In Williams Group Australia Pty Ltd v Crocker [2016] NSWCA 265 the Supreme Court of New South Wales – Court of Appeal confirmed the trial judge’s finding that a company director’s electronic signature had been placed on a credit application and guarantee by an unknown person without his knowledge or authority and that the guarantee was therefore not enforceable against him.

In July 2010, Williams Group Australia Pty Ltd (Williams), a supplier of building materials, approved a credit application by IDH Modular Pty Ltd (IDH), a company established to supply building modules. Mr Crocker was one of the three directors of IDH. That credit application bore the electronically affixed signatures of each director of IDH in his capacity as director and was accompanied by an all-moneys guarantee also bearing the signatures of the three directors in their capacities as guarantors. Each of the signatures had purportedly been witnessed by IDH’s administration manager. The respective signatures had been affixed to the documents using the “HelloFax” system, by which users can upload their signature and electronically apply it to documents. Mr Crocker had been provided with a username and password by one of his co-directors to enable him to access the HelloFax system. He did not change the password during the relevant period, with the result that anyone who had these login details would be able to affix Mr Crocker’s electronic signature to documents.

Pursuant to the trade credit agreement, Williams supplied building materials to IDH during 2012 until May 2013, by which time IDH’s debt stood at $889,534.35. Williams commenced proceedings against IDH to enforce that debt and against each of the three directors to enforce their respective guarantees.Subsequently IDH went into liquidation.

Mr Crocker did not dispute that, during the period the IDH credit account was operating, he had accessed the HelloFax system a number of times and that on those occasions a list would appear itemising the status of applications on the system. However, the HelloFax printout in evidence did not itemise the Williams credit application (and guarantee) in the list of completed documents.

The Court of Appeal rejected arguments that Mr Crocker was bound by the guarantee by reason of ostensible authority. There was no representation of authority by Mr Crocker of some other person to affix his electronic signature to documents, on which Williams had relied when supplying goods to IDH on credit. Mr Crocker’s mere use of the HelloFax system did not amount to such a representation so as to bind him personally to the obligations imposed by those documents.

The Court of Appeal observed that there is some authority that would support the conclusion that the placement of a “genuine” electronic signature on a document without any authority could amount to forgery at common law.

Comment

Whilst the Electronic Transactions Act permits electronic signatures, section 10 of the Act requires that a method is used to identify the person and to indicate the person’s intention to be bound by it.
To satisfy this requirement a system will usually email the person signing electronically before and after their electronic signature is applied.

There was no evidence that that occurred in this case.

There was no evidence that the system passwords were secure for example by requiring the additional use of SMS security codes sent to a user’s smartphone.

This does not mean that electronic signatures are not as reliable as physical signatures. Physical signatures can be forged.

The convenience of electronic signatures needs to be assessed against the risk and measures used to ensure the signing party is who they say they are.

And records must be kept.