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The electronic signature minefield

Nib of an ink pen.

As the use of technology increases, reliance on electronic signatures and documents is becoming more common. Peter Townsend highlights elements of the law-making transition to paperless practices in this area are difficult.

A number of online SMSF deed providers claim you can set up a fund in minutes by doing everything online, including signing the trust deed. In some Australian states this just isn’t so and advisers need to exercise great caution about which superannuation documents can and cannot be signed electronically.

Firstly, let’s be clear on what we’re talking about. An electronic signature is any method of electronically signing a document. We look at the legal meaning of signing below. A scanned signature (that is, an electronic picture of the person’s signature) attached to a Word document is an electronic signature. Anyone with access to the scanned signature in a computer file can attach the signature to an electronic document, so the potential for fraud is high.

A digital signature, on the other hand, is an electronic signature that can be verified using a specific process that effectively validates and connects the signature to a specific person. Like any handwritten signature that can be forged, a digital signature can be forged if the person does not protect their personal key, thereby allowing unauthorised use and the ability to impersonate the alleged signer. But the risk is no greater than with a manual forgery and, provided sensible precautions are adopted to safeguard the key, digital signatures can generally be relied on.

Signing, signature and writing

The courts have ruled on what constitutes a signature in a number of cases, including Leeman v Stocks [1951] Ch 941 and Stuart v Hishon [2013] NSWSC 766.

In Stuart v Hishon, the court said a number of things that are worthwhile repeating here.

“[34] The principle of ‘authenticated signature fiction’ evidenced in cases such as Leeman v Stocks [1951] Ch 941 appears to be that where a person’s name or initial is written on or printed on a document, whether it is at the beginning, end or in the body of the document, that name or initial may be treated as the person’s signature if the person or his agent has expressly, or impliedly represented, that the name can be treated as a signature so as to give what has been called ‘authenticated expression to the contract.’

“Electronic signatures are a fact of modern commercial life. No more suspicion should attend the assessment of the appellant’s ‘signed’ email than if he had chosen to communicate with the respondent in identical terms written on paper and signed by him in ink. The electronic nature of the signature does not in my view detract from or diminish its place or its significance as one complying with s 54(4) of the act. This is not a case where resort to a letterhead on a printed form containing the appellant’s name is necessary to establish that he signed it without any other manual or electronic signature. The appellant typed his name on the foot of the email. He signed it by doing so. It would be an almost lethal assault on common sense to take any other view.”

The authenticated signature fiction seems to take us a fair way in the search for the validity of digital signatures.

The Commonwealth Evidence Act 1995 (identical in the NSW Evidence Act) defines a document to include “anything from which … writings can be reproduced with or without the aid of anything else”. The Commonwealth Acts Interpretation Act 1901 defines writing as including “any mode of representing or reproducing words … or symbols in a visible form”. The Interpretation Act 1987 (NSW) defines writing to include “any … mode of representing or reproducing words in visible form”. Advisers in other states need to check their local laws.

The legislative view of the meaning of writing is broad enough to include a digital signature on an electronic document. As a result, the principle of authenticated signature would therefore seem to be met by a digital signature and consequently an electronic signature is acceptable under the common law.

Electronic transactions acts (ETA)

As one research paper said about this area in 2004, “welcome to the maze of the ETAs in Australia”.

The Australian electronic transactions acts are based on the United Nations Commission on International Trade Law (UNCITRAL) Model Law on Electronic Commerce. The Model Law was drafted by UNCITRAL in 1996 to assist countries draft legislation that would enable and facilitate electronic commerce and electronic government. “The Model Law adopts a limited framework approach. It is not intended to be a comprehensive code-like articulation of the rules for electronic transactions, nor is it intended to govern every aspect of electronic contracting. Rather the aim is to provide essential procedures and principles for electronic contracting,” it said.

The explanatory memorandum to the Commonwealth’s act states that it “establishes the basic rule that a transaction is not invalid because it took place by means of an electronic communication. It contains specific provisions which state that a requirement or permission under a law of the Commonwealth for a person;

  • to provide information in writing,
  • to sign a document,
  • to produce a document, or
  • to retain information or a document,
  • can be satisfied by an electronic communication, subject to certain minimum criteria being satisfied.”

It goes on to say: “The provision (stating that a transaction is not invalid simply because it was conducted by the use of electronic communications) does not automatically establish the validity of a transaction that has been conducted using electronic communications. It merely states that the electronic form of the transaction does not make it invalid … the transaction would still be required to satisfy all other existing legal requirements.”

Section 10 of the Commonwealth ETA sets out the requirements for an electronic signature to be valid. One of those requirements is that “if the signature is required to be given to a person who is neither a Commonwealth entity nor a person acting on behalf of a Commonwealth entity – the person to whom the signature is required to be given consents to that requirement being met by way of the use of the method mentioned in paragraph (a).”

The need for consent of the other person would appear only to be relevant where the signature is required to be given to that other person. Presumably that would not apply in the case of an SMSF deed, unless the term “the person to whom the signature is required to be given” extends to the ATO, Office of State Revenue, banks and the like (that is, those to whom the document might ordinarily be provided for their purposes).

Exclusions from the Commonwealth Electronic Transactions Act

Section 7A of the Commonwealth ETA (section 6A in the NSW ETA) permits the legislator to exclude certain transactions or communications or classes of same from the provisions of the law. The schedule to the Commonwealth ETA excludes from the provisions of the act the Corporations Act and (most of) the Superannuation Industry (Supervision) (SIS) Act.

So documents signed electronically for the purposes of the Corporations Act or SIS Act do not enjoy the protections of the Commonwealth ETA. The electronic signature must therefore be permitted by their local state ETA (to the extent it applies) or by the common law.

Exclusions from the NSW Electronic Transactions Act

The noteworthy NSW ETA exclusions are:

  • creating or transferring interests in land (section 23C of the NSW Conveyancing Act),
  • witnessing a document, and
  • court documents.

So these excluded documents or actions do not enjoy the protection of the NSW ETA and the electronic signature must therefore be permitted by the Commonwealth ETA (to the extent it applies) or the common law.

The common law position

Section 3 of the Commonwealth ETA says the object of the act is to provide a regulatory framework to recognise, facilitate, promote and enable electronic commerce. Note it does not say or imply that the act is intended to be a codification of all the law in the area.

Our common law system works on the basis that the common law applies unless replaced, amended or enhanced by statute. To the extent that the ETA does not apply, the common law applies instead. If the ETA does not apply, then the principles applying to the legal effect of an electronic transaction or document, including whether it has been properly and lawfully signed, are dictated by the common law.

Can a deed exist electronically?

Seddon on Deeds confirms that for those state jurisdictions that do not define deed, the common law definition would apply. That definition requires a deed to be signed and sealed and delivered and be on “paper, parchment or vellum”.

In some states, including NSW, Victoria and Queensland, statutes have amended the need for sealing and delivering, but the media on which a deed is to exist has not been statutorily amended. In other states, notably South Australia and Western Australia, the definition of a deed has been extended to permit an electronic document to constitute a deed.

As recently as 2003, the WA Supreme Court asserted the common law definition of a deed as requiring “paper, parchment or vellum” (Scook v Premier Building Society (2003) WASCA). Don’t be confused. The WA Supreme Court’s view is an important precedent for all other states, regardless of whether that state’s legislature has amended the definition of a deed or not. NSW, Victoria and Queensland have not amended the common law definition and therefore in those states a deed cannot exist electronically.

The decision by the NSW Supreme Court in Manton v Parabolic Pty Ltd [1985] 2 NSWLR361, implying that in NSW, thanks to section 38 of the Conveyancing Act, there is not a need for paper, parchment or vellum in order for a deed to exist, is, in my respectful submission, not correct as any reasonable reading of that section will reveal, and Scook’s case is the preferred common law precedent.

Execution by a company

Can a company execute a document using digital signatures? Under the common law the answer is probably yes. However, in order to enjoy the protection offered by sections 127 and 129(5) of the Corporations Act, that a person may assume that a document executed under section 127 has been properly executed, an electronic signature will not suffice.

Common law execution by a company might be binding on the company, but it will be challenged by just about every third party that needs to rely on the document, such as banks, the ATO, insurance companies, fund managers and so on. They will want the protection offered by execution under the Corporations Act.

Conclusions

Based on all this, it may be possible to state the following principles:

  1. At common law, a so-called digital signature is capable of being a signature on a document and the application of that digital signature constitutes signing.
  2. A so-called digital signature is capable of meeting all the requirements of a formal legal signing because there is an independent certification process.
  3. In any Australian jurisdiction where the common law requirement for a deed to be on “paper, parchment or vellum” is specifically amended, a digital signature can be used to execute an SMSF deed. Those jurisdictions include SA and WA, but not NSW, Victoria or Queensland.
  4. In NSW, Victoria and Queensland, a deed cannot exist in electronic format and it is not possible to digitally sign a deed that is in purely electronic format.
  5. Even if it were, in some jurisdictions it is not possible to witness a document by digital signature, regardless of the type of document (that is a deed or not).
  6. The Commonwealth and NSW electronic transactions legislation effectively validate digital signatures on emails, forms, contracts and most other instruments under hand.
  7. A document created under the Corporations Act or the SIS Act could still be validly executed electronically even though those acts are excluded from the Commonwealth ETA, but only if they are validated by the common law of their applicable jurisdiction.
  8. Although a company could execute a document digitally at common law if its constitution permitted this, it cannot do so under section 127 of the Corporations Act because of the ETA exclusion, and therefore the statutory protection for a signing under section 127 set out in section 129(5) and (6) is lost.

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