28/10/2016

A director's electronic signature placed on a guarantee without his knowledge led to court action by a company seeking recovery of a debt from the director personally.

In Williams Group Australia Pty Ltd v Crocker [2016] NSWCA 265, Mr Crocker was one of three directors of a company which supplied building modules.  His company filled in and completed a credit application to Williams Group Australia Pty Ltd (“Williams Group”) which provided building materials to the company.

The credit application contained the electronic signatures of all three directors of the company and was also accompanied by a guarantee which contained the same three electronic signatures.   The electronic signatures were applied to the documents via an online system where users receive login details and are able to upload their electronic signatures in order to apply it to documents.

During all relevant times, Mr Crocker did not change his initial password that was given to him, so anyone who knew or had access to his original login details could have accessed and affixed an electronic signature on any document on behalf of him.  It was not until the company went into liquidation and Williams Group sought recovery of money owed to them that Mr Crocker became aware that his electronic signature had been applied on the credit application and guarantee.

The Supreme Court held that Mr Crocker was not liable under the guarantee as his electronic signature was placed on the documents without his knowledge and authority.

On appeal, Williams Group accepted that there was no actual authority given by Mr Crocker to another person in the company to affix his signature to the document, however, Williams Group argued that person had ‘ostensible authority’ (ie, Mr Crocker held out to Williams Group that whoever placed his electronic signatures on the documents and forwarded them to Williams Group was authorised by him to do so).

The judges on appeal held that the failure of Mr Crocker to change his password in relation to the online system and Mr Crocker’s use of that system on a number of other occasions did not amount to authorisation of another person to use his electronic signature to bind him to the obligations under the credit application and guarantee.  

The use of electronic signatures may seem to offer an efficient and convenient way to have documents or agreements signed and returned to another party.  However the desire for expediency must be balanced against the need to protect and treat electronic signatures as if they were your real signature. The potential for fraudulent misuse may be greater than simple forgery of a signature.    Treat electronic signing carefully and be aware that in NSW it is not permitted to witness a document by electronic signature.

For further information, please contact Townsends Business & Corporate Lawyers on (02) 8296 6222.