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Commercial Litigation & Insolvency News Alert: Warning if seeking to rely upon signature on guarantees

News Alert 14 October 2016

The recent case in the New South Wales Court of Appeal of Williams Group Australia Pty Ltd v Crocker is instructive as to the problems that might arise where a guarantee is executed as part of trade terms and conditions by way of electronic signatures of directors.

Background

Williams Group Australia Pty Ltd (Williams) was a builder engaged by trade debtor, IDH Modular Pty Ltd (IDH) to supply building materials. Guarantees were purported to be signed by each of the three directors and witnessed by the same person - all electronically. Judgments were obtained against two directors and the company went into liquidation. The third director, Mr Crocker, resisted any judgment on the basis that he never authorised his electronic signature to be affixed to the guarantee and he did not ratify, or otherwise later approve of, the execution of the guarantee. The director Crocker was successful in resisting initially, any application for judgment and then on appeal.

Some interesting points arise as a result of the judgments in both the originating proceedings and appeal:

  • The electronic signature system used, recorded what documents were executed and when.  It was conceded that Crocker was never at the computer terminal that accessed the signature system to authorise this transaction.
  • No evidence was called by either party from the purported witness. This was presumably because that evidence may have been unhelpful to both sides. It would not for instance have shown any authorisation or indeed lack of authorisation for others to affix the signature. That witness was spared arguably some embarrassing moments in terms of how she could have justified affixing her electronic signature as a witness in circumstances where she could not have witnessed the person operating the computer terminal or a remote computer terminal to affix their electronic signature initially.
  • It was argued that passwords had not been changed by Crocker after being allocated them, which allowed others within the company to use his electronic signature. This was considered to fall short of the necessary evidence to suggest some form of authority to affix Crocker’s signature.
  • The circumstances were such that while two representative signatures were downloaded by Crocker, it was a third signature that had been downloaded on the day of execution of the guarantee and used. It was conceded that this was not done by Crocker and there was no evidence to suggest it was downloaded by others with his authority.

In the result, the Courts essentially found that there was insufficient evidence to prove actual execution by Crocker or execution with his authority. The Court held that Crocker did not ratify the transaction as it could not be proved that he was aware of it at any time.

What does this mean for Traders?

Traders who submit terms and conditions regularly with directors’ guarantees need to be vigilant as to their execution. If guarantees are executed electronically, conservative advice would be for the signatures to be witnessed by reliable professional witnesses who certify identification etc. Practically, parties might hesitate to accept electronic signatures on documents such as these and require original execution.  


Tony Mylne, Partner
Brisbane

 

News Alert 14 October 2016
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