e-Signatures – legally binding on companies?

The rise of e-signing software such as docuSign (e-signature) has become commonplace for the execution of contracts electronically.  Each state of Australia and the Commonwealth has its own equivalent to the Electronic Transactions Act 2001 (Qld) (ETA).  The use of E-signatures has streamlined the contract execution process, however a recent case in the Supreme Court of South Australia has highlighted their vulnerability.  The decision of Stanley J in Bendigo and Adelaide Bank Limited v Kenneth Ross Pickard [2019] SASC 123 (Adelaide Bank) is illustrative of this.

What is an e-signature?

Queensland’s ETA does not contain a definition of e-signature, however, section 14 describes the requirements for an electronic communication to have been met.  These include the following requirements:

• that a method is used to identify the person and to indicate the person’s intention in relation to the communication;
• the method used was either reliable as appropriate for the purposes of the electronic communicated (in the circumstances);
• proven in fact to have satisfied the conditions in 14(1)(a) (paraphrased immediately above); and
• the person that has to sign has given their consent to the method of communication being used.

Section 10 of the Electronic Transactions Act 1999 (Cth) contains similar requirements for an electronic communication to be met.

Excluded transactions

Schedule 1 of Queensland’s ETA describes excluded transactions, which (generally) include documents which have to be filed with a Court or Tribunal, authorisations under the Trust Accounts Act 1973 (Qld), foreign exchange transactions, various documents relating to the transfer of securities and delivery of goods.  In short not every document that needs to be signed can be signed electronically.  Sections 7A and 7B of the Electronic Transactions Act 1999 (Cth) contains exceptions.

Under section 127(1) of the Corporations Act 2001 (Cth) (Corps Act), a company may execute a document without a common seal where it is signed by two directors, or a director and a secretary or the sole director and/or secretary.  There has been debate about the veracity of e-Signatures for the purposes of section 127 of the Act where two directors have to sign by “separate execution” electronically.

Documents which should not be signed electronically

The collective ETA’s create a list of generally excluded documents which should not be executed electronically, these include:

• deeds;
• documents which are required to be signed for legal proceedings;
• documents which have to registered;
• documents that have to be witnessed; and
• documents signed pursuant to section 127 of the Corps Act, noting that there is some controversy about this.

These documents require a ‘wet ink signature’ which is any physical mark on a document.

The Adelaide Bank case

This case concerned a claim for money that was alleged to be owed under a guarantee.  A subsidiary of Bendigo and Adelaide Bank Limited ACN 068 049 178 (Bank) advanced the amount of $505,250.00 (Loan) to Kenrop Pty Ltd (Kenrop).  Kenrop later defaulted on the payments under the Loan.  The Bank sought to recover the outstanding amount from Kenrop’s directors, by claiming that the defendants are guarantors pursuant to the loan deed.

The defendants did not sign a personal guarantee in favour of the Bank but however, signed a power of attorney which authorised Great Southern Finance Pty Ltd (GSF) to do so on their behalf.  One of the issues to be decided was whether or not loan deed was validly executed.

Was the loan validly executed as a deed?

The load deed was electronically “signed” by GSF by affixing the electronic signatures of GSF’s director and secretary to the document, in accordance with section 127 of the Corps Act.

Section 127(3) of the Corps Act provides that a company may execute a document as a deed where it is expressed as a deed and signed by a company’s officers.  The term ‘signed’ is not defined in the Act.  However, it excludes section 10 of the ETA which involves execution via e-signature.

The Court ultimately held that the loan document was invalid.  Hence, the plaintiffs were unable to enforce the guarantee against the guarantors. The Court held that the purpose of section 127 was to allow a natural person to act for a company through signing.   Its purpose was not to permit a company to execute a document which, if it had been executed by a natural person, would not amount to a deed.

The Court held that the Act contemplates two (2) officers signing a single, static document rather than two electronic signatures sequentially applied to an electronic document.  Furthermore, there was no other document in the business that authorised the electronic application of the directors’ signatures. For these reasons, the Court held that the document was not validly executed as a deed, pursuant to section 127 of the Act and could not be enforced.  The guarantees in the loan deed was therefore invalid.

Takeaways

The case highlights the validity and vulnerability of e-signatures, especially in the execution of company documents and deeds.  Adelaide Bank reinforces the requirements for a deed to be signed as a single, static document.  Two signatures in different counterparts will be insufficient for the purposes of section 127 of the Act where there are two (2) directors that are required to sign a deed.

Links and further references

Cases

Bendigo and Adelaide Bank Limited v Kenneth Ross Pickard [2019] SASC 123
McDonald v Tinbilly Travellers Pty Ltd [2008] QCA 17

Legislation

Electronic Transactions Act 1999 (Cth)
Electronic Transactions Act 2001 (Qld)
Electronic Transactions (Northern Territory) Act 2000 (NT)
Electronic Transactions Act 2000 (NSW)
Electronic Communications Act 2000 (SA)
Electronic Transactions Act 2011 (WA)
Corporations Act 2001 (Cth)

Further information on online terms and conditions

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Disclaimer

This article contains general commentary only.  You should not rely on the commentary as legal advice.  Specific legal advice should be obtained to ascertain how the law applies to your particular circumstances.

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