Using electronic signatures may seem efficient, and convenient, but lawyers warn that their use must be balanced against the need to protect and treat electronic signatures as if they were a real signature.
The principal of Townsends Business & Corporate Lawyers, Peter Townsend, says the potential for fraudulent misuse is greater than the simple forging of a physical signature.
To illustrate, he points to a 2016 case (Williams Group v Crocker) where a director’s electronic signature placed on a guarantee without his knowledge led to court action by a company seeking recovery of a debt from the director personally.
Crocker was one of three directors of a company that supplied building modules. His company, IDH Modular, filled in and completed a credit application to Williams Group Australia, which provided building materials to IDH.
“The credit application contained the electronic signatures of all three directors of the company, and was also accompanied by a guarantee that contained the same three electronic signatures,” Townsend says. “The electronic signatures were applied to the documents via an online system where users receive login details and are able to upload their electronic signatures in order to apply it to documents.”
He says that during all relevant times, Crocker did not change his initial password that was given to him, so anyone who knew or had access to his original login details could have accessed and affixed an electronic signature on any document on behalf of him. “It was not until the company went into liquidation, and Williams Group sought recovery of money owed to it, that Crocker became aware that his electronic signature had been applied on the credit application and guarantee.”
The Supreme Court held that Crocker was not liable under the guarantee as his electronic signature was placed on the documents without his knowledge and authority.
Townsend says that on appeal, Williams Group accepted that there was no actual authority given by Crocker to another person in the company to affix his signature to the document. “However Williams Group argued that person had ‘ostensible authority’.” (He explains this as Crocker maintaining that whoever placed his electronic signatures on the documents and forwarded them to Williams Group would likely have been authorised by him to do so.)
But Graham Roberts at Cooper Grace Ward says that Crocker had not given actual authority to any person to affix his electronic signature. “The evidence established that when Crocker’s electronic signature was required, he would apply it himself,” Roberts says. “The mere failure of Crocker to change his login credentials did not lead to a conclusion that he had authorised any person to apply his signature using those credentials.”
Townsend adds: “The judges on appeal held that the failure of Crocker to change his password in relation to the online system, and his use of that system on a number of other occasions, did not amount to authorisation of another person to use his electronic signature to bind him to the obligations under the credit application and guarantee.”
“The use of electronic signatures may seem to offer an efficient and convenient way to have documents or agreements signed and returned to another party. However the desire for expediency must be balanced against the need to protect and treat electronic signatures as if they were your real signature,” Townsend says.
He notes that practitioners should also be aware that in NSW it is not permitted to witness a document by electronic signature.
#[contract law], [electronic signature], [legal]
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