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Are electronic signatures legally binding?

Are electronic signatures legally binding?

Technology is advancing at a rapid pace, and the law, in its usual way, is attempting to keep up with the pace of technology. With the concept of a global village and business being conducted across borders in the areas of mergers and acquisitions, foreign property investments, IT contracting and mining development (to list a few), deals are regularly negotiated and solidified through electronic communications to ensure speed and efficiency.

Often documentation and correspondence are confirmed by way of electronic signature as a means of validating and at times without the confirmation of the identity of the signor or their intention to be bound by the content of the correspondence or document.

At this point it’s important that we distinguish an “electronic signature” from a “digital signature”.

What is the difference between an electronic signature and a digital signature?

An electronic signature is a method of signing an electronic document or transmission; usually a scanned version of a hand written signature. It can be defined simply as a signature used on an electronic document or transmission.

"There is concern over whether electronic signatures are legally binding and whether they can be used as evidence in courts."

A digital signature is a tool that incorporates technically accepted identity verification such as key cryptography, using hidden electronic data linked to certain information of the signatory and which can be verified and is therefore  more secure than an electronic signature, but still subject to certain risks.

There is concern over whether electronic signatures are legally binding and whether they can be used as evidence in courts.

Under the Electronic Transactions Act 2000 (SA) (“the Act”) electronic signatures are considered to be valid at law. One of the requirements of the Act is that the parties signing a document are both in agreement to use electronic signatures and use electronic transmission of documents.

"Recently the Supreme Court of New South Wales ruled that a company director was not bound by a Guarantee that bore his electronic signature..."

Recently the Supreme Court of New South Wales ruled that a company director was not bound by a Guarantee that bore his electronic signature on the basis that the director had not executed nor authorised the Guarantee’s execution on his behalf.

In the recent case of Williams Group Australia Pty Ltd –v- Crocker [2016] NSWCA 265, the NSW Court of Appeal held that the use of electronic signatures by a person other than the owner of the signature cannot be relied upon as a ratification of a contract unless a clear intention to authorise such a method is evidenced from the actions of the owner of the signature.

In this case Mr Crocker was the director of a company that provided a Directors Guarantee (“the Guarantee”) to a third party. The Guarantee had been signed by all three directors, however Mr Crocker’s signature was an electronic signature which had been placed on the Guarantee without his knowledge.

Williams Group Australia argued that the failure of Mr Crocker to change his password of the electronic signing system demonstrated an intention to authorise the use of his signature on the Guarantee. The court did not agree.

As intention is one of the main elements of contract law (along with offer, acceptance and consideration), then the lack of intention, evidenced by the fact that Mr Crocker had no knowledge of the signing of the Guarantee (a fact which was undisputed), led the court to hold that the Guarantee had not been ratified by Mr Crocker and consequently was not liable. In essence the court must be satisfied that the signatory had knowledge of the document, had consented to the use of their signature on the document and had instructed or assented to a third party to use that signature on the document. The essence of clear intention to authorise such use of the electronic signature must be present in order for a court to ratify the contract. 

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Please note, this Blog is posted in Adelaide, South Australia by Andersons Solicitors. It relates to Australian Federal and South Australian legislation. Andersons Solicitors is a medium sized law firm servicing metropolitan Adelaide and regional South Australia across all areas of law for individuals and businesses.


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