Is an Electronic Signature Legally Binding?
The infrastructure industry is ever evolving and reinventing itself with the rise of technology. The commercial environment has shifted into a new digital era. This digital era demands instant results. Role-players in the construction sector are often expected to conclude contracts and orders from a ‘mobile’ office via e-mail.
Entering into agreements and concluding commercial transactions via email, electronic instant messaging or verbally on the telephone are ever increasingly becoming the norm. Our understanding of an agreement as a printed document on paper signed by both parties, who present at the same place and time is rapidly becoming an outdated practice.
The question is whether an agreement, concluded electronically is binding, and how will this affect the industry going forward.
Signing an agreement does not mean that each party has to be present in the same room and physically sign the document in black ink. Electronic signatures in the form of an email footer or as a typed name at the end of an electronic document are valid and binding in certain circumstances.
A warning to role players within the infrastructure sector, as convenient as this may seem, it also carries serious risks as parties may unknowingly agree to substantial amendments to an existing agreement or early termination thereof, which they did not intend.
The question is what does the law regard as a valid electronic signature? First, we must look at what a signature is and what is its purpose. A signature is the writing of one’s name or making a mark which identifies the person making it. The purpose of a signature is to:
- Identify the person making the signature;
- Prove that the individual intended that the mark be his / her signature; and
- Prove the approval of content in the document and a willingness to be bound thereto.
The Electronic Communications and Transactions act (ECTA), 25 of 2002, regulates electronic communications and transactions. The act states that an electronic signature is not without legal force simply because it is an electronic form (section 13(2)).
Where parties are concluding an agreement or transaction electronically (referred to as a data message), and there are no prior arrangements as to the type of signature to be used, the parties are seen as agreeing to the terms of the agreement or transaction if an electronic signature is appended to the data.
If the electronic signature fulfils the purpose, mentioned above, of a signature, then such individual using the electronic signature will be bound to the agreement or transaction (section 13(3)), and the electronic signature can be used as proof thereof. The result of ECTA is that that an electronic signature and the content of the electronic messages are admissible in legal proceedings as proof of an agreement and that the general rules of evidence will apply to them (section 15).
What does this mean for the Contractor, Engineer, Architect or Quantity Surveyor who uses technology on a daily basis to conclude agreements and conduct their businesses? Agreements can be entered to, amended and terminated with the use of an electronic signature.
Most contracts have a non-variation clause which states that an amendment or early termination of the agreement will not be valid and binding unless in writing and signed by both parties. This clause is included into an agreement to protect the parties from a verbal (or otherwise) amendment to the agreement or early termination which could prejudice the parties. If one applies the sections of ECTA, the variation or early termination of an agreement can be achieved through electronic communications.
The Supreme Court of Appeal confirmed (in the case of Spring Forest Trading 599 CC v Wilberry (Pty) Ltd t/a Ecowash and Another 2015 (2) SA 118 (SCA)) that an email footer fulfilled the requirements of an electronic signature.
As such, the court decided that an email string (containing an email footer) which accepted amendments to the terms of a pre-existing agreement fulfilled the requirements for a valid variation to an agreement. The court said further that, as long as the email footer intended to be a signature, it identifies the author of the email and the signature is connected to the other data in the email, it will form a valid electronic signature.
Electronic communication is often regarded as a mere negotiation between the parties. The court has however confirmed that in terms of ECTA, an electronic data message ending with an electronic signature can form a valid and binding agreement.
Role-players in the construction sector should as such be aware that as convenient as digital communications are, they can carry legal consequences and they may unknowingly agree to substantial amendments to an agreement or early termination of an agreement.