Litigation

To use an electronic signature or not to use an electronic signature, that is the question

Virtual signatures

It cannot be disputed that the ongoing COVID-19 pandemic has pressurised the legal fraternity to re-examine and reimagine certain legal positions. With the everchanging social climate that accompanies the new sense of normal, many constraints have been placed on transacting in South Africa.

The property law sector has unfortunately not been exempted from the effects of COVID-19, in that in terms of section 2(1) of the Alienation of Land Act 68 of 1981 (“ALA”), an agreement for the alienation of immovable property must be in writing and signed by the parties or their duly appointed representatives.

The legal question that this article aims to ascertain is whether the Eastern Cape High Court decision of Borcherds v Duxbury (“Borcherds”) has changed this legal position and what the effect of this matter is on the legal fraternity at large.

The legal position in South African law

The Electronic Communications and Transactions Act 25 of 2002 (“ECTA”) gives legal recognition to transactions concluded electronically. In terms of section 1 of the ECTA, an electronic signature is defined as data which in turn, is then defined as an electronic representation of information in any form. This information is attached to, incorporated in, or logically associated with other data, which is intended by the user to serve as their signature in an electronic environment.

Section section 4(3) and 4(4) of ECTA explicitly excludes the provisions of ECTA to the laws of the ALA, therefore any agreement concluded in terms of the ALA, may not be validly signed by means of an electronic signature. A sale of immovable property agreement is therefore required to be signed in wet ink in order for it to be valid and enforceable.

Legal position in terms of Borcherds v Duxbury

The legal question before the court for purposes of this discussion was whether an electronically signed sale of immovable property agreement was valid or not.

In this matter, it was common cause that the parties had concluded a sale agreement of land on 20 June 2020 in the Eastern Cape. This agreement was concluded by signing the contract and initialling it, utilising an application loaded onto the seller’s cellular telephone called DocuSign. DocuSign is a mobile application which allows users to sign and annotate documents by attaching a stored signature, which may be created in graphic design software, captured from an image of a paper document or selected from a variety of prefabricated signatures based on the user’s legal name.

The saved signature can be applied to PDFs, word processing documents and images. To complete a document, participants apply their signatures and send completed documents to cloud storage for review. The seller therefore had imported images of his actual wet ink signature and initials into the DocuSign application on the cellular telephone and then applied these to a digital copy of the contract, using the same application.

The seller in an attempt to abandon the sale, argued that the provisions of ECTA, had no application in respect of transactions for the alienation of land by virtue of the provisions of section 4(3) read with Schedule 1. Consequently, the seller submitted that the offer to purchase was not valid and enforceable as it did not satisfy the requirements of section 2(1) of the ALA.

In this matter the court followed a pragmatic approach as opposed to a formalistic approach, in that the Court had due regard for whether the method of the signature used satisfied the function of a signature. This function being to authenticate the identity of the signatory as opposed to insisting on the form of the signature used.

In the ratio, the Court held that in the context of statutory formalities such as the ALA the requirement of signature may conceivably be satisfied by an electronic signature, where a handwritten signature is digitised and attached to an electronic document, although this procedure is open to abuse. The Court concluded that when considering the facts and position in this matter, there is no suggestion of such abuse.

Pursuant to the aforesaid position, the Court concluded that by affixing their signatures and initials to the contract, utilising the DocuSign application, the contract was signed as envisaged by section 2(1) of the ALA with the intention of being bound to the contract as seller. The court therefore found that the signature complied with the requirements of the ALA. Accordingly the purchase was declared to be valid, and the Court ordered that the parties give effect to the contract.

Critical analysis of the Borcherds judgement

The Court failed to consider the content of section 4(4) of the ECTA, when making its ruling. Section 4(4) of ECTA provides that, this Act must not be construed as giving validity to any transaction mentioned in Schedule 2″.  Schedule 2 of ECTA regulates the categories of transactions that may not be signed electronically. Among these categories of transactions are agreements pertaining to the sale of immovable property.

Accordingly, it is inconceivable that this ruling would have been given by the Court when due regard is given to the provisions of section 4(4) and Schedule 2 of the ECTA. These provisions of the ECTA in essence reinforces the provisions of the ALA, which requires that all contracts for the sale of immovable property must be contained in a document (a Deed of Alienation), which is signed by the parties thereto. Accordingly, the requirement is still that signature must be made in wet ink by a physical hand or by bodily movement resulting in a record of information.

Conclusion

When taking into account the legal position set out by the Eastern Cape High Court, an argument can be made that an electronically signed sale of immovable property agreement is valid and enforceable.

However, as this is a High Court decision, this position it will only have a biding effect in that jurisdiction and on the lower courts. In addition, and pursuant to the argument made in respect of the Courts disregard for section 4(4) of the ECTA, it is advisable that until clarity is obtained in respect of the legal position, all agreements for the sale for immovable property should be signed in wet ink.

Judgment link: http://www.saflii.org/za/cases/ZAECPEHC/2020/37.html