In today’s world, business moves at lightning speed.

From the day a company first opens its doors, to the day it sells its first item or signs on its first client, to the day it’s listed on the relevant stock exchange – it all seems to happen in the blink of an eye.

It therefore stands to reason that any contract process (be it negotiation, drafting or signing), involved with the company must be done (and completed) within the same time frame – at lightning speed.

This means that a fast-paced contract process from negotiation to signing stage is tantamount to create a successful – and sustainable – business.

Especially in 2023.

In today’s vocabulary this means – negotiating and concluding agreements and transactions electronically.

And while this does sound exciting, it should set alarm bells off in your head already – because with every efficiency comes a caveat.

Sure, the ultimate goal is to make processes easier with the use of technology, but (and this is a big but), caution needs to be exercised. Because simply accepting an electronically signed agreement “blindly” without exercising due care may be efficient, but it may also be costly – to your reputation, to your business and ultimately to your cash flow.

So, in order for you to exercise extra caution, it’s probably a good idea to discuss this in a little more detail…

The pitfalls of electronic signatures

The benefits of electronic signatures (and Document Automation) coupled with the need to conduct and conclude business at an expedited, almost urgent rate,  seems to outweigh, at least on the face of it, the pitfalls associated with this type of convenience and efficiency.. But these pitfalls  must be considered, or a company may have to face the unfortunate music. 

The most notable pitfall can be seen in the matter of Massbuild Pty Ltd t/a Builders Express, Builders Warehouse and Builders Trade Depot v Tikon Construction CC and another [2020] JOL 48548 (GJ) where the High Court was asked to consider whether a suretyship agreement which had been electronically signed, was in fact a validly signed agreement. 

Cliffe Dekker Hofmeyr (CDH) succinctly sets out the outcome of this unreported case as follows – 

“Section 13 of the Electronic Communications and Transactions Act 25 of 2002 (ECTA) provides that where a signature is required by law (as with suretyships) and such law does not specify the type of signature, such signature requirement, in respect of a data message, is only met if an “advanced electronic signature” is used. It therefore follows that where a suretyship is embodied in a data message, the signature must meet the requirements for an advanced electronic signature.

An advanced electronic signature is defined in the ECTA as an electronic signature which results from a process (or use of a product) which has been accredited, after meeting the prescribed requirements, by the Accreditation Authority as provided for in sections 37 and 38.

While Massbuild agreed that the suretyship lacked an advance electronic signature, it disputed whether the suretyship constituted a data message and therefore, the requirement for an advance electronic signature was irrelevant.

A data message is defined in the ECTA as data generated, sent, received or stored by electronic means.

The court held that, despite the fact that Ms R printed the electronic form suretyship and signed it in manuscript, creating an original, physical document, her signature was applied as witness only (to the fact that Mr Robbertze’s signature was appended to the suretyship) and not on behalf of Mr Robbertze. Mr Robbertze’s signature was appended to the scanned suretyship electronically, whereafter the suretyship was electronically transmitted to Massbuild. As such, it was held that Massbuild’s argument that an original, physical version of the suretyship was created by Ms R’s signature must fail and that the suretyship indeed constituted a data message, subject to the requirements of an advance electronic signature.

The suretyship in question was consequently held as invalid and unenforceable and the court dismissed Massbuild’s claim against Mr Robbertze, with costs.”

Identity of the signatory is tantamount to a proper due diligence process and can – at least at this stage – be considered the  main pitfall and most commonly used defence, often supported by the courts (as seen above). 

It’s therefore advisable for companies (and legal departments) to be cautious when accepting electronically signed contracts – keeping in mind the requirements as set out in ECTA (as mentioned by CDH above). And especially where security documents like suretyships and guarantees are concerned. 

One of the biggest risks where identity is concerned – especially in debt collection – is when a debtor raises the defence that it wasn’t them that signed the agreement (be it a sales/purchase, supplier or rental agreement). That someone else appended the company’s duly appointed representative i.e. the debtor’s signature to the agreement. Which would mean that the agreement was not validly entered into and therefore no debt arose therefrom.

It seems almost like an obvious defence – a “why wouldn’t we use this defence” type of defence. But it does make sense. Because if you cannot prove who signed the contract (and whether that person was legally entitled to sign that contract) – was a contract ever entered into in the first place?

Further to the above, if this defence is raised during court proceedings, an expert witness would need to be called to confirm the identity of the signatory – a costly affair which will most likely, delay proceedings. 

How can these pitfalls be avoided?

First and foremost, a company should review – annually – their contracting policy regarding the signing of documents – 

• When can an electronic signature be used? 
• When can an electronic signature not be used? 
• Who needs to append the signature? 
• Has the agreement been reviewed by the necessary person prior to signing?

(As some examples that can be taken into account when drafting your contracting policy).

InHouseLawyer recommends using programs such as Acrobat sign or DocuSign to track, trace and monitor the electronic signing process – making the identity of the signatory easier to prove in addition to the contract management software as provided by Inhouselawyer.

We also recommend the addition of an electronic signature clause to your standard agreement’s. You are able to obtain a free electronic signature clause from our website. 

If you have any questions or queries regarding the information we have set out above or if you require assistance with software to manage your contracting workflow from drafting, negotiation, and signature to post-contract management, contact us for a free demo. 

We cannot wait to support you!