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April 2, 2020

FRAUD IN THE DIGITAL AGE - SIGNED vs SIGNATURE

The Supreme  Court of Appeal recently delivered a judgment in the case of Global and  Local Investments Advisors v Fouche. The Court was specifically required to consider the use of electronic signatures for the purpose of authorizing the release of funds by a financial services provider.

In this case, Global and Local Investments (“Global”) and Nickolaus Fouche’s  (“Fouche”) had concluded a written mandate agreement in terms of which Global undertook to act as Fouche’s agent and to invest money with a bank on Fouche’s behalf (the “Mandate”). The Mandate provided that all instructions from Fouche were to be sent to a specified telefax number or  email address “with client’s signature”. Fraudsters subsequently  hacked  Fouche’s email account and using his authentic email credentials, sent three emails to Global with instructions to transfer specified amounts  to accounts of third-parties at another bank. All three of the emails ended with the word “Nick”.

Global acted  on these emails and paid out a total of R804 000 from Fouche’s account to  unknown third parties in three tranches. When Fouche became aware of the payments, he notified Global that the emails had not been sent by him and  claimed payment of the amounts transferred to the third-party accounts on the  basis that Global had paid out contrary to the terms of the Mandate. Global’s  primary defence to the claim was that it had acted within the terms of  the Mandate as the instructions had emanated from Fouche’s legitimate  email address, and that the typewritten name “Nick” at the end of the emails  satisfied the signature requirement in terms of section 13 of the Electronic  Communications and Transactions Act 25 of 2002 (“ECTA”).

The Court decided that the resolution to the dispute turned on a proper interpretation  of the Mandate and whether Global acted in breach of its provisions. In construing the Mandate, the Court held that the context must be taken into account and that “in the commercial and legal world signatures serve established purposes. Signatures are used as a basis to determine authority and can be checked for authenticity”. The Court also noted that it was significant that the Mandate required that all instructions had to be sent by telefax or by email to a specified fax number and email address but that there was no specified dispatching telefax number or email that could serve as an authenticated source.

The Court did not agree with Global’s contention that the dispatching address of Fouche, together with his name at the end of the email served an authentication purpose. This was especially so since the Mandate required a signature which in every day and commercial context serves an authentication and verification purpose. In order to be able to resort to section 13 of ECTA, Global  would have had to show that in terms of the Mandate an electronic signature  was required. The Court noted that the word “electronic”’ was  conspicuously absent from the Mandate.

Finally, and  perhaps most notably, the Court distinguished this decision from its 2015 decision in Spring Forest v Wilberry on the basis that, in the Spring  Forest case the authority of the persons who had actually written and sent the emails was not an issue, and, that the issue in the Spring Forest case was whether an exchange of emails between the contracting parties could satisfy the requirement imposed by them in the contract that consensual  cancellation of their contract be “in writing and signed” by the  parties.