Covid-19 coronavirus: virtual and e-signings under South African law
03 April 2020
With the current Covid-19 lockdowns restricting the mobility of signatories on a global scale, virtual and e-signings are hot topics.
A virtual signing refers to the widely used practice of scanning wet-ink signature pages for collation of an electronic copy of the executed document. An e-signing includes inserting a pdf or jpeg of a handwritten signature or signing via a mobile screen or web-based e-signing platform. It is critical to understand the legal validity and limitations of these signing methods if you are looking for ways to execute your transaction remotely.
The legal validity of electronic signatures under South African law
In the commercial and legal world signatures serve an established purpose. Signatures are used as a basis to determine authority and can be checked for authenticity.
Traditionally, a commercial agreement was signed in ink (hence the name, "wet-ink signatures") by each of the parties at a formal signing and closing meeting. Formal signing and closing meetings have however lost some of their appeal in recent years, particularly with the advancement of technology. It is quite common nowadays for parties to execute their agreement by way of a virtual signing: each party to the agreement prints and signs the agreement at its end and sends a scanned copy of the wet-ink signature page to a law firm for collation of a fully executed electronic copy of the agreement. The original signature pages are subsequently delivered to the same law firm for purposes of collating the original. An e-signing refers a number of options where the signature is inserted or generated electronically. It includes inserting a pdf or jpeg of a handwritten signature in the agreement or signing via a mobile screen or e-signing web-based platform (which offers enhanced security and authentication measures).
The Electronic Communications and Transactions Act, 2002 (the Act) gives legal recognition to transactions concluded electronically and there are a number of esigning options available that we believe will be accepted as a valid form of signature under South African law.
South African courts have adopted a function over form approach to signatures, looking at whether the signature fulfills the function of authenticating the identity of an authorised signatory rather than rigidly insisting on the form of a signature. In the days before electronic communication, the courts were willing to accept any mark or indication made by a person for the purpose of attesting a document, or identifying it as his act, to be a valid signature.
In Spring Forest Trading CC v Wilberry (Pty) Ltd t/a Ecowash and another 2015 (2) SA 118 (SCA), the Supreme Court of Appeal considered whether, and in fact held that, the emails between the parties on the subject-matter met the contractual requirement (ie. a requirement imposed by the parties) that any cancellation of the agreement be in writing and signed by parties. The Court pointed out that one of the aims of the Act is "to promote legal certainty and confidence in respect of electronic communications and transactions. So, when interpreting the Act, the courts are enjoined to recognise and accommodate electronic transactions and data messages in the application of any statutory law or the common law. Thus when there are formal requirements of writing and signature imposed by statute or the parties to a transaction, these can generally be satisfied through electronic transactions".
The SCA however held in the recent case of Global & Local Investments Advisors (Pty) Ltd v Fouche (71/2019)  ZASCA 8 (18 March 2020) that a financial services provider had breached its mandate by acting upon instructions in emails that simply included the typed names of the supposed clients. The mandate in question required that instructions by the client be sent by fax or email with the client's signature. In this case, the email account had been hacked by fraudsters who created the fraudulent email instructions. The SCA found that this mandate did not require an electronic signature but 'a signature in the ordinary course, namely in manuscript form, even if transmitted electronically, for purposes of authentication and verification'. The fraudulent emails contained no attachments of the kind and the requirement for signature was not met.
It is important to take away from the decisions of our courts considering the validity of electronic signatures in light of the provisions of the Act that a thorough analysis is required of the facts of a matter and use of electronic signature in question. There are also certain transactions which are expressly excluded from application of the Act: namely, agreements for the sale of immovable property, long-term leases of immovable property in excess of 20 years, wills and bills of exchange.
"Electronic communications" is defined in the Act as "communication by means of data messages". "Transaction" is defined to include "a transaction of either a commercial or noncommercial nature…" An "electronic signature" is defined as "data attached to, incorporated in, or logically associated with other data and which is intended by the user to serve as a signature". There are essentially two types of electronic signature under the Act: an advanced electronic signature which results from an accredited process and an "ordinary" electronic signature. An advanced electronic signature is required where the signature of a person is required by law and such law does not specify the type of signature or where the parties specify that an advanced electronic signature is required. Where an electronic signature is required by the parties to an electronic transaction and the parties have not agreed on the type of electronic signature to be used, that requirement is met in relation to a data message if:
- a method is used to identify the person and to indicate the person’s approval of the information communicated (ie. an "ordinary" electronic signature); and
- having regard to all the relevant circumstances at the time the method was used, the method was as reliable as was appropriate for the purposes for which the information was communicated.
The Act expressly provides that electronic signatures are not without legal force and effect merely because they are in electronic form. It further provides for the admissibility and evidential weight of a data message as electronic evidence, setting out certain factors to be taken into account in assessing the evidential weight of that data message which essentially comes down to relevance, authenticity and originality of the data message.
Limitation of e-signing
There are limitations to e-signings that parties must consider before proposing or agreeing to use e-signing in their transaction. These include:
- In a cross-border transaction, electronic signatures may not be recognised or supported in law in each of the relevant jurisdictions to your transaction. This includes the jurisdictions of each of the signatories as well as the jurisdictions where the agreement may be enforced. For this reason, the validity of e-signing under each jurisdiction relevant for your transaction must be confirmed with local counsel early in your transaction.
- Greater evidential risk attaches to the use of electronic signatures on account of the fact that the handwriting of the signatory cannot be examined to determine its authenticity. This risk may be mitigated by using a stylus pen or a web-based e-signing platform that offers enhanced security and authentication features such as SMS authentication and audit trails that improve the security of the document and the evidential weight of the signature.
- Where a witness is required for the valid execution of an agreement, parties could consider executing their agreement via video call to mitigate the risk of the witness not being in the physical presence of the signatory at the time of signing.
- Any corporate restriction or restrictive internal information security policies of a party may limit or exclude its use of electronic signatures or virtual signing. A thorough due diligence should flush out any such restriction and enable parties to fully consider their options.
- While not unique to e-signings, there is arguably more scope within certain of the e-signing options for a person to append a signature of a signatory without authority or even fraudulently. There are a number of check and balances parties can insist on in the signing process to mitigate against this risk. Parties could follow what is commonly known in the legal finance sector as the Mercury signing instructions (a signing protocol required for the execution of a deed, but also more widely observed for the execution of agreements, under English law whereby a signatory returns its scanned signature page together with a complete PDF copy of the agreement to which that signature should be attached as evidence of its intention to append its signature to that agreement) or they could use an e-signing platform.
The options for virtual and e-signings are extensive and flexible. Allen & Overy (South Africa) is able to consider and advise on the specific options available to signatories, who find themselves working from the confines of their homes, with or without a full office set-up, for the execution of any commercial agreements in these unprecedented times.