Peter Grealy, Madelein Burger, Carla Collett, Karl Blom, Candice Meyer
Organisations have widely implemented remote working arrangements in response to the Covid-19 crisis. Below we consider the practical implications of and solutions to remote working on the execution of South African contracts.
1. How can contracts governed by South African law be signed?
A contract does not need to be in writing and signed, unless a specific law or regulation requires it (most notably, among others, powers of attorney, sales of immovable property, credit agreements, suretyships and leases for longer than 10 years must be in writing), usually imposed by legislation.
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.
2. What is an electronic signature?
An electronic signature is a legally recognised 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.
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 various software products available for more secure signatures/transactions.
3. When can an electronic signature be used?
An electronic signature can be used in most transactions unless the law prohibits the use of electronic signatures in a specific transaction; or the law requires that an advanced electronic signature be used; or parties to a transaction agree on another method of signature.
4. In what circumstances does the law prohibit the use of electronic signatures?
Electronic signatures are not permitted to be used in executing wills or codicils, contracts relating to the alienation of immovable property, bills of exchange such as cheques, and long-term agreements for immovable property, which are in excess of ten years.
5. Do electronic signatures satisfy a statutory requirement for a document to be signed?
Where the law requires a signature, only an advanced electronic signature is sufficient to satisfy this requirement.
6. What is an advanced electronic signature?
Advanced electronic signatures are a specialised 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.
7. When can the SAAA accredit authentication products and services used in support of an advanced electronic signature?
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.
8. Who are the entities that are accredited to authenticate advanced electronic signatures?
The Law Trust Party Services and the South African Post Office.
9. How does a signatory using an advanced electronic signature have to prove the signature is a valid electronic signature?
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.
10. 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.
11. 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:
- 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, minimising 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
- utilise a service provider in order to authenticate the identity of the signatory as well as the time and date of signature.
12. 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.
13. 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.
14. 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.
15. 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 authorise the company to sign using an electronic signature.
16. Are electronic representations of information (for example, scanned versions of hardcopies, soft copies, digital images) regarded as being in "original form"?
Yes. Electronic representations of information are regarded as being in their original form if:
- the integrity of the information from the time when it was first generated to its final form as a data message or otherwise has passed assessment; and
- that information is capable of being displayed or produced to the person to whom it is to be presented.
17. Can an electronic version of any document required under the Companies Act be used in place of an original hardcopy document?
Yes. An electronic reproduction of any document required in terms of the Companies Act, may be substituted for the original document as long as the electronic version of the document satisfies any applicable prescribed requirements for the form or manner of reproduction. This provision does not apply to share certificates, which must be in the original form. This is subject to any other provisions in the company’s memorandum of incorporation (MOI).
18. Can a document, record, statement or notice required to be given to any person in terms of the Companies Act, be given electronically?
Yes. It is sufficient if the document, record, statement or notice is transmitted electronically directly to that person in a manner and form allowing the notice to be conveniently printed by the recipient within a reasonable time and at a reasonable cost and provided that the person has a fax number or an address for receiving electronic mail. In the case of companies whose shareholders have not all provided addresses for electronic mail, the notice will have to be delivered by fax (if the shareholder provided a fax address), by hand, by registered post or another means authorised by a court. Electronic transmission on its own will not suffice. In the case of companies whose securities are listed on the JSE Limited (JSE), companies are advised to consult the listings requirements of the JSE, which determine whether electronic transmission will be sufficient (in general, circulars (and potentially prelisting statements, listings particulars, proxy forms, dividend or interest notices and annual financial statements), must be printed and distributed to all certificated holders, and to those dematerialised beneficial holders of its securities who have elected to receive such documents, at the cost of the company). The JSE may relax these requirements under the present circumstances on a case by case basis (and may do so generally, but that cannot be confirmed at this stage).
This is subject to any other provisions in the company’s MOI (and if a company has its securities listed on a securities exchange, the requirements of that exchange).
19. Where the Companies Act requires a document, record or statement to be retained, does an electronic version of such document, record or statement meet this requirement?
Yes. It is sufficient if an electronic original or reproduction of that document is retained for the purposes of the Companies Act. This is subject to any other provisions in the company’s MOI and the JSE's listings requirements if the company is listed.
20. 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, any of the forms in 2 above 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.
21. 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:
- a 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;
- written demands for shareholders' 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.
22. Will the Companies and Intellectual Property Commission accept electronically signed documents?
Yes. Subject to what is set out in points 20 and 21 above, the Companies and Intellectual Property Commission allows for the filing of applications electronically.