Legal understanding and issues with electronic signatures - an empirical study of large businesses.

• Author: Srivastava, Aashish

INTRODUCTION

The explosive growth of the Internet over the last two decades has revolutionized commerce. Electronic commerce ("e-commerce") allows businesses to reach out to global markets that are no longer bound by geography or time. Increasingly, governments, businesses and consumers are using information technology to conduct commerce. The Internet is being used to electronically exchange information, and products and services are being produced, marketed, bought, sold and even delivered to places previously thought unreachable. Relative to traditional practices and procedures, e-commerce increases convenience and choice, fosters competition, and more importantly, generates new business opportunities and market efficiencies.

The advent of the Internet transformed the world of commerce in the nineties. For e-commerce to achieve its full potential, a new mechanism for online authentication was required. Electronic signatures, in particular digital signatures, (1) were established with the objective of authenticating and facilitating commercial transactions in the electronic environment. However, one key issue facing global communication and trade was the legal recognition of electronic signatures so that they would emulate the same assurance and trust that traditional paper-based signature offered. To achieve this standard, a new legal framework was required.

During the mid-1990's, a few legislative enactments governing electronic transactions emerged. The first legislation to do so in the United States was enacted in 1995 by the State of Utah. (2) This was a technology-specific legislation that focused solely on cryptography-based digital signatures. In the same year, California passed its own legislation (3) using a more minimalist and technology-neutral market-based approach. (4) Similar versions of these two laws were later adopted by several other U.S. states. (5)

However, no matter what systems or legal principles were adopted at the state or national level, promoting global e-commerce required a mechanism to provide international recognition of electronic signatures. In an attempt to create a more harmonized set of laws, several initiatives were implemented at both regional and global levels. The European Union (EU) enacted the Electronic Signatures Directive in 1999 to ensure consistency and legal validity of electronic signatures among its member states. (6) At a global level, the United Nations Commission on International Trade Law (UNCITRAL) has provided model laws that offer a legislative guide to countries on how to frame national electronic signature legislation. (7) Typically, legislation has taken one of three approaches: (8) (1) a minimalist or technology-neutral approach, where any technology can be used as an electronic signature provided it satisfies the legal function of a signature; (9) (2) a digital signature or technology-specific approach that recognizes the use of digital signatures; (10) or (3) a two-pronged approach that provides an evidentiary presumption in favor of the validity of an electronic signature if the parties use specific technologies, in particular, digital signatures issued by recognized certification authorities. (11)

At the national and international level, several policies have been developed by governments to provide a legal framework for promoting electronic signatures. However, anecdotal evidence and media reports indicate that there has been low usage of the technology worldwide. A 2006 progress report on the EU Electronic Signatures Directive expressed concern over the slow adoption of digital signatures among its twenty-five member states. (12) According to the report's press release, "[t]he reluctant take-up of electronic signature tools is slowing down the growth of trade in goods and services via the internet." (13) Other countries such as Germany and Thailand have also reported low acceptance of electronic signatures in recent years. (14) Despite enacting legislation designed to give an impetus to e-commerce at all levels, digital signatures are mostly used, if at all, for government online delivery services. (15) Anecdotal evidence shows businesses exhibit strong aversion to the use of the technology, particularly when dealing with other businesses for contracts and commercial transactions, despite government efforts to promote it as "a valid form of authentication for enabling and sealing e-commerce transactions." (16)

Why is there hesitance to use electronic signatures in a regulated environment? Is it due to a collective unawareness of Australia's electronic transactions legislations ("ETL")? Are businesses concerned that proving an electronic signature in a court of law and the associated evidentiary issues are too complex? Are they apprehensive about the lack of a standardized ETL in the international community? While factors such as security fears, cost and complexity of the technology, and the culture and customs associated with manuscript signatures can also be potential impediments to the use of electronic signatures, the aim of this article is to investigate empirically, from a legal perspective, factors that have contributed to the business community's lack of acceptance of electronic signatures contracts and commercial transactions. (17)

The study is based on a sample comprised of seventeen large publicly listed Australian companies. Participants include elite staff from legal and information technology (IT) departments, as well as Senior Management (SM). Semi-structured interviews with participants were conducted face-to-face or by telephone to collect participants' views on the potential issues associated with the low usage of electronic signatures. (18)

Part I examines how businesses understand the law governing electronic signatures. Part II delves into the evidentiary issues businesses will likely confront when trying to prove the use of an electronic signature in court. Specifically, it discusses the absence of original signatures, witnesses, and handwriting experts in authenticating electronic signatures. Part III investigates whether differing electronic signature legislations around the world create complexities when formulating international contracts, and whether this is perceived as an impediment to the use of electronic signatures within the business community. Part IV critically analyzes the arguments put forward by participants. Finally, Part V recommends measures to enhance the legal posture of electronic signatures.

I. BUSINESSES' UNDERSTANDING OF THE LAW GOVERNING ELECTRONIC SIGNATURES

A low level of awareness was observed amongst the business community with regard to the law governing electronic signatures. Sixty-seven percent of interview participants were unaware of Australia's Electronic Transactions Act ("ETA"). (19) The remaining thirty-six percent demonstrated only a limited understanding of the ETA with superficial knowledge of its provisions and other details. (20) One participant stated,

I think the government should come out with some legislation. There should be some kind of legislation that should be out in Australia [that] says that electronic signatures are an acceptable form and can legally replace paper-based forms of signature. Then only we businesses may be thinking of using it. (21) Although a higher proportion among legal participants, fifty-four percent, knew about the existence of the ETA, that number is not as high as expected (Figure 1). Legal professionals are expected to keep more abreast of the law. On the other hand, a higher level of unawareness was noted among IT and SM participants, as illustrated by these participants' ignorance of the electronic signature legislation. A director noted, "I am not aware of any such law. It is very surprising because my solicitor has never told me about anything as such that this new law is in place and electronic signatures can be a replacement to paper-based signature. Thanks for telling it to me." (22) While a SM said, "[w]e haven't looked into that and we accept legal documents or fax documents with signatures on them but this is as far as we have taken it. We really have not gone and explored the wider legal aspect of understanding or where the law sits with it." (23)

Lack of awareness and understanding of the Australian electronic signatures laws appeared to be a reason for businesses' lack of appreciation of the technology. One participant stated, "I assume that [an electronic signature] is an appropriate method of executing a document but perhaps my lack of knowledge of the law on that point is part of my reluctance towards it." (24)

While the legislation could have played a central role in promoting the growth of electronic signatures, it has failed this purpose. Businesses need to understand the ETA, the technologies within the ambit of electronic signatures, and the regulations and legal requirements. This basic understanding would enhance the legal seriousness of electronic signatures and, in turn, encourage businesses to use the new technology more confidently for contracts and commercial transactions.

Some participants believed that businesses would willingly switch from the practice of manuscript signature to electronic signature for contracts and documents if they received adequate legal advice. (25) Skepticism of legal counsel's ability to provide advice was clearly reflected in one participant's comment:

I think [our legal counsel] would [ask], "why ... are you signing it that way?" Then I [would] ask him "why?" ... [to which he will tell me,] "look it's not secure enough, there is no adequate legal backup. I would prefer that you delay the whole thing, sign [the] original[] and airbag the document to [the United States] which [will] only ... take twenty-four hours anyway." (26) Participants' ignorance about the ETA did prevent an in-depth examination of perceptions about provisions in the ETA. However, their views were...