The Risks of Electronic Signatures

During the unprecedented times of COVID-19, signatories often cannot physically meet to sign documents. The execution of contracts has become quicker and easier with online tools that allow parties to affix their signatures without physically signing documents.

However, the NSW Court of Appeal Case, Williams Group Australia Pty Ltd v Crocker, decided in 2016, showed that an individual whose electronic signature appeared on a guarantee but who did not authorise the use of their signature, was not bound by the guarantee.


Factual Background

In this case, Williams Group Australia Pty Ltd (‘Williams Group’) was a supplier of building materials. IDH Modular Pty Ltd (‘IDH’), one of its customers, wished to seek credit from Williams Group. All 3 directors of IDH, one of whom was Mr Crocker, appeared to electronically affix their signatures to the credit application.

The three directors of IDH also purportedly affixed their signatures to a guarantee in favour of Williams Group, and this was apparently witnessed by IDH’s administration manager. The signatures were inserted using an electronic, password-protected system that enabled users to electronically sign documents. IDH became heavily indebted to Williams Group as a result of the guarantee.

Williams Group commenced legal proceedings to enforce the debt against IDH and its three directors, including Mr Crocker. However, Mr Crocker successfully defended the proceedings. Mr Crocker argued that despite being a user of the electronic signature system, he had not authorised the placing of his signature on the guarantee, and so an unauthorised person must have done so. 


NSW Court of Appeal Decision

Williams Group appealed the decision by the first Trial Judge, arguing Mr Crocker gave ostensible authority to another person to place his signature on the contractual documents. Ostensible authority is where an agent is assumed to have been given authority as a result of the principal’s conduct, omissions or representations.

The NSW Court of Appeal decided Mr Crocker did not give ostensible authority for an agent to sign the guarantee on his behalf. This was irrespective of the fact Williams Group claimed Mr Crocker failed to ensure the electronic signature system had proper safeguards. The Court decided Mr Crocker’s use of the electronic signature system did not, in itself, amount to a representation that he had authorised an agent to use his signature on the documents in question. 

Williams Group then claimed Mr Crocker had not been aware that his signature was placed on the document but chose to ignore this fact. The Court rejected this argument on the basis this would require that Mr Crocker had full knowledge of this fact. 

Williams Group’s appeal was dismissed and Mr Crocker successfully defended the proceedings.


In Summary

The judgement of Williams Group Australia Pty Ltd v Crocker is significant in that it shows the Court will not readily infer ostensible authority on behalf of a principal. There must be tangible and convincing evidence that the purported signatory had actually, or ostensibly authorised the signature on the contract, and the agent was properly authorised to use the signature. 

It would be desirable for a party seeking to rely on electronic signatures to have additional proof that the signatory authorised use of their signature on a particular contract or document.

This case may raise concerns for some businesses that routinely rely on electronic signatures. If you would like advice from our experienced lawyers about contract matters, contact us today.


DISCLAIMER: The information contained in this article is general and is not intended to be advice on any matter. It is for information only and is not legal advice. In the event of a legal problem, you should seek legal advice.

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