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When is an electronic signature a valid signature for a binding contract?

Contract Law News | June 2015

It is becoming increasingly common in this fast-paced world for business transactions to take place without the parties ever having seen each other face-to-face. Millions of dollars' worth of goods can be transferred by simply making your mark on the screen of a digital device without ever having received a traditional “paper” contract. What does this mean for your business? What issues should you be aware of if you choose to run your business by means of electronic communication?

The law

There is no fundamental principle of contract law which prevents the formation and use of electronic contracts and digital signatures PROVIDED THAT the process being used complies with the relevant requirements for the use of such processes as prescribed by the Electronic Transactions Act 2000 (NSW). There are similar pieces of legislation in all Australian jurisdictions including at a Federal (Commonwealth) level. The Federal Act applies only to transactions to which a Federal law applies.

Section 10 of the NSW Act provides that if a person is required to produce a document (i.e. contract) in paper form then the requirement is met if the document is produced electronically in such a way as to assure the maintenance and integrity of the information contained in the document, the information contained in the document is readily accessible for the useable reference of the recipient and the method is consented to by the recipient.

Section 9 of the NSW Act specifically allows a “digital signature” to be used where the method used to identify the sender (e.g. the purchaser or recipient of the contract/goods) and indicate their approval of the information accompanying the signature is appropriate for its designated purpose and is consented to by the receiver (e.g. the vendor or seller of goods) of the information.

What does it all mean?

Increasing use and reliability of digital technology has created a marketplace that is substantially different to what it was … just yesterday! Smartphones and apps now provide a multitude of methods for the transfer of information between individuals. Millions of dollars of materials and goods can now be transferred from one party to another with a simple push of a button on a mobile device such as an iPad or smartphone.

Some key points to remember

  • Do your homework on the software technology that you use and ensure the content of a document is not able to be altered in any way
  • Retain evidence in your possession of each party's consent to the content of the document and their agreement to enter into the terms in the document
  • Retain evidence that you have taken reasonable steps to identify the recipient/person providing their signature
  • Retain evidence that each party has consented to the electronic signatures being acceptable for the transaction to come into effect.

Paper contracts can be scanned, certified and emailed

Of course, if you still prefer to operate “old-school” and deal in paper contracts you could always consider exchange or acceptance of scanned versions of the documents by email accompanied by a certified copy of the photo ID of the “purchaser” which could cut down the traditional wait times for original contracts to arrive in the mail.

At Forum Law our solicitors have a wealth of knowledge and experience in all aspects of business, property and commercial law. Contact us to discuss any concerns you may have about all business transactions.

Forum Law is an active member of several reputable law and industry associations. We have recently obtained ISO9001 accreditation.