Covid-19 has changed how business is done. Virtual Adviser is pioneering autonomous financial advice via bots (investment planning, estate planning, car and life insurance, including funeral plans) in South Africa which inevitably requires the use of electronic signatures. It is therefore important for our clients and followers to understand the ins and outs of electronic signatures, especially when entering into contractual agreements remotely.
- Do electronic signatures have the same legal status as wet ink signatures?
- Yes. An electronic signature inserted into a document with the intention of the signatory to convey his/her acceptance, and be bound by, the terms of the document, has the same legal status as a wet ink signature.
- However, a wet ink signature is required in specific circumstances, for example in executing wills or codicils, contracts relating to the alienation of immovable property, bills of exchange and long-term leases in excess of 20 years.
- What is the law?
- Electronic signatures in South Africa are approved under The Electronic Communications and Transactions Act (ECTA) instituted in 2002.
- The South African law adheres to the EU Directive on electronic signatures.
- There are three methods available to a signatory when executing a contract under South African law:
- wet ink signatures – the traditional method where parties to a contract sign their names with pen on a physical document;
- electronic signatures; and
- advanced electronic signatures.
- A written signature is not necessarily required for a valid contract. Contracts are generally valid if legally competent parties reach an agreement, whether they agree verbally, electronically or in a physical paper document.
- Section 13(2) of The Electronic Communications and Transactions Act (ECTA) states that contracts cannot be denied enforce-ability merely because they are concluded electronically or through data messages. Click here for a pdf version of the ECTA.
- What is an electronic signature?
- An electronic signature is a legally recognized means of conveying the signatory’s consent to the contents of a document. In essence it is data attached to, incorporated in, or logically associated with, other data, and which is intended by the user to serve as a signature. That is the definition of a standard electronic signature (SES).
- Electronic signatures come in many forms and include:
- the traditional wet-ink signature on a soft-copy of a document;
- a name typed in electronic format at the bottom of an email;
- an “I accept” tick box on a website; and
- using an e-pen or finger to sign on a tablet, for example.
- There are standard (SES), advanced(AES) and qualified(QES) “electronic” signatures.
- The electronic signature law recognizes SES as valid if it:
- Identifies the signatory (or the document’s sender) and indicates his/her approval of the information contained in the document
- Is appropriate for the document at the time of signature
- Is time-stamped
- The electronic signature law recognizes SES as valid if it:
- Are digital signatures and electronic signatures the same?
- No, on a technicality
- A digital signature (although not defined in the ECT Act), is a signature that originates with a digital certificate.
- A digital certificate is issued to a person, once that person has been verified as the person who they claimed to be.
- A digital signature requires not only a positive act but also has verifiable integrity as a result of a digital certificate.
- A digital certificate is a positive identification of a device/server or entity that operates very similar to how an identity document identifies a specific person.
- A digital certificate is managed by a Public Key Infrastructure (PKI), which is a combination of hardware, software and procedures implemented in order to manage digital certificates.
- Advanced electronic signatures (AES) is an example of a digital signature, and is the most secure “electronic” signature in South Africa.
- AES are a specialized type of electronic signature that have been accredited or “passed a test.” In order to “pass the test”, the South African Accreditation Authority (SAAA) must accredit authentication products and services in support of the advanced electronic signature. The purpose of requiring accreditation is to guarantee the authenticity of the signature.
- An AES meets the following requirements:
- (a) it is uniquely linked to the signatory;
- b) it is capable of identifying the signatory;
- c) it is created using means that are under the signatory’s sole control;
- (d) it is linked to other electronic data in such a way that any alteration to the said data can be detected.
- The SAAA may not accredit authentication products or services unless it is satisfied that each advanced electronic signature to which such authentication products or services relate:
- are uniquely linked to the user;
- are capable of identifying that user;are created using a means that can be maintained under the sole control of that user;
- will be linked to the data or data messages to which they relate in such a manner that any subsequent change of the data or data messages is detectable; and
- are based on face-to-face identification of the user.
- The Law Trust Party Services and the South African Post Office are entities that are accredited to authenticate advanced electronic signatures.
- Where an advanced electronic signature is used, that signature is assumed to be a valid electronic signature that has been applied properly, unless the contrary is proven.
- An AES meets the following requirements:
- A QES is a specific digital signature implementation that has met the particular specifications of a government, including using a secure signature creation device, and been certified as ‘qualified’ by either that government or a party contracted by that government
- No, on a technicality
- When can electronic signatures be used?
- Use case for standard electronic signatures (SES) include:
- HR documents, such as employment contracts, benefits paperwork and other new employee on-boarding processes
- Commercial agreements between corporate entities, including NDAs, procurement documents, sales agreements
- Consumer agreements, including new retail account opening documents
- Real estate documents, including lease agreements for residential and commercial real estate not lasting for a period of more than 20 years
- Use case for AES and QES include:
- When a signature is required by law, but the law does not specify the type of signature required, it can only be signed with an advanced electronic signature as defined by ECTA, which is, in practice, equivalent to a QES is Europe. South Africa’s advanced electronic signature is required for:
- A suretyship (General Amendment Act, 1956)
- Signing as a Commissioner of Oaths (Justices of the Peace and Commissioners of Oath Act, 1963)
- When a signature is required by law, but the law does not specify the type of signature required, it can only be signed with an advanced electronic signature as defined by ECTA, which is, in practice, equivalent to a QES is Europe. South Africa’s advanced electronic signature is required for:
- Use case for standard electronic signatures (SES) include:
- When are electronic signatures specifically prohibited?
- Use cases that are specifically barred from digital or electronic processes or that include explicit requirements, such as handwritten (e.g. wet ink) signatures or formal notarial process that are not usually compatible with electronic signatures or digital transaction management.
- The following must be handwritten and are excluded for the ECTA:
- Contracts for transfer or sale of immovable property, including sectional titles and mortgage bonds
- Deeds and long term leases for a period of more than 20 years
- Wills and codicils (excluded from ECTA)
- Bills of exchange (e.g., cheques) ( cheques are no longer accepted as a bill of exchange in South Africa)
- License of intellectual property, IP transfers and employee invention agreements (Patents Act, 1978, the Design Act, 1993, the Trade Marks Act, 1993 and the Copyright Act 1978)
- The following must be handwritten and are excluded for the ECTA:
- Use cases that are specifically barred from digital or electronic processes or that include explicit requirements, such as handwritten (e.g. wet ink) signatures or formal notarial process that are not usually compatible with electronic signatures or digital transaction management.
- When will electronic signatures be binding?
- An electronic signature will be valid and binding when:
- a method is used to identify the person and to indicate the person’s approval of the information communicated; and
- having regard to all the relevant circumstances at the time the method was used, the method was reliable and appropriate for the purpose for which the information was communicated.
- An electronic signature will be valid and binding when:
- How can one ensure that an electronic signature is reliable and appropriate?
- The following steps can be taken to ensure that the method of electronic signature in use is reliable and appropriate:
- With regards to company contracts, use a dedicated organisation domain name that clearly identifies the company to which the signatory belongs
- have the signatory send the signed document directly to the recipient, minimizing the use of intermediaries;
- take steps to independently verify the identity of the signatory and his or her acceptance of the terms of the document;
- ensure strict compliance with signature formalities that may be specified in the relevant agreement; and
- utilize a service provider in order to authenticate the identity of the signatory as well as the time and date of signature.
- The following steps can be taken to ensure that the method of electronic signature in use is reliable and appropriate:
- Do electronic signatures satisfy a self-imposed requirement by parties to a transaction to sign electronically if the type of electronic signature is not stipulated?
- Yes. Where the type of electronic signature is not stipulated by parties to transaction, an ordinary electronic signature will suffice as long as the requirements discussed are satisfied.
- If one party to a transaction signs electronically, are all parties required to sign electronically?
- No. Since wet ink and electronic signatures carry the same weight, both types of signature can be contained in the same document.
- Can a foreign company execute a contract governed by South African law using an electronic signature?
- Yes. Since the legal status of wet ink signatures and electronic signatures is the same under South African law, an electronic signature may be used by a foreign company to execute a South African contract. However, the constitution of the foreign company must authorize the company to sign using an electronic signature.
- Can an electronic signature be used to sign documents requiring signature under the Companies Act, for example resolutions?
- Advanced electronic signatures can be used to sign documents required to be “signed” in terms of the Companies Act.
- The Companies Act is not clear on whether ordinary electronic signatures or advanced signatures are to be used and until clarity is provided, it is recommended that advanced electronic signatures be used.
- Round robin resolutions of shareholders or directors can be in “writing” in terms of the Companies Act and therefore need not be signed in terms of the Companies Act to be valid, with any other means of electronic communication being sufficient (unless the MOI requires a higher standard).
- Should parties choose to exercise their votes in writing on such a resolution, by affixing an electronic signature, would be valid since signature as such is not required under the Companies Act.
- However, advanced electronic signatures may be used to vote on shareholders resolutions and round-robin board resolutions, since although signatures are not required when consenting to these resolutions, an advanced electronic signature will indicate the identity of the shareholder or director.
- Which documents require signature under the Companies Act and its regulations and therefore an advanced electronic signature?
- The following actions, among others, require the signature of a document and therefore an advanced electronic signature:
- an MOI for incorporation of a new company and potentially all documents required for incorporation;
- the financial statements of a company after approval by the board;
- securities certificates (although in this instance the signature may be autographic, mechanical or by electronic means which seems to suggest an electronic signature may suffice);
- a proxy form appointing a third party to participate in, and speak and vote at, a shareholders’ meeting on behalf of a shareholder or to vote on a round robin resolution;
- holders’ meetings;
- certification of minutes of round robin resolutions by the chairperson;
- a prospectus and statement relevant to a secondary offer to the public; and
- a notice of conversion of a close corporation into a company.
- The following actions, among others, require the signature of a document and therefore an advanced electronic signature:
- Will the Companies and Intellectual Property Commission accept electronically signed documents?
- Yes. Subject to what is set out above, the Companies and Intellectual Property Commission allows for the filing of applications electronically
- Why should we use electronic signatures?
- Electronic signatures are legal, governed by an Act (ECTA), eco-friendly and can help your business save on paper, electricity, and fuel.
“15 Pertinent Questions Regarding Electronic Signatures in South Africa”, now that was certainly a mouthful. Threading the path of electronic signatures also encompasses the protection of South Africans against the fraudulent use of their electronic signature. How are you protecting your electronic signature? What remedial steps are there when one realizes that their electronic signature has been fraudulently used? I welcome your active contribution.
Credit and disclaimer: This article combines excerpts from the ECTA, the work of Webber Wentzel, Docusign and many other legal professionals. In some instances, I copied verbatim to preserve meaning.