Australia: eSignatures on a contract or guarantee: Why you need to be cautious

Last Updated: 8 November 2016
Article by Tal Williams and Lucy Williams

Electronic signatures, also known as eSignatures, are a simple means by which documents can be legally signed. In this era, where rapidly growing technology is having a high impact on the business world, eSignatures have allowed for a faster more efficient way for people to legally complete and exchange a range of contracts, approvals, agreements and transactions.

There are a number of software programs offering this service including DocuSign and HelloFax. They allow users to upload a signature to their private online accounts, which can then be logged into at any date to electronically apply their signature to a document.

However, despite the benefits of eSignatures, the recent case of Williams Group Australia Ltd v Crocker [2016] NSWCA 265 has been a timely reminder that eSignatures must be dealt with cautiously. Here, the New South Wales Court of Appeal found that a company director was not bound by a guarantee which bore his eSignature.

Facts

In July 2010, the appellant, Williams Group Australia Pty Ltd (Williams), a supplier of building materials, approved a credit application by IDH Modular Pty Ltd (IDH), a company established to supply building modules.

Mr Crocker was one of the three directors of IDH. The credit application bore the eSignature of each director of IDH in his capacity as director. It was accompanied by an all-moneys guarantee also bearing the eSignatures of the three directors in their capacities as guarantors.

The respective eSignatures had been affixed to the documents using the "HelloFax" system. Mr Crocker had been provided with a username and password by one of his co-directors to enable him to access the HelloFax system. He did not change the password during the relevant period, with the result that anyone who had these login details would be able to affix Mr Crocker's electronic signature to documents.

In October 2013, IDH went into liquidation and the guarantees were called upon. Summary judgment was subsequently obtained against Mr Crocker's two co-directors.

In comparison Mr Croker, at first instance, successfully defended the claim made against him on the basis that his eSignature had been placed on the application and guarantee by an unknown person without his knowledge or authority.

Williams appealed.

Decision

The Court of Appeal upheld the decision at first instance. The Court held that there was no ostensible authority, and nothing 'moved from' Mr Crocker. He gave no authorisation or representation, to either the 'unknown person' who signed the document, or to Williams, that his signature was to be added to the document. No conduct amounted to a holding out of authority to Williams.

Rather, what the court recognised was that a person (in this situation, Mr Crocker), must have 'full knowledge of all material circumstances' if they are to be held accountable for liabilities arising out of a document executed in their name. On the facts, the court found that Mr Crocker did not have this required knowledge.

It was likewise established that Mr Crocker did not wilfully turn a blind eye to the situation. Even though he had access to the HelloFax System, which displayed a list of signed documents, the relevant document would only have been referred to as a 'credit application' and not a 'personal guarantee'.

Ultimately, the court held that the evidence did not establish a representation by Mr Crocker as to the genuineness of his signature on the guarantee or as to his authorisation of anyone else to place his electronic signature on the guarantee. He was not liable under the guarantee.

What this means for you?

This decision supports the preposition that any use of an eSignature by a person other than the owner of the signature cannot be relied upon to enforce personal liabilities under a contract unless there is a clear intention or representation by the owner of the signature, that use of such a signature was authorised.

What suffices as a clear intention or representation may be contentious. For this reason, those who use eSignatures should make sure they do two things. First, they must ensure their passwords are kept secret, so as to avoid any unknown user logging onto their account and affixing their signature to documents. Second, they must ensure they are aware of all the contracts upon which their signature has been affixed.

Complying with these two criteria is the surest way to protect yourself from any liability arising from use of your eSignature. It will ensure that all documents affixed with your eSignature have been correctly authorised and that no costly litigation surrounding intention and fraud may rise from any unauthorised use.

In addition, if you are relying on an eSignature to enforce a contract or agreement, it would be wise to seek direct authority from all persons signing the document each and every time they affix their eSignature. You must prove that they were aware that their signature was to be affixed to the agreement. This must be done as, without authority, the document may itself be ineffective.

Ultimately, those using or relying on eSignatures must assess and minimise their risk. While eSignatures can increase the speed and efficiency of contract execution, precautions must be put in place to ensure all contracts are validly signed and are in fact enforceable.

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.

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