9 December 2020 by and Corporate & Commercial Alert

Latest episodes on electronic signatures and the risk associated therewith

Very often, the go-ahead on a transaction is dependent upon the provision of security by one of the parties, in favour of the other. One of the most common forms of security for the payment of monies is a suretyship granted by, for example, the shareholder of the paying party in favour of the receiving party.

Now more than ever, parties are finding themselves negotiating and concluding transactions online. This includes the signing of the agreements governing these transactions, as well as the security documents ancillary, but pivotal, thereto: but are electronic signatures enough? The Supreme Court of Appeals cases of Spring Forest Trading 599 CC v Wilberry (Pty) Ltd t/a Ecowash and Another 2015 (2) SA 118 (SCA) and Global & Local Investments Advisors (Pty) Ltd v Fouche (71/2019) [2020] ZASCA 8 (18 March 2020) are important recent decisions with regard to the use of electronic signatures where the agreement provides for something, such as an amendment or notice, to be “in writing and signed” (and the old adage “context is everything” emerges when reading those cases together), however additional considerations apply when the law, as opposed to merely the agreement, requires a document to be in writing and signed.

When it comes to suretyships specifically, section 6 of the General Law of Amendment Act 50 of 1956, requires that for a suretyship to be valid, it must be (i) in writing and (ii) signed by, or on behalf of, the surety.

In Massbuild Pty Ltd t/a Builders Express, Builders Warehouse and Builders Trade Depot v Tikon Construction CC and another [2020] JOL 48548 (GJ) (unreported case number 6986/2017) (14 September 2020), the High Court considered whether a suretyship, which had been electronically signed, met the requirements for a valid suretyship.

Massbuild sold and delivered goods to Tikon on credit. Mr Robbertze, being the sole member of Tikon, allegedly stood surety for certain of the amounts owing by Tikon in respect thereof. Due to Tikon being in liquidation at the time of the trial, Massbuild pursued a claim against Mr Robbertze for the outstanding balance owing by Tikon.

Tikon’s financial manager and office administrator, Ms R, was responsible for, inter alia, completing forms on behalf of Tikon for purposes of having trading accounts opened with suppliers. Upon receipt of the credit application and suretyship from Massbuild in electronic form (PDF), Ms R claimed that she completed the form electronically, printed it and physically signed the form as witness, after which she scanned the form in and appended an electronically scanned copy of Mr Robbertze’s signature thereto. Ms R had a standing authority to append Mr Robbertze’s signature on behalf of Tikon as required in the ordinary course of business.

Mr Robbertze denied liability in respect of the suretyship on the basis that it had not met the requirements of a valid suretyship on account of it not having been signed with an advanced electronic signature in terms of section 13 of the Electronic Communications and Transactions Act 25 of 2002 (ECTA), as required in respect of data messages.

Section 13 of the ECTA provides that where a signature is required by law (as with suretyships) and such law does not specify the type of signature, such signature requirement, in respect of a data message, is only met if an “advanced electronic signature” is used. It therefore follows that where a suretyship is embodied in a data message, the signature must meet the requirements for an advanced electronic signature.

An advanced electronic signature is defined in the ECTA as an electronic signature which results from a process (or use of a product) which has been accredited, after meeting the prescribed requirements, by the Accreditation Authority as provided for in sections 37 and 38.

While Massbuild agreed that the suretyship lacked an advance electronic signature, it disputed whether the suretyship constituted a data message and therefore, the requirement for an advance electronic signature was irrelevant.

A data message is defined in the ECTA as data generated, sent, received or stored by electronic means.

The court held that, despite the fact that Ms R printed the electronic form suretyship and signed it in manuscript, creating an original, physical document, her signature was applied as witness only (to the fact that Mr Robbertze’s signature was appended to the suretyship) and not on behalf of Mr Robbertze. Mr Robbertze’s signature was appended to the scanned suretyship electronically, whereafter the suretyship was electronically transmitted to Massbuild. As such, it was held that Massbuild’s argument that an original, physical version of the suretyship was created by Ms R’s signature must fail and that the suretyship indeed constituted a data message, subject to the requirements of an advance electronic signature.

The suretyship in question was consequently held as invalid and unenforceable and the court dismissed Massbuild’s claim against Mr Robbertze, with costs.

Along similar lines, in a judgment handed down a week later, Aarifah Security Services CC v Jakoita Properties (Pty) Ltd and Others (12994/18) [2020] ZAGPJHC 222 (21 September 2020), the above principle was confirmed in the context of an offer made by the beneficiary/grantee of a pre-emptive right in respect of immovable property, in exercising that pre-emptive right. Such an offer must comply with the formalities as laid down in the Alienation of Land Act 68 of 1981, and accordingly a special designated electronic signature is required in terms of the ECTA. It was held that a “normal” signature, such as one finds at the foot of an email, whilst it might suffice for a formality requiring a signature laid down in contract (per Spring Forest), cannot suffice if the signature is required by statute.

In conclusion, it is vital to ensure that, when receiving security documents and other agreements which are required to be signed by law, such as suretyships, these documents, if signed electronically, are signed in the prescribed manner with an advance electronic signature, failing which, the rights granted thereunder will be invalid and unenforceable.

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