, a common seal can be affixed to the document and be witnessed by two directors or one director and a secretary. It can be signed without a seal but again by two directors or one director and a secretary. In the current circumstances, there are ways to manage the risks surrounding electronic execution of company documents. The people requiring signatures should obtain evidence that the person signing the document is actually authorised to sign the document electronically. The parties should ensure that there are no limitations as to the mode of execution by checking the board minutes, corporate constitutions and powers of attorney, and ensuring that the ASIC records and the identities of the directors and secretaries are verified. Companies should consider appointing a power of attorney as a power of attorney can electronically execute agreements on behalf of a company.
The Conveyancing Act permits deeds to be created in electronic form, and to be electronically signed and attested. The Act also states that documents relating to land interests can be electronic and signed electronically. It is important to note that the operation of other requirements in the Conveyancing Act will continue to apply to contracts or deeds whether they are electronic or on paper. It is important that you obtain proper legal advice before you enter into a conveyancing contract.
Execution of deeds
The law is settled that a document can be witnessed electronically. This will only be valid if the witness was physically present at the time the electronic deed was electronically signed by the signatory and the witness electronically signed the same document at the same time as the signatory. Unfortunately, this means that attestation cannot be conducted by teleconference or signed at a later time, presenting the same logistical requirements as witnessing a paper document.
In the absence of clear authority, we recommend a conservative approach to minimise risk and prevent one or more parties from suffering loss. If a document can only be executed electronically, then try avoiding a deed and instead use an agreement because a deed does not require a consideration (payment) but an agreement does. Therefore, you can look at whether consideration has been given in order to determine validity of a document.
It is important to be fully aware of your obligations and options in your contractual arrangement during difficult times such as COVID-19. If you would like further information regarding the impact on your business or simply corporate and contract law advice, please do not hesitate to contact one of our experienced solicitors on 9963 9800 or via email at firstname.lastname@example.org.
More information about COVID-19 can be found here: www.health.gov.au