September 12, 2017

Technology | QLD

Are Electronic Signatures Worth the Time?

A staggering 100 million electronic transactions are predicted to have been made in Australia by 2020 – with the signatures that bind them being all electronic.[1]

E-signatures are being used by law firms, human resource departments, online retailers and the list is ever growing. Are they binding though? What are the risks involved with going all electronic? We discuss the peaks and pitfalls of e-signatures in 2017 and what to do if your business is ready to take the leap.

First: Are they legally binding?

The law in Australia has moved on from requiring handwritten signatures. The Electronic Transactions Act 1999 (Cth) (‘the Act’) now allows businesses to undertake legal transactions via electronic communications (with a few exceptions). Importantly, s 8 of the Act provides that a transaction is not invalid simply because it took place by way of electronic communication. In Queensland, e-signatures are permitted under s 14(1) of the Electronic Transaction (Queensland) Act 2001 (Qld) as long as the person making the signature is identifiable, the signature is reliable and the person who requires the signature consents to receiving an e-signature. Some transactions, however, are a little slow to take up the e-signature boom, and may require original signatures. Best practice presently is to ensure your transaction falls under the Act, and is permitted to use e-signatures.

A bonus benefit: paperless processes!

A large benefit to implementing e-signatures is reducing manual, paper-based processes used by your business. In applying e-signatures, businesses cut down on costs and increase efficiency. Boss not in the office? No problem! E-signatures can easily be inserted by email, ensuring mail is approved and signed in a timely manner. By using e-signatures and e-files, offices save on paper and printing costs, and increase office space.

Not inclusive

Unfortunately, e-signatures are not universally applicable and some documents are still excluded under the legislation (such as documents made under the Corporations Act 2001 (Cth)). In respect of court and government documents, always check with the appropriate registry to see what rules apply before filing. For all other legal documents, an individual cannot ‘witness’ an e-signature (for obvious reasons) so keep this in mind for any formal documents.

Risk of fraud

The biggest concern facing business owners is the risk of an employee using an e-signature without permission or even committing identity fraud. The case of Williams Group Pty Ltd v Crocker[2] is an example of the risks of e-signatures. Mr Crocker, one of the three directions of IDH Modular Pty Ltd (‘IDH’) alleging signed a credit application agreeing to be a personal guarantor. When IDH went belly up, the creditors came knocking for Mr Crocker personally. He alleged that someone in his business had accessed his e-signature and used it without his knowledge or consent. The Court found that he was not bound by the guarantee on the basis that the creditor could not prove Mr Crocker had given his authority. This was upheld on appeal. The case highlights the need for business owners, particularly those with higher level employees, to have password protected e-signatures to prevent misuse.

Implementing e-signatures

If you do choose to implement e-signatures, ensure that your business is adequately prepared.

This can include:-

  1. Educating your employees about e-signatures, when they should be used and on what documents;
  2. Implementing appropriate policies and procedures to prevent misuse or abuse by employees (such as an approval process);
  3. Conducting regular audits to ensure e-signatures are being used appropriately by staff of all levels; and
  4. Seeking legal advice to ensure compliance with State, Territory and Commonwealth laws.

The use of e-signatures can reduce costs, increase efficiency and even provide a competitive advantage. In 2017, now more than ever, it’s important for businesses to adapt to emerging technologies in an ever-changing market.

[1] Forrester Consulting, Adobe eSignature Market study (2016).

[2] [2016] NSWCA 265.