As the commercial world moves towards greater levels of digitization, various organizations are starting to implement electronic and automated solutions with an attempt to catch up and reduce paper-based agreements. However, many organizations have expressed their concerns about the legality of electronic signatures and have remained sceptical in embracing a truly paperless solution. This article seeks to highlight the legal aspects of electronic signatures, examine what constitutes an electronic signature and whether documents signed in this manner are legally binding and enforceable.
The function of a signature
First and foremost, we need to understand that in commercial practice, the function of a signature is to provide evidence of (1) the identity of the signatory, (2) that the signatory intended the signature to be his signature, and (3) that the writing or text to which the signature is associated is adopted or approved by the signatory. Against this background a signature must, without evidence to the contrary, be capable of fulfilling all of its functional requirements in order to be considered valid. An electronic signature is no exception, as will be further explained below.
What is an electronic signature
Currently in South Africa, electronic signatures are regulated by both the common law and the Electronic Communications and Transactions Act, 25 of 2002 (“ECTA“). According to the South African common law, for a signature to be valid (1) the name or mark of the person signing must appear on the document, (2) the person signing must have applied it themselves, and (3) the person signing must have intended to sign the document. This premise has been carried over to electronic signatures and with the introduction of ECTA, South Africa followed a global trend in recognising the legality of electronic signatures, rendering the status of electronic signatures as a functional equivalent to traditional “wet” signatures. ECTA specifically states that an electronic signature is not without legal force and effect merely because it is in electronic form, clearly indicating that electronic signatures are legally recognised in South Africa.
An electronic signature is defined in ECTA as “data attached to, incorporated in, or logically associated with other data and which is intended by the user to serve as a signature”. From this definition, it can be seen that for a signature to be recognised as a valid electronic signature, the signature must comply with the criteria of “intention” and “relationship” – there must be a relationship between the document and the signature and the person must have intended it to be his signature. Put differently, an electronic signature, being a piece of data attached to an electronically transmitted document, must be able to serve as verification of the sender’s identity and his/her intent to sign the document. In many instances, an electronic signature is capable of fulfilling these requirements perhaps better than paper-based solutions, as the electronic signature process creates an audit trail that clearly identifies any tampering with the signatures.
The different types of electronic signatures
According to ECTA, there are two categories of electronic signatures: (1) standard electronic signatures and (2) advanced electronic signatures.
Standard Electronic Signature:
These signatures include any digital or scanned signatures and are often referred to as non-secure signatures. A standard electronic signature suffices where a signature is required by the parties to an agreement and they do not specify the type of electronic signature to be used. In this instance, ECTA provides that the electronic signature will be deemed to be valid where:
- a method is used to identify the sender and to indicate the sender’s approval of the information communicated; and
- having regard to all the relevant circumstances at the time, the method was reliable and appropriate for the purposes for which the communication was intended.
For most purposes, standard electronic signatures will suffice when signing a document electronically.
Advanced Electronic Signature:
According to ECTA, there are some instances where an electronic signature other than a standard electronic signature may be required and include circumstances where the law requires that an agreement or document must be in writing and signed. In such instances, the document can only be signed with an advanced electronic signature as defined by ECTA. In South Africa, an advanced electronic signature is required for: (1) a suretyship agreement and (2) signing as a Commissioner of Oaths.
There are some documents that are excluded entirely by ECTA. For example, ECTA excludes the following from being concluded electronically, whether or not an advanced electronic signature is used by the parties to sign:
- agreements for the sale of immovable property;
- long-term leases of land exceeding 20 years;
- signing of a will; and
- bills of exchange.
With the growth of e-commerce, the ability to be able to conclude agreements electronically becomes ever more important. The sooner organisations understand and begin to use electronic signatures correctly, the more likely they will be able to unlock the potential electronic solutions can offer in terms of improved efficiency and cost savings. ECTA can be seen as having opened the way for organisations to leverage the significant benefits associated with a paperless environment by granting legal status to electronic signatures thereby significantly reducing the legal risk.