On 1 June 2023, the Johannesburg High Court published its judgment in the matter of FirstRand Bank Limited t/a Wesbank v Leon Gregory Govendor (we note that the spelling of “Govendor” in the neutral citation is different to that used in the citation of the parties. We have used the spelling as it appears in the neutral citation). This case provides interesting insight into the acceptability of credit agreements in electronic form. We take a look at the law on electronic signatures, the uncertainty in credit legislation in South Africa, and the conclusions reached by the court.
The Electronic Communications and Transactions Act
The Electronic Communications and Transactions Act, 2002 (“ECTA”) applies to “electronic transactions” or “data messages”. ECTA regulates electronic signatures. Section 13(2) (which was referenced in the Govendor Case) provides that an electronic signature still has legal force and effect in electronic form.
ECTA draws a distinction between an “electronic signature” and an “advanced electronic signature”. An (ordinary) “electronic signature” is defined as “data attached to, incorporated in, or logically associated with other data and which is intended by the user to serve as a signature”.
By contrast, an “advanced electronic signature” is a step above, meaning “an electronic signature which results from a process which has been accredited by the [Accreditation] Authority as provided for in section 37 of [ECTA]” (our emphasis). An advanced electronic signature may only be produced by an authentication service provider, of which there are currently only two in South Africa: the South African Post Office and LAWtrust. This makes getting an advanced electronic signature impractical in practice.
An advanced electronic signature, as opposed to an ordinary electronic signature, is required where a person’s signature is required by law and the law does not specify the type of signature. Having said this, under South African law, a signature is rarely required to make an agreement valid. Most commercial transactions do not even need to be in writing to be valid.
The National Credit Act
There is some debate as to the signature requirement for credit agreements concluded under the National Credit Act, 2005 (“NCA”). The NCA provides that if a provision of the NCA requires a document to be signed or initialled by a party to a credit agreement, that signing or initialling may be effected by the use of:
- an advanced electronic signature, as defined in ECTA; or
- an (ordinary) electronic signature, provided that:
1. the electronic signature is applied by each party in the physical presence of the other party or an agent of the party; and
2. the credit provider takes reasonable measures to prevent the use of the consumer’s electronic signature for any purpose other than the signing or initialling of the particular document that the consumer intended to sign or initial.
The NCA does not expressly say that credit agreements must be signed, but it does prescribe certain forms that credit agreements are required to comply with, including those which contain "signature clauses”. So, when these forms are required by law, it could be argued that a signature is legal requirement for concluding a credit agreement.
However, the NCA and the Regulations published in terms of the NCA allow for electronic or telephone-originated credit agreements to be entered into by a consumer without a signature. So, despite the apparent requirement in terms of the forms, it is not clear whether a credit agreement must always be signed in order to be valid.
The Govendor case
Leon Govendor (the defendant) had concluded a credit agreement with the plaintiff, FirstRand Bank Ltd, in terms of which he agreed to purchase a vehicle through an instalment sale agreement. The agreement was concluded and signed electronically. Mr Govendor failed to pay the instalments as required under the agreement, and as such (after complying with its obligations under the NCA) FirstRand launched an action for the surrender of the vehicle.
The process that FirstRand instituted for the conclusion of the credit agreement was described as follows: the prospective client (in this case, Mr Govendor) would arrive at a dealership and would be assisted by a sales consultant in identifying the vehicle he or she would like to purchase. Once this decision was made, the client would enter into an electronic contract, which he or she would sign electronically. In order to do so, the client would receive an SMS or email containing a link to register his or her details on the relevant agreement. Following this process, the client would receive a one-time pin (“OTP”) which would allow him or her to choose his or her preferred method of communication with the credit provider, and would allow him or her to access and sign the electronic contract, as well as to produce his or her identity documents for the credit provider’s records.
Mr Govendor launched two defences to the action instituted against him by looking at the process that FirsRand typically uses to conclude credit agreements, which was by means of signing an electronic contract that could later be accessed and signed by using an OTP.
First, he denied having entered into the agreement himself, arguing instead that his brother-in-law took his identity documents, and had access to his phone such that he could fraudulently conclude the agreement with FirstRand despite the OTP system.
Secondly, Mr Govendor argued that the instalment sale agreement did not comply with ECTA’s signature requirement.
However, the court held that Mr Govendor’s version could not be accepted, and that he had indeed entered into a credit agreement with FirstRand. This was because FirstRand was in possession of copies of Mr Govendor’s identity documents, and Mr Govendor allowed monthly payments for the vehicle to be debited from his bank account.
The court also emphasised that electronic signatures are now recognised in South African law “as equivalent to a proper basis upon which a written contract can be concluded” and as such, “a valid written contract can be concluded electronically”. On this basis, the court held that the electronic contract was valid, and found in favour of FirstRand.
The court did not explore the signature requirements of credit agreements in terms of the NCA. However, in our view, the process undertaken by FirstRand likely met the requirements of the NCA relating to ordinary electronic signatures, namely, the electronic signatures of the parties were applied in the physical presence of the other party, and (through the OTP system) the credit provider put measures in place to ensure that the signature was only used for the intended purpose of signing the credit agreement.
Ultimately, the Govendor case points to the increasing acceptance of electronic agreements in South African law. The precise manner in which this will affect the mandatory forms of credit agreements is yet to be seen.
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Read the original publication at ENSafrica.
