Traps with electronic signatures

Late in 2015 the NSW Supreme Court heard a dispute relating to a personal guarantee of a credit account, apparently signed with an electronic signature.

A building company (IDH) had a credit account with a building supplies company (Williams). IDH had an internal system allowing directors to attach signatures electronically to documents. Williams required personal guarantees from directors of building companies such as IDH. The case related to whether one of three directors, a Mr Crocker, had in fact attached his electronic signature to the personal guarantee, or authorised someone else to do so (or whether he had later ‘ratified’ the guarantee, even if he did not initially sign it).

The Court found Mr Crocker had not attached his own electronic signature; had not authorised anyone else to do so; and had not ‘held out’ to Williams that anyone else was so authorised. It seems another IDH director or employee probably attached the signature, without Mr Crocker’s knowledge and at a time and place when Mr Crocker was elsewhere. On the evidence, Mr Crocker had also not later adopted, or ‘ratified’, the guarantee.

The debt to Williams was around $890,000.00. It ultimately failed to prove that Mr Crocker was liable on the guarantee and therefore could not recover any part of the debt from him. IDH was in liquidation and the inference is that the other directors/guarantors could not pay. Williams was also ordered to pay costs.

It is an increasingly common business practice to affix, and rely on, electronic signatures in documents. As this case shows, electronic signatures need to be approached with care in some situations. Here, Williams simply assumed Mr Crocker had affixed his own signature.

That assumption proved to be incorrect and, ultimately, very expensive. Businesses and individuals who routinely accept electronic signatures, particularly on contractual or similar documents, may need to give careful thought to whether an (electronic) signature is in fact proof that a transaction or obligation has been accepted: Williams Group Australia Pty Ltd v Crocker [2015] NSWSC 1907.