In the context of the declaration by our government of a national state of disaster pursuant to the Covid-19 crisis, and the consequent escalation of work from home practices, individuals and companies have had to make increasing use of electronic signatures, and this is likely to continue in the immediately foreseeable future.
This note considers the Supreme Court of Appeal’s (the “SCA’s”) recent treatment of electronic signatures, particularly the recent decision of the Supreme Court of Appeal in Global & Local Investments Advisors (Pty) Ltd v Fouche (71/2019) [2020] ZASCA 8 (“Global & Local Investments Advisors”). It is clear from recent cases that great care needs to be exercised by any party accepting electronic signatures as evidencing consent, and that in each case, the specific agreed mandate between the parties will need to be considered in order to determine whether or not such signatures are sufficient. The recent cases have provided some guidance in this regard, but each situation will need to be considered on its own merits.
Background to the case
In November 2015 Nickolaus Fouché (“Fouché”), a mining consultant, gave Global & Local Investments Advisors Proprietary Limited (“Global”) a written mandate to act as his agent and invest money with Investec Bank on his behalf. The money was to be invested into a so-called Corporate Cash Manager (“CCM”) account which was subsequently opened with Investec Bank in Fouché’s name. Importantly, the written mandate between Global and Fouché stipulated that, “All instructions must be sent by fax to 011 486 2915 or by email to monique@globallocal.co.za with client’s signature.”
In August 2016, malicious third parties managed to gain access to Fouché’s email account and sent, in the space of a few days, three separate emails using Fouché’s credentials instructing Global to make payment into a number of bank accounts. Two of the three instructing emails ended with the words: “Regards, Nick” while the third ended with “Thanks, Nick”. None of these emails had any attachments. Upon receipt of the instructions, Global transferred in aggregate an amount of R804,000.00 from Fouché’s CCM account.
Upon discovering that money had been transferred out of his account, Fouché notified Global that the instructing emails had not been sent by him. Fouché was forced to institute action in the High Court in Johannesburg in order to recover his money. He was successful and judgment was granted in his favour. Global subsequently appealed to the SCA.
Issues
Global’s primary defence to the claim was that it had acted in accordance with its mandate on instructions that had originated from a legitimate email address belonging to Fouché and that the typewritten name of “Nick” at the foot of the emails satisfied the signature requirement as stipulated in its mandate when considered in light of section 13(3) of the ECT Act.
Section 13(3) of the Electronic Communications and Transactions Act 25 of 2002 (the “ECT Act”) states the following:
“Where an electronic signature is required by the parties to an electronic transaction and the parties have not agreed on the type of electronic signature to be used, that requirement is met in relation to a data message if:
a) a method is used to identify the person and to indicate the person’s approval of the information communicated; and b) having regard to all the relevant circumstances at the time the method was used the method was as reliable as was appropriate for the purposes for which the information was communicated.”
Fouché on the other hand argued that the instructions sent by email did not bear his signature, whether manuscript or electronic, and accordingly Global had breached its mandate. The decision in this case would fall to the proper interpretation of the mandate between Global and Fouché and whether the former had acted contrary to that mandate.
Decision
In coming to its decision, the SCA considered the wording of the mandate and the context in which it was given. It viewed the requirement for a signature against the established purpose which signatures serve in the commercial and legal context. After considering various dictionary definitions of the terms, “signature” and “to sign” as well as earlier cases in which our courts have had to consider signature as a required formality to a contract, the SCA held that signatures have a dual purpose: they are used to determine authority and to authenticate or verify the signatory.
Global argued that the email credentials and typewritten salutations (“Regards, Nick” and “Thanks, Nick”) were sufficient for the purposes of authentication. The SCA rejected this argument and pointed out that the mandate did not require an instruction to originate from a specified email address. It approved of the statement of the court on this point which noted:
“A simple mechanism to achieve that requirement would simply be to reduce the request to writing, to sign it and to forward it by e-mail or fax to the defendant as the recipient. That agreed mechanism is in my view in line with a purposive and practical interpretation of the provisions of the mandate in line with the probable common intention of the parties and aimed at avoiding precisely the unlawful activity which caused the damage to the plaintiff.”
In respect of the argument that the signature requirement was satisfied in accordance with section 13(3) of the ECT Act, the SCA held that Global could not rely on this provision because it would have to show that the mandate specifically required an “electronic signature” but the words “electronic” were never used to qualify the term “signature” in the written mandate concluded between Fouché and Global. The SCA found on this point that the mandate required a signature in the ordinary course, in manuscript, for the purposes of authentication and verification.
Distinction drawn from Spring Forest matter
Global placed great reliance on the case of Spring Forest Trading 599 CC v Wilberry (Pty) Ltd t/a Ecowash and Another 2015 (2) SA 118 (SCA) (“Spring Forest”). In Spring Forest, the dispute centred on whether emails exchanged between parties to a lease agreement constituted a valid cancellation in terms of that lease agreement. Of particular relevance in this matter was a non-variation clause providing that no variation or consensual cancellation would be effective unless reduced to writing and signed by both parties.
One of the arguments raised by the Respondent in Spring Forest was that the exchange of emails did not require an “electronic signature”, and accordingly, that on a proper interpretation of section 13(3) of the ECT Act, the signature requirement stipulated in the non-variation or cancellation clause had not been satisfied. But the court in Spring Forest held that on a proper reading of section 13(3) of the ECT Act (based on the pragmatic and non-formalistic approach our courts have taken when considering signatures) that while the lease agreement required any variation or cancellation to be reduced to writing and signed by both parties, the email exchange (which constituted a separate written agreement to cancel between the parties) did not specify the type of electronic signature required and thus section 13(3) did apply.
Requirement of care and attention by attorneys when dealing with transfer of trust funds – Fourie v Van der Spuy
Another relevant recent case pertaining to reliance on e-mailed communications arose in Fourie v Van der Spuy and De Jongh Inc. and Others 2020 (1) SA 560 (GP). The facts were similar to those of Global & Local Investments Advisors, in that it involved a dispute in relation to monies paid out of an account pursuant to e-mailed instructions received from malicious third parties which managed to gain access to the email account of the client.
This matter however involved a firm of attorneys as the party effecting the transfer, which in this case was made from the attorney’s trust account on the basis of a purported e-mailed instruction from the client to effect transfer into a different bank account recorded in the e-mail instruction.
There was no dispute in relation to the requirement of a signature in this case, but rather it turned on the contractual and a common law requirements of sufficient care and attention in the conduct of business entrusted to an attorney. The court held that in the specific circumstances the attorney was duty-bound to follow a process of verification of the instruction to transfer funds from the trust account into a newly identified bank account, and that the attorneys in question should have attempted to confirm or verify the new bank details with their client. The court noted that it was clear from the facts that no such verification process was followed and held accordingly that the firm would have to carry the loss.
Conclusion
In light of these recent cases, and particularly in the current context of increased electronic and online interactions, parties should be very wary of the circumstances in which electronic signatures and confirmations are accepted. The determination of whether or not such signatures may be accepted will be dictated, amongst other issues, by the specific nature of the mandate between the parties with regard to authorisations, and whether or not there is any other duty on behalf of the party receiving such communication, to further verify the instruction received.
This bulletin was prepared by Fasken partner Michael Teubes, senior associate Daniel Hart and assisted by Tshepho Mokoana.
