Are electronic signatures valid?
A contract of sale of land must be in writing and signed by the parties. These requirements were principally designed to reduce fraud as it prevents one party to the transaction claiming or denying that an enforceable contract exists.
In the 350 or so years following the establishment of these requirements, there has been a massive growth in communications taking place electronically. Communication between various parties involved in the sale and purchase of a property such as real estate agents, lawyers, conveyancers, vendors, purchasers and lending institutions are routinely undertaken by electronic means.
With this large increase in the volume of electronic communications, there has been a subsequent need created for an electronic signature instead of the traditional signature on paper. The question becomes, is a contract of sale enforceable if it is signed electronically?
What is an Electronic Signature?
To start with a distinction needs to be made between a digital signature and an electronic signature. An electronic signature is a broad concept and acts purely as a representation of the signature of the party for example, inserting a scan of a person’s signature into a word version of the contract of sale.
Each type of electronic signature has its own level of security, but on the whole, is vulnerable to copying and tampering. A digital signature is a sub-category of electronic signature. A digital signature involves a mathematical process for determining the authenticity of a digital signature and is difficult to forge.
The Commonwealth, State’s and Territory have supported the use of electronic communications by enacting legislation. Section 1a the Electronic Transactions (Victoria) Act 2000 (Vic) (ETVA) states that transactions effected electronically are not by that reason alone invalid. However, if a law specifically excludes a transaction from the operation of the ETVA, then an electronic signature cannot be used in place of a traditional signature. For example, in Victoria a contract of sale that is signed electronically is not specifically excluded from the operation of the ETVA. However, a Will cannot be signed by electronic methods and must be signed by handwritten signature on paper.
Once it is determined that a transaction is not excluded from the operation of the ETVA, the next issue to examine is whether the electronic signature is valid? Pursuant to section 9 of the ETVA if a person’s signature is required by a law of that state or concerning the formation or performance of a contract, that requirement is taken to have been met in relation to an electronic communication if:
- The signature, identifies the person and indicates approval of the information;
- The method of communication was appropriate in the circumstances; and
- The person has consented to the use of electronic communication.
In other words, the electronic signature method used must identify the person who is signing the legal document, must indicate that person’s approval to be bound by the terms and conditions of the legal document and must be appropriately reliable for the purpose for which the information was communication. What is reliable for the purposes of the ETVA is not defined and so will depend on all relevant circumstances at the time when the method was used, as well as the nature and purpose of the information communicated.
However, an electronic signature is generally considered to be reliable if the signature creating data is linked to and controlled by the signatory and no other person and any alterations or amendments to the signature can be detected, after the time of signing electronically.
Consent to the use of electronic communication must be obtained. The consent must be unconditional and can be either given by express consent or inferred from a person’s conducted. For example, express consent can be provided by a written acknowledgement. If the recipient of the electronic signature does not consent to the use of the electronic signature, the signature will be invalid. As such, we strongly recommend that parties contemplating the use of an electronic signature have the prior written consent of all parties involved in the transaction.
A contract of sale that is effected electronically is not excluded from Victoria’s ETVA. Therefore, to determine whether an electronic signature applied to a contract of sale is valid, the following additional legal requirements must be examined.
- The electronic signature must identify the person.
- The electronic signature must be appropriate in the circumstances.
- The parties to the transaction must have unconditionally consented to the electronic method being used, either by an express declaration or consent in the document.
If all of the above legal requirements are satisfied, then the electronic signature is valid and will bind the parties. A failure to meet one of the above requirements may invalidate the electronic signature.
Whilst electronic signatures are open to be challenged for being invalid, they are not held to a higher standard than traditional signatures on paper and as more and more communications become electronic, it will be increasingly difficult to argue that the use of an electronic signature on a contract of sale did not constitute a valid signature. However, if there is any doubt about whether an electronic signature applied to a contract of sale would be valid, a party should obtain legal advice.
Author: Cathy Drake