A recent South Australian Supreme Court case has shined the spotlight back on the validity of e-signatures, confirming that it is better to put pen to paper rather than signing online.
The rise of e-signing software and the dynamic nature of business has increased the desire to execute contracts with the click of a button. The law allows for individuals to sign electronically under the Electronic Transactions Act 1999 (Cth), however this legislation does not apply to the Corporations Act 2001 (Cth) (the Act) and in turn the related documents and powers granted under the Act.
How do companies sign a document?
The Act governs the way in which companies sign a document.
Under the Act[1], a company can sign a document without a common seal where it is signed by two directors, or a director and a company secretary or its sole director / secretary (where applicable).
Despite the prescriptive nature of section 127(1) of the Act, the section does not limit the way in which a company can sign a document or deed[2] with case law often interpreting the validity of a signed document.
If a document appears to have been signed under the Act, it may be assumed that the document has been validly executed.[3] The courts have also found that a document was valid despite only being executed by one director of the company.[4] In that case, the court held that the director who signed the document had implied authority to sign and this was enough to bind the company.[5]
The recent South Australian decision has further considered the circumstances surrounding e-signing and deeds as well as the prevailing jurisdiction of the statutory signing requirements.[6] Despite case law and legislation seemingly increasing the flexibility for companies to execute deeds, the decision has narrowed the scope for e-signatures to be binding and valid.
Not signed, sealed or delivered
In Bendigo and Adelaide Bank Limited v Kenneth Ross Pickard [2019] SASC 123, the bank (Bank) advanced a loan of $505,250.00 (Loan) to Kenrop Pty Ltd (Kenrop). Kenrop defaulted on the repayments under the Loan and the Bank sought to rely on personal guarantees under the Loan for recovery of the outstanding monies.
The documentation related to the Loan (Loan Deed) appointed the financier as power of attorney for Kenrop and the guarantors. The Loan Deed was purportedly signed by the financier’s directors under the terms of the power of attorney in the Loan Deed.
The court found that the power of attorney didn’t comply with the requirements of a deed nor did the two directors who had each electronically signed the power of attorney comply with the Act. The court held that the Act contemplates two officers signing a single, static document rather than two electronic signatures sequentially applied to an electronic document. Further, each copy of the electronic document signed by each director cannot be deemed to be counterparts because no one counterpart was properly executed under the Act. The court held that the signing of the power of attorney was invalid and therefore the Loan Deed was not enforceable against the guarantors.
What does this mean for e-signing?
The case reinforces the requirements for a deed to be signed as a single, static document. Where two e-signatures are used (whether it be two company officers or a signature that requires a witness), the document will not satisfy the requirements under the Act.
Although the South Australian case is not binding on the other Australian states, it interpreted the Act which applies nationwide and was also persuasive in clarifying the common law requirements.
Given that this case appears to have restricted the scope for signing documents electronically where one party’s execution requires two or more signatures, companies should be wary of e-signing rather than signing an original static document. In a business climate where e-signing is becoming the norm with more and more providers offering the service, it is likely that this position will be reviewed by the courts and the legislature.
Companies should be cautious when executing documents and seek legal advice. Where the document is a deed, it is best practice to put pen to paper rather than risk the document being deemed invalid at law by e-signature.
[1] section 127(1)
[2] s 127(4) Corporations Act
[3] s 129(5) Corporations Act
[4] McDonald v Tinbilly Travellers Pty Ltd [2008] QCA 17
[5] ibid.
