A signature communicated through an electronic medium like email correspondence is not a binding signature unless agreed to by the parties. In the absence of such agreement, a signature will only be valid if it appears in manuscript form regardless of the medium of communication. When entering into contracts, explicit provision must be made regarding what is meant by ‘signature’.
On 18 March 2020 the Supreme Court of Appeal found that funds were improperly transferred by a financial services provider (FSP) when it received fraudulent emailed instructions from a hacker posing as its client. The court found that the FSP acted without receiving proper instructions and contrary to its mandate because there was no signature on the instructions.
In terms of the client’s written mandate to the FSP, the FSP was engaged to act as the client’s agent and invest money on his instructions, provided that such instructions would be sent to a stated fax number or email address ‘with client’s signature’. The client’s email account was hacked by fraudsters. The fraudsters sent three separate emails to the FSP instructing that amounts be transferred to certain accounts. Two of the emails ended with the words ‘Regards, Nick’, and the third email ended with the words ‘Thanks, Nick’.
The liability of the FSP turned on the court’s interpretation of whether these instructing emails met the ‘client’s signature’ requirement of the written mandate. The FSP argued that it acted within the terms of its mandate by relying on section 13(3) of the Electronic Communications and Transaction Act 2002 (ECTA). The FSP argued that ‘Nick’ constituted an electronic signature as it is the ordinary manner in which the client signed off his emails.
Section 13(3) of ECTA sets out the circumstances in which an electronic signature will be accepted where an electronic signature is required by the parties to an electronic transaction but have not agreed on the type of electronic signature to be used.
The court rejected the FSP’s argument because the mandate did not require an electronic signature. Section 13(3) was therefore not applicable.
This judgment explains the scope of the Spring Forest Trading 599 CC case where the immediate parties to the contract exchanged emails.