Date posted: 03/06/2021 5 min read

E-signatures and the law

E-signature use has skyrocketed, but lawyers warn that CAs must avoid falling foul of laws that govern signing without ink.

In Brief

  • An e-signature is a visible representation of a name on a document, electronically or mechanically.
  • A person is bound by an e-signature the same as a signature on paper.
  • The witnessing of a deed, will or power of attorney generally can’t be done electronically.

Story by Sam McKeith
Illustrations Ron Monnier

As the use of e-signatures skyrockets across the accounting profession, lawyers warn that CAs must avoid falling foul of laws that govern signing without ink.

The use of electronic-signature technology has boomed in recent times as organisations, including thousands of accounting firms, seek to save time and cut costs on one of business’s dullest duties – signing forms.

COVID-19 and digital transformation have hastened the shift to e-signing. But as its adoption accelerates, lawyers warn that accountants must be especially careful to abide by a web of state and federal laws governing e-signatures.

The difference between e-signatures and digital signatures

When it comes to staying on the right side of the law on e-signing, Nexus Lawyers’ Jeremy Duffy, in Adelaide, says your starting point should be understanding what an e-signature actually is.

Unlike a “digital signature”, which is created by cryptographic authentication technology, an e-signature is a “visible representation” of a person’s name put on a document by “electronic or electronic and mechanical means”.

An e-signature can refer to a typed name in electronic format, a scanned handwritten signature, clicking an “I accept” button, a PIN, or a retinal scan.

A digital signature is an encrypted digital code attached to an electronic document. It requires two mutually authenticating cryptographic keys. The user has a private key to create the signature and the recipient uses a public key to verify it.

“A digital signature is significantly more secure than an electronic signature... E-signatures are more likely to give rise to a legal dispute than digital signatures.”
Jeremy Duffy, Nexus Lawyers

More often than not it’s the use of e-signatures, rather than their more secure digital counterparts, that sees accountants and other professionals run into trouble, says Duffy.

“A digital signature is significantly more secure than an electronic signature. As a result, when issues arise as to whether a document has been signed by a particular party, or signed at all, it will almost always arise in the context of an electronic signature. E-signatures are more likely to give rise to a legal dispute than digital signatures.”

In its online Australian e-signature guide, Adobe notes that the threshold requirement for e-signatures is “reasonably low”, with courts upholding the use of a stylus or finger on a PC trackpad to produce a signature similar to one sent by fax.

“Thus, when doing business with other jurisdictions where e-signature validity may be assessed differently or for specific compliance requirements, use of certificate-based digital signatures, such as cloud signatures, should be considered as part of the workflow risk-management strategy,” the guide states.

E-signatures and the law

The legality of e-signatures

With an e-signature definition somewhat settled, Duffy says legislation in Australian jurisdictions – federal, state and territorial – authorises e-signatures, so no matter where an accountant is located nationwide, the practice is above board.

According to Duffy, these Commonwealth and state laws allow the use of e-signatures where a signature is required by law, as well as in contractual dealings, provided “an appropriate method is used to identify the person signing”.

He also notes that the laws are “permissive” rather than “prescriptive”, meaning that an e-signature may still be valid even if it doesn’t stick to the letter of the law on process.

“Even if the process set out in these Acts is not followed, an electronic signature may still be sufficient in common law to bind a person, as they would be bound if they had signed their signature on a piece of paper.”

Australia’s e-signing laws and COVID-19

While this may sound simple, things get trickier across jurisdictions, the lawyer says, when it comes to “witnessing, attesting, verification or authentication of documents”.

Here, Duffy says, the execution and witnessing of a deed, will or power of attorney generally cannot be done electronically – and COVID-19 has complicated matters.

“These prohibitions were removed in some jurisdictions during the COVID-19 crisis to allow the remote electronic execution and witnessing of such documents. Some of these temporary provisions may still be in force in various states [and] there are moves afoot in some jurisdictions to make such changes permanent.”

On the issue of e-signing and deeds, Melbourne-based Law Squared founder and director Demetrio Zema suggests the law in Australia is in a state of flux due to changes wrought by COVID-19.

While deeds are traditionally not accepted if electronically signed, he says, various COVID-19 regulations across state and federal levels have recently altered the game.

“The federal regulation did come to an end on 21 March, 2021, leaving an open question as to electronic execution. Victoria and Queensland have extended their regulations for deeds to be signed electronically,” says Zema.

Another relevant debate, according to Nexus Lawyers’ Duffy, is whether e-signing is allowed by corporations under section 127 of Australia’s Corporations Act.

“The Commonwealth put rules in place during the COVID-19 crisis that permitted the electronic and split execution of documents under section 127, but these expired on 21 March, 2021 and a Bill to make these changes permanent has been adjourned for debate in the Senate until 3 August, 2021,” he says.

According to the Australasian Cyber Law Institute, electronic signing as a director, secretary or other company officer under section 127 of the Corporations Act is not valid presently, but may become so if draft laws altering the Corporations Act pass federal parliament later this year.

E-signatures in New Zealand

Across the Tasman, Parry Field Lawyers partner Steven Moe points to a “core principle” that New Zealand CAs should keep front of mind regarding e-signatures – reliability.

Moe says that in New Zealand an e-signature must be “reliable” in order to have any legal effect, making the legal definition of the term vital.

In determining reliability, he says key questions to consider are does the e-signature adequately identify you and does it indicate your approval of the relevant information in the document.

Another factor in assessing reliability, he says, is the appropriateness of the means by which it was provided, either electronically or physically.

With this broad principle governing the field, he suggests that CAs, in a practical sense, make sure to look at three elements around e-signatures.

“Ensure that the electronic signature is linked only to the signatory, is under the control of the signatory alone and that any alterations to either the signature or the information in the document are detectable.”

The Christchurch-based lawyer also warns that in some instances e-signatures are a total no-go.

These include, he says, documents that relate to affidavits, statutory declarations, documents given on oath or affirmation, as well as powers of attorney, wills and codicils (additions to a will).

E-signing best practice

Given the complexity of the e-signature landscape, it’s no wonder that many accountants rely on technology, specifically electronic signing tools, to do the heavy lifting.

Stuart Reynolds CA, founder of the Fullstack Advisory accounting firm in Sydney, says accountants are placing “a lot of trust” in tech providers to get it right on the legalities of e-signing.

“We want to make sure when we’re choosing an online e-signature provider that they maintain the highest ISO [International Organization for Standardization] standards,” he explains.

“We’re not going to be the guinea pig for software [but] if there are good firms out there using the software we’re more likely to take it on.”

It’s still possible that legal gaps remain in electronic signing tools, prompting lawyers to urge accountants to, where possible, seek legal advice.

For instance, one potential legal issue, flagged by some accountants, is where electronic signing tools enable multiple documents to be signed via the single click of a button.

On this point, Carol Grimshaw, principal of Grimshaw Legal and chair of the Online Wills and Electronic Witnessing Committee, says it’s likely that legal acceptance of the final bundled document “would be difficult to achieve”.

“I can’t see how multiple signing for company documents would comply with current law because each signature must be witnessed on any document that’s signed and the rules vary in each jurisdiction across Australia.”

“I can’t see how multiple signing for company documents would comply with current law because each signature must be witnessed on any document that’s signed.”
Carol Grimshaw, principal of Grimshaw Legal and chair of the Online Wills and Electronic Witnessing Committee

Given the potential pitfalls of e-signatures currently, Grimshaw urges accountants to take a “conservative approach” until the dust settles.

“It takes more time and money, but you and your client are more likely to have an outcome that will be valid,” she points out.

“The position is different in each state and territory [in Australia]. The best thing an accountant can do is send their client to a lawyer, then the accountant is not liable for stepping across the line on the documents that can or can’t be signed electronically because that’s a legal decision to be made.”

At the same time, she emphasises the importance of accountants keeping solid file notes in the event a dispute over an e-signature goes to court.

“It’s the file note that becomes evidence, which can be given to a court,” she says.

“Make sure the file note contains the file number, the people involved, the date, time and place, and is signed by the person who’s responsible. Of course, if you’re using Zoom or Microsoft Teams, you have the ability to record the conference, but the only time you should record anyone in any way is when you have their consent.”

Law Squared’s Zema echoes this sentiment, urging accountants to talk to a lawyer if in doubt about e-signature requirements, particularly given changing COVID-19 regulations.

“There is currently a disconnect between state and federal regulations, so some consideration does need to be applied.”

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