• Sign of the times

    Technology is changing the way business contracts are made and signed. Silke Colquhoun reports on the small print
    Sign of the times

    Signing your name – by hand, with a pen – on a paper contract may soon be as old-fashioned as sending a telegram, using a typewriter, or queuing in a bank for over-the-counter cash. Technology
    has not changed contract law, as such, but it has completely transformed the
    way business deals are conducted and authenticated.

    Today’s digitised, fast-paced world is substituting personal meetings with emails, webinars, videoconferencing and Skype. The growing trend towards electronic business transactions and online shopping means you sign with a few keyboard strokes rather than writing your name in ink on the dotted line.

    Pen vs PC

    In fact, an electronic signature in a commercial transaction is the equivalent of a handwritten signature – this is very clearly stated in South Africa’s Electronic Communications and Transactions (ECT) Act of 2002.
    Keep this in mind. Your negotiations by email or data message (such as SMS, WhatsApp or Facebook Messenger) could be considered legally binding, according to the Act.
    ‘In a 2014 case, our courts found that an email signed simply with the name of one of the parties was a valid electronic signature (and was sufficient to cancel a contract by agreement),’ say Rohan Isaacs and Kerri Crawford, technology lawyers at Norton Rose Fulbright South Africa.

    ‘When drafting contracts, we include a clause stating that any documents required by the agreement to be signed must be signed physically, or by using a method of electronic signature specifically agreed by the parties to be valid. This avoids the risk of contracts being amended or cancelled electronically when one party may not have intended to do so.’

    But don’t pack away your pen just yet. ‘Certain transactions, such as sale or long lease of land, wills, and bills of exchange still remain outside of the scope of the ECT Act – and are therefore valid only if concluded in hard-copy writing and physically signed,’ says Wendy Rosenberg, director of media and communications at law firm Werksmans Attorneys.

    Some organisations still prefer a physical signature on high-value or high-risk contracts, simply because they perceive it as better ‘evidentiary value’ than an electronic signature, says Isaacs. ‘While it’s true that exercises such as hand-writing analysis cannot be conducted on an electronic signature, there are authentication mechanisms that can be used to verify electronic signatures,’ he adds.

    These include biometrics (such as fingerprint identification) and so-called ‘advanced’ electronic signatures, which use a three-factor signing mechanism for added security. They are cryptographically bound to the document and time-stamped, so any alteration or corruption of the signed document can be detected.

    According to Isaacs, there is a drawback: ‘Advanced electronic signatures are still expensive to obtain and there are only two accredited providers in SA: LAWtrust and the Post Office.’

    Blockchain

    The next level in digital transactions leads us to ‘smart’ contracts: Automated electronic agreements that make hand-written signatures obsolete by using blockchain technology. Take, for example, the low-tech vending machine, which works on a smart-contract principle. In a coin-operated sweets- or cooldrink dispenser, all processes are performed without human intervention.

    ‘It basically works on the “if this, then that” coding principle. One event, like depositing a coin, triggers another event, which releases the item from the machine,’ explains Alexia Christie, technology and media lawyer at Webber Wentzel.

    Blockchain is a sophisticated follow-up version of the vending machine. It’s the technology ‘backbone’ and protocols that Bitcoin and other digital currencies use, according to Deloitte. So blockchain is a means for exchanging value over the internet without a middleman.

    In a blockchain, all transactions (such as property sales) are recorded in a ledger and distributed across many computers, so that the record can’t be altered retroactively without altering all subsequent blocks and the consensus of the network. Deloitte’s report Blockchain: Enigma. Paradox. Opportunity states: ‘Entries are permanent, transparent and searchable, which makes it possible for community members to view transaction histories in their entirety. Each update is a new “block” added to the end of the “chain”.’

    Yay for Africa

    ‘Smart contracts are still in the experimentation phase,’ says Crawford. ‘Use cases are emerging in a slew of industries, from finance to insurance to manufacturing and property rental, but large-scale implementation hasn’t yet taken off. We need to remember that two years ago, most people didn’t know what Bitcoin was and hardly anyone had ever heard of smart contracts.’

    The potential is huge. And here is why: Smart contracts via blockchain improve efficiency and transparency, reduce cost, minimise risk, and offer guaranteed performance.

    Rosenberg foresees great opportunities for Africa: ‘In a continent of vast distances and fewer government services outside, yet with rapidly growing mobile penetration, smart contracts and blockchain could facilitate inclusion and service delivery.’ This only seems to confirm that ink-on-paper signatures are on their way out.

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