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Does my client need to sign the contract?

Signing the contract

Is this a question you’ve thought about before? As in: We’ve done the deal and want to get started. But I want to be sure they’ll pay. Does my client need to sign the contract?

Picture it. You’ve been in long discussions with your client. You’ve narrowed down the scope of services or works to suit them. You’ve settled on a price. You’ve provided them with your standard contract. Your contract is brief and reasonable and clearly sets out:

  • your scope;
  • the price; and
  • both parties’ expectations of their own and each other’s obligations during your relationship.

You ask the client to sign and send it back.

Your client has emailed to say they’re happy with your terms. They ask you to get started ASAP. Happy days! You’ve booked in some great work and you’re looking forward to a nice fat fee.

BUT… they haven’t returned the signed contract.

It happens all the time, doesn’t it? Project files are littered with contracts that are never signed, but the project gets done and the bill gets paid. So, does it matter?

The short answer is no, it probably doesn’t.

Usually, you don’t need a “wet signature” for a commercial contract to be enforceable

For the most part, provided the person on the other end of the email has authority to contract on behalf of their company, an unconditional acceptance of your offer and contract by email is enough to form a binding contract. Even by telephone, although that is harder to prove so I recommend an email confirmation.

To make it easier, you can ask your client to electronically “sign” the document. Australian states have passed largely uniform “Electronic Transactions Acts” that confirm the validity of electronic signatures.

Sometimes clients are still lazy even when it’s just a mouse click. So, when I draft contract templates, the very first clause confirms that a practical action by the client demonstrates acceptance. Examples might be issuing a purchase order, paying the deposit or giving instructions to proceed by email after having received the T&Cs.

But what’s this “section 127” business that I sometimes see on the signing panels?

A “section 127 execution” is one where the contract requires two board directors, or a board director and the company secretary, to sign the contract. Basically, it refers to an aspect of Australian company law that says contracting parties are entitled to rely on the signatories having authority to enter into the contract. “Section 127” means section 127 of the Corporations Act 2001, which sets out this principle. It’s there to protect businesses from rogue employees on the other side signing up to something they weren’t supposed to.

Many companies prefer this kind of formal execution for really large projects and for some particular types of commercial transactions.

Surely I don’t need to break out an actual pen in this day and age?

Australian law has been a little grey in this area. Until recently, the safest position with this kind of contract was indeed “wet” signatures from all parties on the same document (i.e., not in multiple counterparts).

In a rare silver lining, COVID prompted the Australian Government to introduce some temporary measures in 2020 that allowed for electronic signatures to comply with s127. That temporary amendment to the Corporations Act expired. The Federal Government reinstated it in August last year. The amendment is due for review again in March 2022, and the Federal Government has also released draft legislation to create permanent reform in this area.   

A section 127 execution is overkill for routine commercial contracts

That said, if your contract is a run of the mill services or works agreement, s127 executions are probably overkill. Just as long as you are confident that the person you’re dealing with from the other party has their employer’s authority to engage you to do the work (i.e., that they are a “duly authorised representative” of your client).

When DOES my client need to sign the contract?

There are a few types of contracts that require putting a real live pen put to paper – an example is real estate transactions. Some state revenue authorities also want to see “wet ink”, so if your transaction is one that attracts transfer duty it might be best to go the whole hog.

Electronic execution and witnessing is now legally legit for many documents that don’t require a s127 or wet signature. The Australian Government Solicitor has published a helpful round-up here.

That said, deeds are a still little bit up in the air. Some (but not all) Australian states allow electronic signatures and witnessing, so you should check.

Anyway, generally you won’t need a deed for day-to-day commercial contracts. If you’re in a jurisdiction that doesn’t allow for electronic execution or witnessing of deeds, convert the document to a contract and click away.

But what if I really want them to sign it, for my own comfort?

Fair enough. I suggest that you make it as easy for the other party as possible. If there’s no reason for a s127 execution, allow for an electronic “signature”. To be extra careful, you can include a clause in your contract that confirms the validity of electronic execution. In addition to the electronic transactions legislation, there’s plenty of case law supporting electronic signatures these days.

Plus, there are a variety of secure platforms that can facilitate electronic contract execution at the click of a mouse. I’ve used and been really happy with Docusign, for one. There’s a cost to use these services, but the value is in the peace of mind. They provide for the other party to reliably identify themselves and actively confirm acceptance of the contract.

Programs like Adobe will also let parties apply digital signatures to PDF documents.

How can SoundLegal help?

Is your company still making your poor clients physically initial 150 pages of your service agreement? It might be time to let those lingering concerns go, and we’re happy to talk you through it if it would help.

We can also draft a clause for your standard contract that triggers formation of the contract on some useful practical action that’s going to happen anyway.  

Get in touch and tell us what you need.

Photo of Gemma Nugent

About Gemma

I help construction, engineering and consulting businesses create and negotiate clear contracts so they can achieve great project outcomes. I founded SoundLegal to help SMEs in the engineering, construction, consulting and light industrial sectors manage their risk to support business growth, by finding practical, common sense solutions to contractual and other legal challenges. Subscribe to the SoundLegal newsletter “No Jargon” to hear monthly business insights from me.

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