Electronic signatures: convenient but risky

In 2016, the NSW Court of Appeal decision of Williams Group Australia Pty Ltd v Crocker provided an important reminder for those who rely on electronic signatures in their business dealings. Craig Painter, Special Counsel with Snedden Hall & Gallop discusses the ramifications of this case for businesses using electronic signatures in contracts.

The Case

An electronic signature of a company director was used to sign a personal guarantee given to a trade creditor of a company. The director, who was working remotely away from the company office at the time, successfully denied personal liability because his signature had been affixed to the guarantee by an "unknown person" without the director's knowledge or authority. This was the finding of the primary judge. The signing had purportedly been witnessed by the office administrator. However, the director denied this arguing that the electronic signature affixed to the guarantee was a forgery at common law.

The creditor argued unsuccessfully that the director had facilitated this act by failing to change his password with the result that anyone knowing his user name and password could use the electronic signature system.
In rejecting the creditor's appeal the court noted that it based its decision primarily on the facts that:

  1. The director did not represent to the creditor that another party could act as his agent and that the director's failure to change his password that ostensibly resulted in the use of the electronic signature did not constitute such a representation; and
  2. That the director did not ratify the guarantee as he had no knowledge or notice that his signature was used on the guarantee.

For itself, the creditor had no reason to doubt the authenticity of the signature, and made the point that a decision against it would throw real doubt on the ability of creditors to rely upon electronic signatures at all. The court replied that this was a matter for the legislature to address not the court.

What does this mean for you?

This case provides a reminder that although the use of electronic signatures offers a convenient means to sign documents the dangers of fraudulent misuse are manifest. Moreover, it appears that those who are reliant on electronic signatures should now be increasingly vigilant and not simply blindly rely on such signatures.

It would, as a consequence of this case, seem wise to secure confirmation that the electronic signature relied upon is authorised and legitimate. Alternatively, one could instead insist that certain important documents be signed non-electronically.

How can Snedden Hall & Gallop assist you?

If you or your business rely on the use electronic signatures and wish for further advice contact our business team today. Please contact us by phone on (02) 6285 8000 or by email and you can see details of our experienced corporate and commercial team.

Craig Painter’s Biography

You can find out more about Craig Painter, here.

Image: Joshua Fuller