The risks of accepting electronic signatures

A decision of the NSW Court of Appeal sets a potentially dangerous precedent in the context of the effective use of electronic signatures to facilitate transactions, according to a review by HopgoodGanim Partner Paul Cullen, head of the law firm’s Banking and Finance practice

The decision in the case of Williams Group Australia Pty Ltd v Crocker (handed down on 22 September) has highlighted the need to take steps to ensure that an electronic signature has been affixed with the necessary authorisation, warns Cullen.

“The case highlights the need to take steps to ensure that an electronic signature has been affixed with the necessary authorisation. How that is done, in any case, is a more difficult question.

“To require additional proof from a signatory of the valid affixation of an electronic signature may defeat the purpose of adopting that protocol in the first place – i.e. speed and convenience. Would a confirmatory email by the signatory be enough? Possibly not, because if someone improperly applies an electronic signature, then it may be reasonable to expect they also have access to the signatory’s email account so they could also send an unauthorised confirmation.

“Much will depend on the security of the system used to apply the signature. There would be much less risk of a similar outcome if the system involved the use of dual factor authentication – e.g. if the system were configured to only apply a signature if, in addition to a user name and password, it was necessary to confirm a unique number sent to a mobile phone number of the intended signatory which was previously authenticated (by ID verification done at the time the user account was set up).

“Only time will tell if Parliament takes up the Court’s invitation to deal with this dilemma.”

The full summary of the case, where a supplier required directors’ guarantees and a guarantee document was attached to the credit application using “HelloFax”. Can be read HERE.