Advancements in technology have modernised the traditional and familiar ways of doing business. Parties no longer have to be in one room or in the same country to conclude transactions. This also relates to the execution and signature of documents, particularly where the signatories are in different locations or countries.
The standard practice, where parties are in different locations, has been to print a document, sign it in ink, scan it and send it to the other parties with a view to collating all the counterparts containing each signatory’s original signature at a later date. However, the advent of ‘electronic signatures’ means one can sign a document ‘electronically’ without having to print it and with no lag time between the signature and collation of documents.
In a recent finance transaction several signatories opted to sign the relevant agreements and documents by having their scanned signatures placed on the documents through, presumably, a cut and paste exercise. The Electronic Communications and Transactions Act No. 25 of 2002 (ECT Act) allows for the signature of documents by way of an ‘electronic signature’ and distinguishes between ‘electronic signatures’ and ‘advanced electronic signatures’. The ECT Act defines an ‘electronic signature’ as “data attached to, incorporated in, or logically associated with other data and which is intended by the user to serve as a signature” and ‘data’ is defined as being “electronic representations of information in any form”. On the other hand, an ‘advanced electronic signature’ is defined as “an electronic signature which results from a process which has been accredited” in accordance with the ECT Act through an accreditation authority. When one uses an advanced electronic signature, the document is signed with an encrypted data signature.
Section 13(1) of the ECT Act provides that where a signature of a person is required by law and such law does not specify the type of signature, that requirement will be met only if an advanced electronic signature is used. Section 13(2) provides that (subject to the provisions of s13(1)) an electronic signature is not without legal force and effect merely on the grounds that it is in electronic form. In terms of the ECT Act, a normal electronic signature (ie a scanned image of a written signature) will be regarded as a data message. In this regard, s11 of the ECT Act legally recognises data messages and provides that information is not without legal force and effect merely on the grounds that it is wholly or partly in the form of a data message.
Parties are, therefore, not only entitled to provide for electronic signature, but are, in terms of the ECT Act (and provided s13(1) is not applicable), also entitled to determine the type of electronic signature they wish to use for the agreement to be properly executed. Section 13(3), however, dictates that where the parties have provided for the use of an electronic signature but have not agreed on the type of electronic signature to be used, the requirements for a valid electronic signature will only be met if:
• a method is used to identify the person signing the document and to indicate the person’s approval of the information being communicated; and
• the method was chosen and used in light of relevant circumstances at the time and was appropriately reliable for the purposes for which the information was communicated.
(It must be noted, however, that documents governed by the Wills Act, No 7 of 1953, the Alienation of Land Act, No 68 of 1981 and the Bills of Exchange Act, No 34 of 1964 (that is wills, contracts for the sale of immovable property and bills of exchange, respectively) will be invalid if signed electronically regardless of the type of electronic signature used).
In the event that parties agree on the use of an electronic signature, an advanced electronic signature would be advantageous from an onus perspective as s13(4) of the ECT Act contains a presumption that where an advanced electronic signature has been used, such signature is regarded as being a valid electronic signature, applied properly, unless the contrary is proved. Thus the burden of proof is placed on the party disputing the validity of the signature. Therefore, where, in a finance transaction, a lender seeks to enforce repayment against a borrower or to foreclose under any security and the borrower and/or the security provider seek to escape liability on the basis that the document was not validly executed, the onus will be on the borrower or security provider to prove that the signature is not valid.
Agreements concluded electronically are therefore in principle valid and enforceable. The type of electronic signature used will be dependent upon the nature of the contract to be executed and whether the parties are obliged to use an advanced electronic signature pursuant to legislation (as envisaged in s13(1)). Where a contract is not subject to legislation requiring the parties to use advanced electronic signatures, the parties should agree on the form of electronic signature to be used. In the event that parties agree to the electronic signature of a document but do not agree on the particular type of electronic signature to be used, the requirement for an electronic signature will be met if the signature enables the identification of the signatory and the signatory’s intention to be bound by the document, requirements normally applied to handwritten signatures. Also, the electronic signature used must be appropriate to the specific circumstances in which it is used. Similarly, where an agreement is silent on the mode of signature and is signed using an electronic signature, the effect of s13(2) of the ECT Act is that such signature is not without legal force merely on the grounds that it is in electronic form. Something more would be required to render it invalid, ie that it does not enable the identification of the signatory and does not show the signatory’s willingness to be bound to the terms of the document and that it was not appropriate for the specific circumstances.
Written signatures conventionally served as acknowledgement of acceptance of the content of a document. From an evidentiary perspective, handwritten signatures also served, and still do, as proof of acknowledgement. The use and authenticity of digital images of a written signature in agreements may be problematic from an evidentiary perspective due to the ease with which scanned signatures can be copied from one electronic document to another, opening the door for fraud and disputes when it comes to the enforcement of an agreement. As such, one should err on the side of caution when using an electronic signature, as it is not without risks. In finance transactions, for example, lenders require assurance and certainty that they would be able to obtain repayment, by the borrower and/or any security providers, of any monies advanced, in the normal course or by foreclosing under any security held. As such it is important that there is no room for any dispute as to the execution (and therefore enforceability) of the applicable documents.
In light of the potential for future disputes associated with electronic signatures, lenders, in particular, still require that documents be executed the old fashioned way, by hand and in ink. This can be achieved by inserting a clause in the agreement excluding electronic signatures. In the event of future disputes as to the authenticity of handwritten signatures, it would be easier to determine the authenticity of any disputed handwritten signatures than having to prove the authenticity of an electronic signature.
Contributed by:
Izak Lessing, Director, and Pride Jani, Associate, Finance and Banking, Cliffe Dekker Hofmeyr
