Picture this... You are the director of a company that owes a debt of nearly $900,000.00 to one of its suppliers. The supplier will do anything to recover its money, including commencing proceedings against you to enforce a directors' guarantee that affixes your signature electronically. You are confused – the signature on the document is yours, but you did not place it there nor did you expressly authorise anyone else to do so. You acknowledge that ordinarily, your obligations under this directors' guarantee would extend to indemnifying this creditor for the company's debt. But these circumstances are far from ordinary. This gets you thinking... if someone signed electronically on your behalf without your authorisation, is the directors' guarantee still enforceable against you personally?
The New South Wales Court of Appeal (NSWCA) has shed some light on, or perhaps added to the confusion about, the enforceability of electronic signatures when it comes to the scenario raised in the first paragraph of this update. On 22 September 2016, the NSWCA heard Williams Group Australia Pty Ltd's (Williams Group) claim that Mr Crocker, director of IDH Modular Pty Ltd, is liable for the company's debt as his electronic signature appeared on a directors' guarantee that was attached to a trade credit application in favour of Williams Group. In dismissing Williams Groups' claim, the NSWCA found that Mr Crocker's electronic signature had been placed on the credit application and the guarantee by an unknown person at the company without his knowledge or authority.
Key points from Williams Group Australia v Mr Crocker
The case was primarily concerned with whether Mr Crocker gave 'ostensible authority' to the unknown person to affix his signature to the director's guarantee and credit application, and specifically whether Williams Group was entitled to count on the unknown person having Mr Crocker's authority to apply his signature and bind him to the contract. Ostensible authority is apparent rather than actual authority, and whether a principal will be liable to a third party for the actions of its agent will depend on the representations that the principal makes to that third party about the degree of its agent's authority, and whether the third party relies on those representations.
The NSWCA determined that in this case, Williams Group could not simply rely on the assumption of ostensible authority and that the signature appearing on the directors' guarantee was binding on Mr Crocker. This was because Mr Crocker had not made any representations that the other person was authorised to affix his signature to the document. Furthermore, Williams Group did not rely on any of Mr Crocker's representations (of which the NSWCA found there were none).
The key considerations that the NSWCA took into account in reaching its decision are as follows:
- Mr Crocker did not put in place the electronic system at the company that allowed users to upload their signature and digitally apply it to documents. He simply participated to its use.
- Whilst Mr Crocker failed to change his access password, this did not mean he gave authority for someone else to use his signature. Moreover, Mr Crocker did not give anyone his username, password or the express permission to place his electronic signature on soft documents.
- The signature affixed to the directors' guarantee was not one that Mr Crocker had previously uploaded to the electronic system. The NSWCA found that this indicated that there was no discussion between Mr Crocker and the unknown person who applied his signature to the contract nor an intention by Mr Crocker to authorise another person to sign on his behalf.
- Each time Mr Crocker accessed the electronic system, a list of documents to which his signature was affixed was displayed. Mr Crocker accessed the electronic system before Williams Groups' claim. However, the director's guarantee did not show up on the 'list of completed documents' on the electronic system. In order for him to have endorsed the directors' guarantee, Mr Crocker needed to be have 'full knowledge of all the material circumstances' and that he personally had been committed to the terms of the guarantee.
In consideration of the above and other matters, the NSWCA found it immaterial that Williams Group relied on Mr Crocker's signature in the absence of any substantive and relevant representations by Mr Crocker that others were authorised to sign documents on his behalf.
Will my e-signature be enforceable?
E-signatures are a convenient, cheap and quick way to sign documents and receive signed documents from parties that you are contracting with. They can be enforceable, but you need to act with caution whenever the other party has signed electronically. In order to be valid, the signature will need to have been affixed with the actual or ostensible authorisation of the signatory. It is good practice to send a follow up email to the signatory seeking their confirmation that they authorised the affixation of their signature to an electronic document. Williams Group would have certainly benefited from this simple yet effective act.
When it comes to signing your own documents, we suggest that you ensure that only people who are authorised to sign can sign and that the system you use to electronically sign is secure. Platforms that require dual authentication – an online password and a security code sent to a mobile – are ideal.
There is a dearth of legislative guidance that governs electronic signatures (please see our article – 'Why are we hesitating to adopt e-contracts'). The court in Williams Group Australia v Mr Crocker has urged the parliament to provide more clarity and guidance about how to use electronic signatures effectively. This can't come soon enough!
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.