COVID-19 has brought a number of challenges to the way we do business in the RegTech sector. However, the pandemic has also brought sharply into focus the practical difficulties associated with executing, attesting and witnessing hard copy documents (which is increasingly moving to digital operations for a host of reasons, including improved customer experience and speed of transacting, both of which are core to RegTech businesses).
Generally speaking, the Courts in Australia have taken a broad view of valid execution of documents and support the use of electronic and physical 'wet-ink' signatures without prescribing special requirements. Additionally, before COVID-19, there was legislation at the Commonwealth level and in all States and Territories in Australia to validate the use of electronic signatures (the Electronic Transaction Acts or ETAs). In the past, this legislation generally provided that certain documents, like deeds and powers of attorney (that must be witnessed to be effective), could not be electronically executed. However, due to the difficulties associated with executing, attesting and witnessing documents during the COVID-19 pandemic, governments and entities across Australia introduced temporary legislative instruments to permit some of those documents to be executed and witnessed electronically (subject to certain conditions).
These measures have generally been introduced on a temporary basis and have been renewed or revised on a rolling basis, while the extent and duration of the COVID-19 pandemic unfolds – and so the law around the use of electronic signatures in Australia is in a real state of flux. Most recently:
- the Corporations Amendment (Meetings and Documents) Bill 2021 (Cth) was passed on 10 February (awaiting Royal Assent). This is expected to replace the temporary measures currently in place which will expire on 31 March and will, among other things, expressly permits electronic and split execution of documents by company officers under section 127 of the Corporations Act 2001 (Cth) and permits remote witnessing of the fixing of a common deal of a corporation to a document.
- ASIC Corporations (COVID-19 Email Lodgment Service – ASIC Corporations (Wholly owned Companies) Instrument 2016/785) Instrument 2021/152 was approved on 24 March 2021 and facilitates the electronic lodgement of deeds of cross guarantee, variation deeds, assumption deeds, revocation deeds, notices of disposal, certificates and opt-in and opt-out notices by email.
However, given the criticality of financial transactions being enforceable, particular consideration should be given to the type of document being executed. It is also important to check the rules that apply in the state in which a document is being executed, shortly before executing that document, to ensure that the execution is valid. Transaction risk should also be considered – depending on the nature of the transaction, you may be prepared to accept the risk that comes with electronic execution. For example, a low value/short term arrangement (for example, an application form) that will be performed immediately might be less susceptible to enforceability challenges based on execution issues, and those risks may be acceptable to facilitate business operations. This is less likely to be acceptable for a long-term or high value facility agreement. By contrast, deeds (like those providing guarantees and indemnities) are not usually immediately performed and so there may be more material risks associated with enforceability at some later date, such as upon a default under a related agreement. In those circumstances, a wet ink signature may be the more prudent option, or more rigour may be warranted in accepting an electronic signature.
The below overview, is a simple set of 'Dos and Don'ts' (based on the current state of play in electronic execution law in Australia) to help you easily navigate electronic execution of documents in the financial services sector and minimise the risks of incorrectly executed documents being unenforceable in the form intended.
| Dos | Don'ts |
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Agreements Generally, any document other than a deed which is intended to have legal effect. For example, application forms, offer letters and loan agreements. |
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Ensure the proposed electronic execution meets the common law test for electronic signatures. This is essentially the same as determining whether a 'wet ink' signature is valid. Consider the transaction risks – see our comments above. Where company officers are executing an electronic counterpart of a document under s127 of the Corporations Act 2001 (Cth), ensure that:
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Forget to keep copies of all signed counterparts of documents. Assume that the person signing on behalf of the other party is appropriately authorised to do so – enquire about the authority of your counterparty's signatory to execute (e.g. by obtaining a current company search to ensure the signatories are company officers or by requesting a copy of the power of attorney under which the signatory is executing). |
| Deeds Common examples include guarantees and indemnity and general security deeds |
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Convert deeds to agreements, where possible, to avoid complexities associated with electronic witnessing. This may not be possible, including if there is no consideration or if the form of document is required to be executed as a deed to meet certain requirements. Consider the transaction risks – see our comments above. Consider whether the counterparty is an individual or company. A deed that is executed by a company in accordance with section 127(1) of the Corporations Act 2001 (Cth) does not need to be witnessed. Consider the jurisdiction(s) in which the deed will be executed and whether any witnessing requirements can be met remotely via an audiovisual (AV) link or similar or whether witnessing requirements are waived under applicable permanent or temporary measures. For example:
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Assume that COVID-19 measures apply to validate electronic and execution of all deeds.
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| Mortgages | |
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If you are the mortgagee:
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Assume that mortgages can be executed electronically. Check the relevant land registry requirements for execution, which may not permit electronic execution (though there are some temporary changes on a state by state basis on this). |
| Documents for lodgement at registries | |
| Check requirements of the relevant Land Registries, Courts, ASIC, ASX and other Government or external bodies who may have specific requirements for 'wet ink' or original signatures, and may not accept counterparts. |
Assume that ASIC Instrument 2020/890 permits electronic lodgement of your document – consider whether your document falls in one of the classes of documents covered by that instrument. Assume that a registry will simply accept electronic execution where permitted by law. Many have their own further requirements or interpretations, which may differ. |
| All Documents | |
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Engage early. Discuss with all parties (including any party who will be reviewing or relying on the document) as soon as possible, to ensure that all parties are comfortable with the proposed manner of execution and that any risks are understood and, if possible, minimised. Minimise fraud. Sign documents electronically using a platform with inbuilt identification verification (there are many on the market today), rather than the insertion of a scanned signature or image, to minimise the risk of fraud. Appoint alternate directors or attorneys. For companies if directors may be unavailable, consider appointing alternate or additional directors, or attorneys, so that more signatories will be available. Obtain personal authentication. For documents that are at higher risk of having execution validity challenged, consider whether it is necessary to obtain evidence that the signatory has affixed their electronic signature themselves, or has specifically authorised another person to do it for them (e.g. via email or verbal confirmation). |
Insert scanned signatures in editable documents, to minimise the risk of amendments after signature (or the signature being copied into another document). Assume that all involved will accept electronic execution. Many organisations will have detailed policies that may need to be followed.Assume that a signature has been validly affixed by the person it purports to be. |
| Additional considerations for 'click-through', 'click-wrap' and similar terms | |
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Be fair. Any standard terms should be reviewed for compliance with applicable unfair contract terms and other consumer law requirements. This should include any terms which are embedded within the click-through terms. Be clear. What is it that the person is clicking to accept? Do you have a working link to the terms being accepted? Think about who will be clicking. Usual and expected terms for one person may not be usual and expected for another. Unusual terms may impact the formation of an agreement if they are not appropriately brought to the person's attention before signing. Require positive action. Has the person shown their assent? Ideally, the person shouldn't be able to progress through the user experience without checking a box to the effect of 'I accept.' Also consider requiring the person to scroll through all the terms and conditions before being able to proceed. Draw attention to the terms. The terms should be prominent and next to the requirements for positive action (i.e. the tick box). If you or your consumers are in New South Wales, there are positive obligations to make consumers aware of terms which 'substantially prejudice' their interests. Document evidence of consent. Keep records of who accepted the terms, the date, and which version they agreed to. |
Just provide a link to a page that's full of other links. Incorporate other documents in the terms being accepted (e.g. via hyperlink) unless it's very clear that the terms are being incorporated (and how the terms fit together). Use pre-ticked check boxes. This can negate consent. Include unusual or onerous terms without drawing the person's attention to them in a prominent manner (e.g. on the main page) . |
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.
