Has the paperless contract come of age?

For the majority of businesses, contracts and paperwork are inseparable. Most existing contracts are in paper format and this poses the problem of how to store the paper, and locate the documents themselves.

The law states that any way you would want to record your contract is fine, as long as both parties have prior agreement on the format, except for the sale of land.

The Electronic Communications and Transactions (ECT) Act paved the way for businesses to move away from paper-based contracts to electronic format, which will enable a central repository for tracking contracts.

Such a repository provides an online, globally accessible "single-point-of-truth" for a company's business relationships and obligations.

Warren Weertman, a senior associate at commercial law firm Bowman Gilfillan, explains that, according to the ECT Act, electronic data constitutes writing. This means it would be possible to conclude a contract by way of e-mail or a Word document, for example. However, the ECT Act does not stipulate the period for which documents must be retained.

All that the ECT Act states is that if a contracting party wants to retain a copy of the contract in an electronic form, then the following requirements must be met:

* The information must be accessible and capable of being accessed and used subsequent to the signing of the contract.
* The contract must be in the format in which it was generated, sent or received, or in a format which can be demonstrated to accurately represent the contract.
* The origin and destination of the contract as well as the date and time it was sent or received must be determinable.

"In order for an electronic agreement to be considered the original in terms of the ECT Act, the contract must have remained unaltered and retained its integrity and the contract must be capable of being displayed or produced to the person to whom it is to be presented," explains Weertman.

Regardless of the format of the contract, the signatures bind the signatories in agreement.

Paul Maddison is MD of Realyst.

A contract is a record of understanding of an agreement, and signatures validate it. A signature is the mark which shows the person who signed agrees with the content of the document - it authenticates a message.

A signature can be any unique identifier. Without signatures, the process of enforcing a contract becomes a more challenging legal process.

Regardless of the format of the contract, the signatures bind the signatories in agreement. Therefore changes to a contractual agreement, whether on an electronic document or on paper, without renewed approval and new signatures, are fraudulent.

With regard to electronic signatures, the ECT Act requires that two forms of signatures may be used, either advanced electronic signatures or electronic signatures, says Weertman.

An advanced electronic signature is a form of signature process that has been approved by the South African Accreditation Authority (www.saaa.gov.za).

An electronic signature is some data that is logically associated with a contract and which indicates the person's acceptance of the terms of the agreement and is intended to function as their signature.

If an agreement is being concluded by e-mail, for example, your e-mail signature could function as your electronic signature. It is up to the parties to decide which form of electronic signature they want to use when signing a contract. However, if a law requires that a contract be signed, then only an advanced electronic signature may be used, Weertman explains.

The two main technologies that have emerged in an attempt to ensure legally acceptable electronic signatures are Public Key Infrastructure digital signatures, and click wrap agreements.

Businesses should warehouse their existing paper-based documents properly for at least five years, as these are the original source documents, and the ECT Act states the contract must be presentable in the same format in which it was generated, sent or received. However, it would be prudent to convert old hard copies to electronic formats, as backup.

However, it is critical that businesses do not underestimate the amount of effort required to convert existing contracts from hardcopy format. Effective and timely contract conversion requires electronic loading, scanning, cleansing and tagging as well as associated services to manage inevitable exceptions that require manual intervention.

If all new contracts are electronically originated and make use of electronic signatures or click wrap agreements where required, then has the paperless contract finally come of age?

"Definitely," says Weertman. "The legal framework is in place. The only minor stumbling block that is left is for the accreditation authority to start accrediting advanced electronic signature solutions, which process is currently under way."

* Paul Maddison is MD of Realyst.