Just how secure and legal are electronic signatures?
Jnr. Associate | Attorney
Associate | Attorney
The worldwide pandemic lockdowns have undoubtedly accelerated the logistics related to remote commerce, and highlighted the legal questions around paperless and contactless transactions and contracting. For the most part, most businesses have navigated these issues, including electronic signatures, with relative ease and convenience thanks to a number of digital signature software applications – indeed, even via WhatsApp® or voice messages. But, as the world slowly moves on from the coronavirus-induced ceasefire, and more and more COVID-era contracts are challenged in courts it will be important for companies and compliance officers to double-check that so-called electronic transactions are not open to challenge or repudiation.
It is worth reviewing what the law says about electronic transactions. In South Africa, we rely on the Electronic Communications & Transactions Act 25 of 2002 (ECTA) to provide clarity on the subject of electronic agreements and dealings. In fact, the provisions of Section 12 of the Act state that data messages can have the same functional equivalent and legal validity as written documents provided they are in the form of a data message and are accessible in a manner that is usable for subsequent reference or review.
ECTA clearly provides that “signed” can mean a signature executed by hand with a pen as well an electronic signature such as an e-mail signature. This equal status statement means that the information that forms part of a data message does, in fact, possess legal force if that method is used to identify the person’s approval of the information communicated.
That means that an electronic contract can be concluded through data messaging – such as e-mail, SMS or WhatsApp – if it is generated, sent, received or stored by electronic means. This includes voice approvals (where the voice is used in an automated transaction) and a stored record. A good example of the application of this definition took place in a court judgment in Jafta v Ezemvelo KZN Wildlife (2008), where it was confirmed that an agreement may be concluded by means of an e-mail or SMS. The condition is that it should however be clear that the offer was made and accepted by the respective contracting parties and the parties’ intent must be clear.
However, there are a few instances where ECTA does not permit the use of electronic signatures:
- An agreement for alienation of immovable property as provided for in the Alienation of Land Act, 1981 (Act No. 68 of 1981).
- An agreement for the long-term lease (longer than 10 years) of immovable property.
- The execution of a bill of exchange as defined in the Bills of Exchange Act, 1964 (Act No. 34 of 1964).
- The execution, retention, and presentation of a will or codicil as defined in the Wills Act, 1953 (Act No. 7 of 1953).
While ECTA has cleared up the legality and enforceability of electronic signatures, business owners (and the public at large) should cautiously approach their responses to communications to avoid the unintended conclusion of agreements via e-mail or SMS. Likewise, equal discretion should be paid to any intention to enter into an agreement by utilising electronic resources – by ensuring that all of the conditions are met and that the documentation is managed and stored securely.
As with all business governance matters and functions, it is vital that the new methods of contracting and transacting are fully compliant and that they will not trip up your operations later if challenged legally. In this sense, it is important to understand that basic electronic signatures could be vulnerable to manipulation or cyber intrusion. Many of these forms of e-signing methods do not entirely secure the integrity of signed document and could then be disputed by the other party.
In contrast, digital signature tools and/or applications use encryption or blockchain technology to secure the agreement or document. Digital signatures are more trustworthy, it will not allow any changes to the document and truly protect the integrity of a signed document. Digital signatures ensure that the signatory is properly identified and provides that the signature is uniquely linked to the signatory. A digital signature further ensures that the document cannot be digitally tampered with later. Depending on the importance of the relevant contract, it is worth considering digital signatures to conclude your transaction.
We strongly advise clients to verify the compliance and enforceability of any e-signed and digital contracts and transactions that your company may have concluded during (and before) the COVID-19 pandemic, and ensure that there is no potential risk to your business and future.