RP Data's Chris Spanos on the growing trend of electronic signatures and when they can be used to save you time
Many of you have heard of new services like DocuSign which allow you to execute documents electronically “in the cloud”. But before we dive headlong into a brave new world, let’s take a moment to reflect on the past.
Why do we sign documents anyway?
The history of physical signatures is long and varied, but in short they serve two traditional functions:
• the identity of a document or party; and
• an intention to enter into a legally binding agreement.
As discussed in previous articles, a signature is not strictly required to enter most contractual arrangements. In fact, a contract can exist when nothing is in writing at all.
The purpose of documenting contracts in written form is to ensure clarity of intent and to capture a mutual understanding of what occurs when things do not go according to plan. Similarly, the point of physically signing a document has traditionally been to confirm a manifest intent to enter a legally enforceable relationship.
When is a signature required by law?
Even though a signature is usually not required by the law, there are a number of circumstances where one is required (generally because of a statutory requirement). A signature is often required, for example, in the case of a will or a contract for the sale of land. Similarly, the Corporations Act requires documents lodged with ASIC be signed by a director.
What is an electronic signature?
While this question may seem trivial, it hides significant complexity in how an electronic signature is implemented. Numerous pieces of international legislation have attempted to define the concept as either:
• a symbol or process attached or associated to an electronic document that has been executed by a person with the intent to sign the document; or
• a method of signing an electronic message that identifies and authenticates a person as the source or approver of the electronic message.
The functions of an electronic signature are generally identical to those of any other form of signature. However, because of the sophistication that information technology enables, an electronic signature can authenticate and validate a person’s identity and intent in ways that a physical signature simply cannot.
For example, an electronic signature can capture the IP address, date and time that a document was executed by both parties, together with the GPS coordinates of the location that execution took place. In the future, when a court considers whether an electronic document was properly executed they will have access to a far more detailed historical record than they ever had in the past.
The future of electronic signatures
To help enable the future world of electronic signatures, the Commonwealth Government and each State and Territory have passed specific legislation. The Electronic Transactions Act and its equivalent legislation in each State and Territory help determine what constitutes a valid electronic signature. Summarising broadly, an electronic signature will be valid if the method:
• identifies the person signing;
• indicates their approval of the information communicated;
• is appropriately reliable for the purposes for which the information was communicated; and
• consent to use the method by all parties is present.
It is noted that these various pieces of legislation are technology neutral, as they do not attempt to approve or deny any specific technology.
It is clear that electronic signatures are no longer a second class citizen to physical counterparts. Legislation has approved what was already happening in practice, and the day is rapidly approaching where electronic signatures will outnumber the volume of physical signatures. Knowing a little bit about the history and purpose of physical signatures can help you better understand the future of their electronic alternatives.
Why do we sign documents anyway?
The history of physical signatures is long and varied, but in short they serve two traditional functions:
• the identity of a document or party; and
• an intention to enter into a legally binding agreement.
As discussed in previous articles, a signature is not strictly required to enter most contractual arrangements. In fact, a contract can exist when nothing is in writing at all.
The purpose of documenting contracts in written form is to ensure clarity of intent and to capture a mutual understanding of what occurs when things do not go according to plan. Similarly, the point of physically signing a document has traditionally been to confirm a manifest intent to enter a legally enforceable relationship.
When is a signature required by law?
Even though a signature is usually not required by the law, there are a number of circumstances where one is required (generally because of a statutory requirement). A signature is often required, for example, in the case of a will or a contract for the sale of land. Similarly, the Corporations Act requires documents lodged with ASIC be signed by a director.
What is an electronic signature?
While this question may seem trivial, it hides significant complexity in how an electronic signature is implemented. Numerous pieces of international legislation have attempted to define the concept as either:
• a symbol or process attached or associated to an electronic document that has been executed by a person with the intent to sign the document; or
• a method of signing an electronic message that identifies and authenticates a person as the source or approver of the electronic message.
The functions of an electronic signature are generally identical to those of any other form of signature. However, because of the sophistication that information technology enables, an electronic signature can authenticate and validate a person’s identity and intent in ways that a physical signature simply cannot.
For example, an electronic signature can capture the IP address, date and time that a document was executed by both parties, together with the GPS coordinates of the location that execution took place. In the future, when a court considers whether an electronic document was properly executed they will have access to a far more detailed historical record than they ever had in the past.
The future of electronic signatures
To help enable the future world of electronic signatures, the Commonwealth Government and each State and Territory have passed specific legislation. The Electronic Transactions Act and its equivalent legislation in each State and Territory help determine what constitutes a valid electronic signature. Summarising broadly, an electronic signature will be valid if the method:
• identifies the person signing;
• indicates their approval of the information communicated;
• is appropriately reliable for the purposes for which the information was communicated; and
• consent to use the method by all parties is present.
It is noted that these various pieces of legislation are technology neutral, as they do not attempt to approve or deny any specific technology.
It is clear that electronic signatures are no longer a second class citizen to physical counterparts. Legislation has approved what was already happening in practice, and the day is rapidly approaching where electronic signatures will outnumber the volume of physical signatures. Knowing a little bit about the history and purpose of physical signatures can help you better understand the future of their electronic alternatives.
