Assessing the Legality of Electronic Signatures

“Electronic signatures” are increasingly becoming seen as a secure, safe way to execute important transactions.

However, the recent 2016 appeal judgement of Williams Group Australia Pty Ltd v Crocker has served as a timely warning.

In order to be legally binding, parties need to ensure that the electronic signatures have been affixed with the necessary authorisation.

The facts

The issue behind the case dated back to 2010, when the appellant, Williams Group Australia Pty Ltd (WGA), a supplier of building materials, approved a credit application by IDH Modular Pty Ltd (IDH), a supplier of building modules.

The credit application carried the electronically affixed signatures of three directors of IDH and was accompanied by all-moneys guarantees from each director – also signed electronically. Mr Crocker was one of three directors of IDH.

The electronic signatures had been affixed to the documents through the company’s “HelloFax” system and had purportedly been witnessed by IDH’s office administration manager.

The HelloFax system allows users to upload their signatures and electronically apply them to documents. Mr Crocker was provided with a username and password giving him access to the HelloFax system by one of the other directors.

Notably, Mr Crocker had not changed his password during the period which the credit application and guarantee were operational. This left open the possibility that persons with his login details were potentially able to affix his electronic signature to documents without his knowledge.

Fast forward to May 2013 and IDH had incurred a debt to WGA of $889,534.35. IDH defaulted and WGA commenced proceedings to enforce the debt and each of the respective director’s all-moneys guarantees.

Summary judgements were obtained against two directors, however Mr Crocker was able to successfully defend the claim against him on the basis that his electronic signature had been placed on the application and guarantee without his knowledge or authority.

What constitutes proof of authority?

The director in question, Mr Crocker, argued that his electronic signature had been placed on the application and guarantee by an “unknown person”, without his knowledge or authority.

Initially, the primary judge found in his favour and considered that the appellant had simply assumed the electronic signature was genuine, without actually considering how it had been placed on the documentation. When the matter was appealed to the NSW Supreme Court of Appeal, the primary judge’s decision was upheld.

At the heart of the case was the issue of ‘ostensible authority’. For authority to be valid, it was determined that Mr Crocker, as principal, must have made some sort of representation of authorisation for an ‘unknown person’ to place their signature – and for the other contracting party to have relied on that signature.

In this case, it was held that Mr Crocker had not given any actual or ostensible authority to an “unknown person” to affix his electronic signature to the guarantee. The court found that there was no representation and that the appellant had simply assumed the electronic signature on the documentation was genuine, without actually considering how it had been affixed. Despite this assumption being enhanced by the fact that the signature had allegedly been witnessed by the office administration manager, in the absence of a representation of authority, the court considered this irrelevant.

The appeal was dismissed with costs, with findings that Mr Crocker was not bound by reason of ostensible authority. Such a finding would require a representation of authority to authorise some other person – other than the principal – to affix that principal’s electronic signature. The judge considered that the mere use by Mr Crocker of the HelloFax system did not amount to such a representation.

Takeaway

The case highlights the difficulties with electronic signatures generally.

When using electronic signatures, it is critical to ensure that, in addition to the electronic signature, other confirmation is obtained to confirm that the electronic signature has been affixed by the signatory and is genuine. This may include email correspondence or other correspondence or a file note to provide appropriate evidence.

 

Note: This insight contains commentary for general reference purposes only. It does not constitute legal advice and should not be relied on for any purpose. You should always seek specific legal advice based on your own individual circumstances.