Why online contracting is the right move for your business

25 April 2022 ,  André van NiekerkDamian Viviers 360
As the world moves relentlessly towards digitisation it’s to be expected that businesses are looking at how they can digitise, streamline and automate processes and also reduce their reliance on paper. Contracting has traditionally been a process requiring paper and parties to physically sign such physical documents. Yet with the recent restrictions on movement and physical interaction highlighting the inefficiency of this approach, more and more businesses are looking into electronic contracting and signatures as alternatives to the traditional approach.

Despite this business imperative, we are still regularly confronted by clients wanting to know to what extent they can use digital solutions and systems and how valid these are, it being appreciated that systems can help, but should not come at the cost of higher risk or even invalidity.

To help address some of these concerns, we have in this article unpacked the current legal position in South Africa regarding digital contracting and signatures, and although the position is not without its complexities, it will hopefully provide the necessary guidance to enable you to evaluate your options.

In South Africa, although not a strict formality for the conclusion of a valid contract, the signing of a contract has always served to enhance legal certainty and confirm the agreement of the parties to be bound to the terms of the contract. Standard business practice therefore dictated that parties sign a contract, and traditionally this was done in a physical sense with pen and paper and often with parties being in the same location.

Modern demands have necessitated a departure from this, and contracts are now commonly executed electronically, with one person signing, then transmitting the contract to another, and so forth, until the contract has been signed by all parties. Although this signing of a contract in counterparts is valid, it often still involves, printing, signing, scanning, sending etc.

Enter the use of electronic signatures, which can be attached to an electronic document and circulated digitally to other signatories to sign using electronic signatures. The efficiency gains are immediate – no printing, signing, scanning. With some online contracting systems, the system takes care of all of the processes and signing, providing a fully signed document at the end as part of an automated process. What’s not to like!

The question though is whether such electronic signing is legal and whether there are any special requirements that need to be met for these solutions to be valid.

To answer this, we must start with the purpose of a signature to a contract. The signing of a contract is used to provide proof of - 

  1. the identity of the signatory;
  2. that the signatory intended the signature to be his/her signature; and 
  3. that the writing to which the signature is associated (i.e. the contract) is approved by the signatory.
This means that a digital signature to be valid must be capable of fulfilling of these requirements. This means that the electronic signature, which is in essence data attached to an electronic document or transmission, must be able to serve as verification of the signatory’s identity and his/her intent to sign the document.

South Africa follows a global trend in recognising the legality of electronic signatures, rendering the status of electronic signatures as a functional equivalent to traditional “ink” signatures. Electronic signatures are regulated by the common law and the Electronic Communications and Transactions Act 25 of 2002 (“ECTA“). The ECTA specifically states that an electronic signature is not without legal force and effect merely because it is in electronic form, clearly indicating that electronic signatures are legally recognised in South Africa.

The ECTA provides for both ordinary and advanced electronic signatures that may be used in respect of transactions, depending on the circumstances. The following constitute four examples of ways to establish a digital signature:

  • When a stylus or your finger is used to draw your signature on a device that allows for this. This can be done on a touch screen device (like a tablet or a smartphone).
  • Where you upload an image/photo of your handwritten signature. Taking a photo of your handwritten signature on a piece of paper and uploading it to the correct place in the applicable document.
  • Using your cursor or mouse to draw your signature. There are a number of programs that allow for the drawing of a signature in this way.
  • Typing your signature on a keyboard essentially in words or letters.
A standard electronic signature is a signature that includes any digital or scanned signature, and will suffice in circumstances where a signature is required by the parties to a contract and they do not specify the type of electronic signature to be used. For most purposes, standard electronic signatures will therefore be sufficient when signing a document electronically.

Advanced electronic signatures on the other hand, must be used in situations where an electronic signature other than a standard electronic signature is required. Some documents are also excluded in terms of the ECTA and can therefore not be concluded electronically, such as wills, bills of exchange, agreements for the sale of immovable property and long-term leases of land exceeding a period of 20 years. Parties can of course also prohibit or authorise the use of digital signatures and specify the nature or requirement for such digital signatures in the contract.

A last item to remember - existing contracts may prevent their amendment by way of an electronic signature or data exchange. So before amending a contract with an electronic signature, consider whether there are any restrictions to look out for before using digital signatures.

In conclusion, it is appropriate to confirm that digital signatures and the use of online signing platforms are definitely allowable and valid, but subject to what has been discussed above. Are there benefits to moving towards electronic processes? Most definitely!

If your business is considering a move towards going paperless or automating your contracting processes, make sure that you discuss this with a commercial attorney that specialises in this area of the law, to help you approach this correctly and help you prepare your agreements for use within a digital space.


Disclaimer: This article is the personal opinion/view of the author(s) and is not necessarily that of the firm. The content is provided for information only and should not be seen as an exact or complete exposition of the law. Accordingly, no reliance should be placed on the content for any reason whatsoever and no action should be taken on the basis thereof unless its application and accuracy has been confirmed by a legal advisor. The firm and author(s) cannot be held liable for any prejudice or damage resulting from action taken on the basis of this content without further written confirmation by the author(s).
 
Related Expertise: Corporate, Data Security
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