09 Oct 2020

Electronic Signatures, Credit Agreements and the National Credit Act

by David Warmback, Partner, Durban, Suhail Ebrahim, Associate, Durban,
Practice Area(s): Corporate & Commercial |

The use of electronic signatures has never been more relevant at this stage in our technological development. The general legal position is that when legislation prescribes the signing of a document, that condition is only met if the document is physically signed, in the traditional sense, or an advanced electronic signature is used. In relation to all other documents, where the signature thereof is not prescribed by legislation, Section 13(2) of the Electronic Communications and Transactions Act 25 of 2002 (ECTA) provides that an electronic signature is not without legal force and effect merely on the grounds that it is in electronic form. ECTA provides for a detailed application and interpretation of an electronic signature and advanced electronic signature. The validity of the use of electronic and advanced electronic signatures in credit agreements governed by the National Credit Act 34 of 2005 (NCA) must be analysed with reference to relevant legislative provisions and precedent.

With regards to electronic signatures and advanced electronic signatures, Section 2(3) of the NCA provides as follows:

If a provision of this Act requires a document to be signed or initialed by a party to a credit agreement, that signing or initialing may be effected by use of –

(a) an advanced electronic signature, as defined in the Electronic Communications Act, 2002 (Act No. 25 of 2002); or
(b) an electronic signature as defined in the Electronic Communications Act, 2002 (Act No. 25 of 2002), provided that —
(i) the electronic signature is applied by each party in the physical presence of the other party or an agent of the party; and
(ii) the credit provider must take reasonable measures to prevent the use of the Consumer’s electronic signature for any purpose other than the signing or initialing of the particular document that the consumer intended to sign or initial.

It is apparent from Section 2(3) of the NCA that when the NCA requires a document to be signed or initialed by a party to a credit agreement, that requirement is only fulfilled if an advanced electronic signature is used, or an electronic signature, provided that the electronic signature is applied in the physical presence of the other party. Of note is that this provision does not provide for the required form of signature nor does is specify that an electronic signature is required to be applied in the manner stated in Section 2(3), for the validity of a credit agreement governed by the NCA.

To support this interpretation, the High Court case of First Rand Bank t/a Wesbank v Molamugae (24558/2016) [2018] ZAGPPHC 762 (26 February 2018) (Wesbank case) sheds some light on this relevant, yet underdeveloped, area of our law. In the Wesbank case, Wesbank, the plaintiff, instituted action against the defendant, one Andrew Molamugae, for the cancellation of an instalment sale agreement known as an “I-contract” and the repossession of a vehicle which the defendant purchased under the I-contract. The action was instituted as a result of the defendant’s failure to fulfil his monthly repayment obligations under the I-contract.

The I-contract, governed by the NCA, was signed by the defendant online and electronically. A certain watermark generated by the computer appeared on the I-contract once the defendant accepted the terms and conditions by effecting his electronic signature. The defendant contended that Section 2(3) of the NCA was not complied with. In response, the plaintiff pleaded that the agreement was completed and signed electronically by the defendant and that it constitutes a valid agreement in terms of ECTA. The issues before the court were, amongst others, whether an instalment sale agreement, in terms of the NCA, was concluded and whether the electronic signature is in compliance with ECTA.

In analysing the provisions of Section 2(3) of the NCA, the court held that the NCA does not provide for the form that the signature to the instalment sale agreement needs to take. As a result, it is quite possible to sign the agreement electronically and in compliance with ECTA. It was further held that in the modern-day society of high technology, agreements are in fact concluded without the parties being in the presence of each other. Consequently, the court held that an instalment sale agreement was indeed concluded by the parties.

On a the basis of the wording of Section 2(3) of the NCA and the court’s interpretation thereof in the Wesbank case, it is apparent that there is no prescribed form for the signing of a credit agreement that falls within the ambit of the NCA. Therefore, a credit agreement that is signed electronically, using an electronic or advanced electronic signature will be valid and binding, having the full force and effect in law, as if signed in hard copy. The current legal position shall prove to be favourable for those, particularly financial institutions, that seek to limit physical interaction with their clients, increase efficiency, be environmentally sustainable and keep-up with the digital age.