Enforceability of Electronic Signatures in Contracts




Electronic contracts

by Dr Allison Stanfield (a College of Law webinar is available on e.contracts)

Introduction

Transacting electronically is now the norm, email is now the preferred communication method and the negotiation and delivery of final documents by email is common.  Further, the use of cloud repositories to store documents is becoming ubiquitous and assists in the creation of “paperless offices”.

Electronic contracts are also common and occur every day online, particularly where writing and signatures are not required, for example, online shopping sites such as ebay, Amazon, and Gumtree, supply of travel services such as Uber and accommodation such as AirBnB.  However, there do remain question marks over contracts where writing and signatures are required.

Signatures attached to electronic contracts cause the most contention at present.  Signatures can be a typed name in an email, a scanned version of a hard copy on which there is a handwritten signature, an electronic version of the contract signed using e-signing software, or some form of encrypted digital signature.  Some commentators[1] suggest that the Electronic Transactions Acts  may not provide adequate protection for parties in land transactions.

This paper examines the issues around electronic contracts.

Contracts required to be in writing and signed

At common law, under the Statute of Frauds, certain documents had to be personally signed by the party to be charged, or signed by a lawfully appointed agent of the party to be charged.  A signature is said to be unique to the signatory.  A signature serves the following functions:

  1. It identifies the signatory;
  2. It evidences the party’s approval of the contents of the document; and
  3. It provides integrity for the contract between the parties ensuring the reliability and admissibility of the parties’ agreement in court.[2] [Emphasis added].

These Statute of Frauds provisions are now embodied in each state’s real property legislation, that is, that a contract for the disposition of land is required to be in writing and signed by the party to be charged[3].

Signatures:  Signatures at common law

Signatures are an effective way to show that a document is authentic, and that a party who signed the document intended to be bound upon it.[4]  Until the rapid rise in the use of computers and consequent electronic transactions, the most common form of signature was a handwritten signature on a hard copy document.[5]  This is notwithstanding that courts had recognised a wide range of marks as signatures.[6]

Types of Electronic Signatures

An electronic signature can be anything in electronic form that can be used to demonstrate a signing entity intended their signature to have legal effect.[7]

  • Typed Name – Typing a name into a document electronically can be an acceptable signature, although it will not necessarily be accepted in all jurisdictions for all purposes.[8]  Known as the ‘authenticated signature fiction’, it has enjoyed some success in England & Wales.  For example, in Leeman v Stocks[9] the writing of the vendor’s name in a contract by an auctioneer was considered sufficient, after the purchaser signed the same contract to constitute a signature, for the purpose of proof under the Statute of Frauds.  However, in Australia, this doctrine has not been adopted.  In Madden v Wright,[10] the contrary view was held in that typing the purchaser’s name into a contract following an auction was not sufficient.[11]
  • Name in an Email – A person’s name in an email address is capable of identifying a person, especially where an email address emanating from an organisation, public or private, is allocated by setting out the name of the person followed by the domain name of the organisation. There are other variations that can be used, such as when an email address describes the office or function of the person, rather than their name. However, even this, if allocated to a single person, can also function to identify a particular person, subject to evidence to the contrary.
  • Personal identification number (PIN) – PIN and password is another form of signature which is regularly used online.  Whether or not someone authorised a particular transaction using a PIN and password will be a matter of evidence.  The PIN is unique and is often the subject of theft.[12]
  • “I agree” Buttons – In this day of internet transactions, clicking ‘I agree’ or ‘I accept’ can confirm an intention to enter into a contract when buying good or services online.[13]  In England and Wales, the Law Commission has suggested that this form of signature is the technological equivalent of a manuscript signature.[14]  As Mason points out, in English law, the validity of a signature depends upon the function it performs, not necessarily the form in which it takes.[15]  The only issue with this form of signature, as with many types of electronic signature, is proving the identity of the person purporting to have made the signature.
  • Encrypted Digital Signatures – Encrypted digital signatures as part of a Public Key Infrastructure (‘PKI’) use digital key pairs, a private key and a public key, with the public key being held by a Certification Authority (‘CA’) who can vouch for the identity of the signatory.  The complication is that the CA itself needs to be verified.  Digital signatures operate by using cryptography, which arguably increases the reliability of the digital signature.  However, there are still issues with digital signatures, depending upon the method used:  either symmetric or asymmetric.[16]  There are inherent weaknesses with digital signatures, like the vulnerability of passwords used with the private key,[17] not to mention with the technology, in that any system can ostensibly be hacked.  Further, how does one attribute actions recorded in digital format to a specific human being?
  • E-signing software – The use of e-signing software is gaining traction, and may ultimately become the accepted way for documents to be signed electronically.  An important factor in using such software is that you need to first identify the person who is signing the document, using identification documents such as drivers’ licence, passport and Medicare card, and if necessary, have some way to confirm the person’s address, such as a utilities invoice showing the address.  The signature, in combination with the identification method, can be used as evidence if required to show that the requirements of the Electronic Transactions Acts have been met.

Validity of Electronic Signatures at Common Law

The question raised by the use of electronic documents, is whether a signature can be valid for evidentiary purposes, notwithstanding that it has been affixed electronically.  The courts seem to be concerned that the requirement of a signature depends the particular method used.

However, the following passage from Goodman v J Eban[18] by Romer LJ indicated that it is the function that the signature is intended to perform which is all important:

The first reaction of many people, I think, would be that the impression of a name produced by a rubber stamp does not constitute a signature, and indeed, in some sense, is the antithesis of a signature.  When, however, the matter is further considered in light of authority and also of the function which a signature is intended to perform one arrives, I think, at a different result.[19]

Mason[20] states that ‘when a signature is in electronic format, more considerations will apply to the signature’, [21] and highlights that a digital signature requires the following attributes:

  1. The signature must be authentic. In this respect the method ought, ideally, to provide for the authentication of the origin of the data and the integrity of the message.
  2. There ought to be a technical method in place that prevents the person appending the signature to the document from claiming later that they did not sign it. This is virtually impossible to achieve in the electronic environment.  Care must be taken to distinguish between the degree of probability that a system can be designed to prevent a person from making such a claim, and any suggestion of a presumption that purports to bind the user to the signature that is verified.
  3. The signature should not be capable of being forged, in that the private key is secure.
  4. Where a signature is added to a message that comprises a legal act, the signature and its link to the relevant document should remain verifiable for as long as it is of legal importance.
  5. The signature cannot be reused.
  6. The document that has been signed cannot be altered without rendering the signature unverifiable.[22]

For the concept of functional equivalence to have any validity, the function of a signature must first be established.

 In Australia, the question is whether an electronic signature is sufficient to satisfy the terms of the Statute of Frauds provisions.  There are two legislative frameworks where an electronic signature can be accepted; one is under the various Electronic Transactions Acts and the other is under the Electronic Conveyancing National Law.

Electronic Transactions Acts

The Electronic Transactions Act 1999 (Cth) ensures that a transaction under a Commonwealth law will not be invalid simply because it was conducted through electronic communication, and purports to give effect to electronic signatures.

Each state and territory has its own Electronic Transactions Act,[23] (‘Electronic Transaction Acts’), each of which are similar to, but not identical, to the Electronic Transactions Act 1999 (Cth).  The principles underlying the legislation are ‘functional equivalence’, that is, no discrimination will be made between paper based transactions and electronic transactions, and that a contract that is formed automatically is not invalid, void or unenforceable because there was no human review or intervention.[24]

In today’s digital age, documents are commonly ‘signed’ in electronic format.  The Electronic Transactions Acts were enacted to ensure that such commercial transactions are not invalid because they took place by means of one or more electronic communications.[25]  The effect of the Electronic Transactions Acts is that electronic forms of documents and any ‘signatures’ that appear on such documents, are valid as long as certain conditions are met.

The Electronic Transactions Acts provide that if an organisation is to retain a document in electronic form then the integrity of the process to generate the electronic document must be assured, the information in the document must be readily accessible; and data storage requirements must be adequate.

Electronic Transactions Act 1999 (Cth) s 10(1)[26] provides that if a signature of a person is required, the requirement is taken to have been met in relation to an electronic communication if:

  • in all cases–a method is used to identify the person and to indicate the person’s intention in respect of the information communicated; and
  • in all cases–the method used was either:
    1. as reliable as appropriate for the purpose for which the electronic communication was generated or communicated, in the light of all the circumstances, including any relevant agreement; or
    2. proven in fact to have fulfilled the functions described in paragraph (a), by itself or together with further evidence; and
  • if the signature is required to be given to a Commonwealth entity, or to a person acting on behalf of a Commonwealth entity, and the entity requires that the method used as mentioned in paragraph (a) be in accordance with particular information technology requirements–the entity’s requirement has been met; and
  • 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). Emphasis added.

 Identity

The Electronic Transactions Acts provide that the requirement for a person’s signature is met for an electronic communication if a method is used to identify the person whose signature is required and to indicate that person’s intention in relation to the communication.

The Supreme Court of Queensland decision in Stellard Pty Ltd & Anor v North Queensland Fuel Pty Ltd[27] looked at whether a contract contained within emails was enforceable.  In October 2014 the defendant, North Queensland Fuel (NQF) listed the roadhouse through its agent, Colliers.  A representative of the plaintiffs met with a representative of Colliers and indicated interest in purchasing the roadhouse and the terms.  There were further telephone discussions and emails following this initial meeting.  In late October 2014, Colliers sent an email to the plaintiffs representative stating that the Sellers indicated that they would sign a contract and set out the purchase price, the deposit, stock at cost value, certain conditions of sale, date and place for settlement; attached was a draft contract of sale.  The following day, the plaintiffs’ representative sent an email to Colliers confirming an offer for the agreed price for the business and the freehold, and said the offer was “subject to contract” and due diligence.  Further the email said they “need acceptance of our offer immediately” and that they needed “confirmation that our offer is accepted as clearly both parties are not going to start incurring significant expenses”.  Around 45 minutes later, an email was sent back to the plaintiffs clearly stating “we accept the below offer which we understand will be subject to execution of the Contract”.  A week later, an email was sent to the plaintiffs stating that the contract was not accepted and that the sellers had entered into another contract of sale.

The defendant denied there was a contract on four bases:  (a) the alleged offer was not an unconditional offer capable of unqualified acceptance because it was expressed “subject to contract”, (b) the acceptance of the offer was not an unqualified acceptance and (c) the parties did not reach agreement on all material terms and (d) the parties did not manifest an intention to be bound until a written contract in the form of the REIQ standard commercial contract was signed.

Martin J considered which of the three classes in Masters v Cameron[28] applied and concluded, that it fell within the first class, that is the parties reached finality in the terms of their bargain and intended to be immediately bound, but proposed to have the terms restated in a fuller form.

Next, the defendants argued that if a contract was found to exist, there was no sufficient writing to satisfy the Statute of Frauds provision in s 59 Property Law Act 1974 (Qld).  The defendants argued that s 14 Electronic Transactions Act 2001 (Qld) applied and that the writing requirements was met, as was the electronic communication and consent: consent was implied from previous dealings.

As to identity, Martin J concluded that:

“in the acceptance email, there is no identification of any person as the acceptor of the earlier offer.  This is not fatal” [emphasis added][29].

Unfortunately, there was almost no analysis of what constitutes writing and signature when the contract is made electronically.  This is disappointing given that it was a great opportunity to analyse the law on this issue in some detail.  Martin J simply concluded by saying that the requirements of s 14 Electronic Transactions Act 2001 (Qld) were met and that consent was implied.

Reliable Method

In Getup Ltd v Electoral Commissioner,[30] Perram J concluded that a signature affixed to an enrol-to-vote form using a digital pen applied to a laptop’s trackpad, was a reliable method pursuant to Electronic Transactions Act 1999 (Cth), sufficient for the purposes of the Electoral Act 1918 (Cth).

Consent

Section 5 Electronic Transactions Act 1999 (Cth) defines “consent” to include “consent that can reasonably be inferred from the conduct of the person concerned”.

Organisations dealing with consumers often have a formal document which contains a statement to the effect that the person consents to electronic communication, so that the provisions of the ETA are met.  However, in the vast majority of cases, parties will communicate with each other without a formal consent process ever taking place.  Indeed, Davidson[31] criticises the consent requirement as going a step too far, as it was absent from the original UNCITRAL model law, on which the Electronic Transactions Acts were based and that the Model Law was based on the “functional equivalent approach”.  Davidson concludes that “treating electronic communications differently erodes the functional equivalence principle and downgrades electronic commerce”.[32]

Corporations

Can a corporation sign electronically?  Pursuant to s 127 Corporations Act 2001 (Cth), a corporation can sign by any method, with certain presumptions of authority pursuant to s 129.  However, the provisions of the Electronic Transaction Act 1999 (Cth) are excluded.  Therefore, if a document is electronically signed by the corporation, then there would need to be some evidence that the company has authorised the method.  Ostensible authority may be relied upon if there is sufficient evidence.

The question of ostensible authority and ratification was considered in some detail in the matter of Williams Group Australia Pty Ltd v Crocker[33].  In that case, the defendant’s electronic signature had been applied to a guarantee, so there was not issue concerning whether there was a signature, or not, for the purposes of the Electronic Transactions Act 2000 (NSW).  Rather, the case turned on whether the defendant had knowledge of the document that had been signed on his behalf.

The facts of the case were that in July 2010 Williams Group Australia (“Williams”) approved a credit application of IDH Modular, of which Mr Crocker was one of the three directors.  The credit application bore the electronically affixed signatures of each director, in their capacity of director and also on guarantees of each director in their personal capacity.  Each of the signatures had purportedly been witness by IDH’s administration manager.  Each signature had been affixed to each document using the “HelloFax” system by which users can upload their signature and electronically apply it to documents.  Mr Crocker had been provided with a username and password; he did not change his password so anyone who had these login details could affix Mr Crocker’s electronic signature to a document.  The credit application was approved and over $800,000 was accrued over a period of time.  Williams commenced proceedings to enforce the debt against each director and against their respective guarantees.  IDH later went into liquidation and summary judgment was later obtained against Mr Crocker’s co-directors.  Mr Crocker successfully defended the claim against him on the basis that his electronic signature had been placed on the guarantee by an unknown person without his knowledge or authority.  Williams appealed the decision at first instance and challenged findings on ostensible authority and ratification and sought to maintain a claim based on estoppel.  Mr Crocker argued that a forgery cannot be ratified and that he did not clearly and unequivocally adopt the guarantee.

The appeal was dismissed.  In summary, the Court of Appeal confirmed that for the guarantee to be enforceable, there needed to be some evidence that Mr Crocker was aware of the guarantee and therefore there “was no link between the placement of orders and any recognition or awareness by Mr Crocker that this was on the basis of a personal guarantee given by him. [34]  Accordingly, Mr Crocker had not ratified the guarantee.  The Court found it was unnecessary to decide if the signature was a forgery, nor was it necessary to consider the estoppel point.

What does this case mean for guarantees?  This decision makes it clear that the terms of any guarantee must be known to the guarantor and it must be clearly shown that the guarantor understood what he or she was signing.  This is no different to a guarantee in hard copy and following the decision in Commercial Bank of Australia Pty Ltd v Amadio [35], financial institutions made it a requirement that a guarantor had to sign a statement to the effect that they had sought independent legal advice regarding their obligations under a guarantee.  Undoubtedly, financial institutions will now seek to have a number of checks in place before accepting a guarantee that has been signed electronically.  Either that, or they will continue to insist that hard copies be signed, until a more robust form of electronic signature is in place.

Electronic Conveyancing

The Electronic Conveyancing National Law (‘ECNL’), allows for a lawyer to sign to effect a transfer of land on behalf of their client.  There are stringent rules around the application of the ECNL, and the technology used appears robust, however, it will be some time before the parties to the transaction themselves may sign contracts electronically.

Service of Documents Electronically

In Conveyor & General Engineering Pty Ltd v Basetec Services Pty Ltd & Anor[36], the Supreme Court of Queensland examined whether an adjudication application under the Building & Construction Industry Payments Act 2004 (Qld) had been duly served upon it and consequently, whether the adjudicator had jurisdiction.  Basetec, the respondent had sent an email to the Institute of Arbitrators & Mediators Australia attaching a letter; the email also referred to “Dropbox links below for the two Adjudication Applications”, below which there appeared two Dropbox links.

This email was forwarded to Basetec’s solicitors by way of service, and the solicitor receiving the email read the content of the email, but did not look at the documents which were on Dropbox.  The solicitors did not become aware of the contents of the Dropbox files until sometime later.  The issue was whether the submissions contained within the Dropbox files had been adequately served.  The adjudicator at first instance concluded that the adjudication application had been served via email.  Dropbox fell within this category.  On appeal, McMurdo J considered whether service pursuant to s 39 Acts Interpretation Act 1954 (Qld) had been effected.  That section makes no specific reference to sending a document via email and while CGE did appear to accept that a document could be served under the BCIPA via email on the basis of Penfolds Project Pty Ltd v Securcorp Limited[37], the question remained whether a link on Dropbox fell within this category.

McMurdo J turned to the Electronic Transactions Act 2001 (Qld) for assistance and referred to the requirement that an electronic communication be in writing and that the recipient consent to the communication.  In concluding, McMurdo J said that “in the present case, s 11 of the Electronic Transactions Act 2001 did not authorise the service of the adjudication application, inclusive of the material within the Dropbox for two reasons.  The first is that the present applicant had not agreed to be electronically served.  The second is that the material within the Dropbox was not part of an electronic communication as defined.  None of the data, text or images within the documents in the Dropbox was itself electronically communicated, or in other words communicated ‘by guided or unguided electromagnetic energy’.  Rather, there was an electronic communication of the means by which other information in electronic form could be found, read and downloaded at and from the Dropbox website”.[38]

McMurdo summed up to say that if the whole of the adjudication application had been in the email, then the service would have been effective.[39]  The use of Dropbox meant that the whole of the application was not within an “electronic communication”, thereby precluding the operation of s 24 Electronic Transactions Act 2001.

Conclusion

In summary, when faced with enforcing an electronic contract, the signer may state that is “not my signature”.  Establishing the requirements of the Electronic Transactions Acts, that is, identity, reliability of the communication method and consent are critical.  While the courts seem happy to infer writing within emails and consent by previous conduct, evidence as to identity may be more readily accepted if you have taken steps to prove identity using identification documents.

 

[1] Sharon Christensen, Bill Duncan & Rouhshi Low, ‘Moving Queensland Property Transactions to the Digital Age:  Can Writing and Signature Requirements be Fulfilled Electronically?’ (2002) Centre for Commercial and Property Law, Queensland University of Technology: Brisbane 35.

[2] Leeman v Stocks [1951] 1 Ch 941 at pp 947-948.

[3] s 54A Conveyancing Act 1919 (NSW); s 59 Property Law Act 1974 (Qld); s 53 Property Law Act 1958 (Vic); s 26 Law of Property Act 1936 (SA); s 34 Property Law Act 1969 (WA); s 36 Conveyancing and Law of Property Act 1884 (Tas); s 9 Law of Property Act (NT); s 201 Civil Law (Property) Act 2006 (ACT).

[4] Toll (FGCT) Pty Ltd v Alphapharm Pty Ltd (2004) 219 CLR 165.

[5] Stephen Mason, Electronic Signatures in Law, 3rd ed, Cambridge, 2012, at 5.

[6] R v Moore Ex Parte Myers (1884) 10 VLR 322.

[7] Mason, above n 5.

[8] Mason, above n 5, 190.

[9] [1951] 1 Ch 941.

[10] (1991) Q Conv R 54-586.

[11] The court has recognised that the law is unsettled in this respect:  Kation Pty Ltd v Lamru Pty Ltd [2011] NSWSC 219 see White J at [37], cf Stuart v Hishon [2013] NSWSC 766.

[12] See further Steven J. Murdoch, Saar Drimer, Ross Anderson and Mike Bond, ‘Chip and PIN is Broken’, 31st IEEE Symposium on Security and Privacy, IEEE Computer Society, 2010, pp 433-446; <http://www.cl.cam.ac.uk/~sjm217/papers/oakland10chipbroken.pdf> as at 8 February 2017.

[13] Mason, above n 5, at 271.

[14] Ibid at 218.

[15] Ibid.

[16] Ibid, 261-266.

[17] Ibid at 286.

[18] [1954] 1 QB 550.

[19] Ibid at 557.

[20] Ibid.

[21] Ibid at 267.

[22] Ibid at 267-268.

[23] Electronic Transactions Act 2000 (NSW), Electronic Transactions Act 2000 (Vic), Electronic Transactions Act 2001 (Qld), Electronic Transactions Act 2000 (SA), Electronic Transactions Act 2011 (WA), Electronic Transactions Act 2000 (Tas), Electronic Transactions Act 2001 (ACT), Electronic Transactions Act (NT).  The Electronic Transactions Acts were enacted as part of the government’s ‘strategic framework for the development of the information economy in Australia, and is based on the United Nations Commission on International Trade Law (UNCITRAL) Model Law on Electronic Commerce of 1996.  The purpose of the legislation is to give effect to transactions, notwithstanding they may be conducted via electronic communications.

[24] Electronic Transactions Act 1999 (Cth), s 15C; Electronic Transactions Act 2000 (NSW), s 14C; Electronic Transactions (Victoria) Act 2000 (Vic), s 14C; Electronic Transactions (Queensland) Act 2000 (Qld), s 26C; Electronic Transactions Act 2000 (SA), s 14C; Electronic Transactions Act 2011 (WA), s 19; Electronic Transactions Act 2000 (Tas), s 12C; Electronic Transactions Act 2001 (ACT), s 14C; Electronic Transactions (Northern Territory) Act (NT), s 14C.

[25] Electronic Transactions Act 2000 (NSW) ss 4(a), 7(1).

[26] Electronic Transactions Act 2000 (NSW) s 9(1), Electronic Transactions Act 2000 (Vic) s 9(1), Electronic Transactions Act 2001 (Qld) s 14(1), Electronic Transactions Act 2000 (SA) s 9(1), Electronic Transactions Act 2011 (WA) s 10(1), Electronic Transactions Act 2000 (Tas) s 7(1), Electronic Transactions Act 2001 (ACT) s 9(1), Electronic Transactions Act (NT) s 9(1).

[27] [2015] QSC 119.

[28] [1954] HCA 72; (1954) 91 CLR 353.

[29] [at 66].

[30] [2010] FCA 869.

[31] Alan Davidson, The Law of Electronic Commerce, 2009 Cambridge University Press, Melbourne.

[32] Ibid at 51.

[33] [2016] NSWCA 265.

[34] Ibid at [130].

[35] (1983) 151 CLR 447.

[36] [2014] QSC 30.

[37] [2011] QDC 77.

[38] Conveyor & General Engineering Pty Ltd v Basetec Services Pty Ltd & Anor [2014] QSC 30 [at 28].

[39] Citing Bauen Constructions Pty Ltd v Sky General Services Pty Ltd & Anor [2012] NSWSC 1123.

© 2017 Allison Stanfield