Credit agreement concluded electronically is valid, High Court confirms

A recent judgment by the High Court in Johannesburg underlines that electronic agreements are increasing being accepted in South African law.

“The effect of the provisions of the ECTA [Electronic Communications and Transactions Act] is that data messages or electronic signatures are now recognised in our law as equivalent to a proper basis upon which a written contract can be concluded. Thus, a valid written contract can be concluded electronically,” Judge Edwin Molahlehi said.

In 2016, FirstRand Bank Limited trading as WesBank concluded a credit agreement with a consumer, “LG”, to finance his purchase of a BMW X5 M-Sport. The total purchase price, including finance charges, was R1 553 249, payable in monthly instalments of R17 902 from 1 November 2016 for 71 months.

LG failed to pay the monthly instalments, and in April 2021, WesBank served him with a default notice in terms of section 129(1)(a) of the National Credit Act. LG filed a notice to defend the claim.

‘It was my brother-in-law’

In his plea, LG denied entering the agreement with WesBank. He said the agreement was concluded with his former employer and late brother-in-law, “CA”, without his consent.

According to LG’s testimony:

• He discovered the existence of the contract when his bank account was debited.
• CA took his Identity Document, salary advice slips, and insurance documents and arranged for the purchase of the car from the dealership through the loan from WesBank.
• When he confronted his brother-in-law about the purchase and the debit order, CA admitted he had purchased the vehicle from WesBank in LG’s name.

How the contract was signed electronically

WesBank presented evidence from the finance and insurance manager who dealt with LG.

She testified that WesBank’s watermark stamp in the middle of each page of the iContract proved that LG signed the contract electronically. This meant LG received an SMS or email containing a link to register his details on the documents.

After that, LG would have received a one-time PIN (OTP), which allowed him to choose his communication channel (email or SMS) with WesBank. The OTP would also give LG access to the contract. This process would allow LG to produce his ID and other documents after he entered the OTP in his phone, ensuring he was the only person who would have access to the contract, she said.

This testimony was supported by evidence from WesBank’s legal specialist, who testified that she listened to a recording of a telephone conversation between LG and WesBank’s call centre.

She said it was apparent that it was LG who purchased the vehicle and paid the instalments for four years. She testified there was no evidence from the documents or the electronic system that suggested the contract was concluded between AC and WesBank.

LG did not deny having possessed the cellphone through which the OTP was posted but contended it was a company phone that CA could also access. Therefore, CA could have activated the OTP and electronically signed the contract.

Court rejects the defendant’s version

Judge Molahlehi said the facts presented before the court did not support LG’s version.

LG became aware of the transaction long before WesBank issued the summons. But he did not take any steps to reverse his brother-in-law’s alleged illegal conduct, nor did he report the matter to the authorities. The allegation that CA, who subsequently passed away, misrepresented LG was not supported by any evidence, the judge said.

He said the allegation that the contract was unlawfully concluded by CA was further unsustainable when regard was had to the following facts:

• LG permitted the monthly payments to be debited from his bank account even after discovering what he alleged was an unlawful transaction concluded by his brother-in-law in his name; and
• He only stopped paying for the vehicle eight months after CA’s death.

LG’s explanation as to how he managed to pay for the vehicle before CA’s death was unsustainable, Judge Molahlehi said. He claimed CA would deposit R10 000 into his bank account each month, but he did not provide any evidence to support this allegation.

LG’s explanation of how he maintained the payments after CA’s death was also unsustainable. LG initially testified that he did not apply for Covid-19 relief from WesBank, but he later contradicted this by stating that he did receive Covid-19 relief, Judge Molahlehi said.

Compliance with ECTA and Rica

Judge Molahlehi rejected LG’s contention that the agreement did not meet the requirements of the ECTA, particularly Chapter 3, Part 1 of the Act, which sets out the process for facilitating electronic transactions.

LG also argued that the evidence relating to the recorded telephone conversation should not be considered because he was not warned that it might be used in court.

Judge Molahlehi said this contention was unsustainable.

“He did not dispute that he was informed that the conversation was recorded. He volunteered the information that is destructive to his case based on the contention that he is not the one who concluded the sale agreement with the plaintiff. In this regard, it is quite clear from the recordings that he conceded that he had concluded the contract and that he sought an arrangement to pay for the motor vehicle,” the judge said.

WesBank’s use of the audio recording in the legal proceedings is governed by section 4(1) of the Regulation of Interception of Communications Act (Rica), which provides: “Any person, other than a law enforcement officer, may intercept any communication if he or she is a party to the communication, unless such communication is intercepted by such person for purposes of committing an offence.”

There was no basis to conclude that the recording did not comply with Rica.

Judge Molahlehi ordered that:

• The credit agreement was cancelled.
• LG must return the vehicle to WesBank. Failing that, the sheriff was authorised to seize the vehicle wherever he may find it and hand it over to WesBank.
• WesBank’s claim for damages was postponed pending the return of the vehicle, its valuation and sale.
• LG must pay interest on the outstanding amount at the prescribed rate from 20 April 2021.
• LG must pay the costs.

The NCA and electronic signatures

Era Gunning, an executive in the banking and finance practice at ENSafrica, says the NCA states that if a provision of the Act requires a document to be signed or initialled by a party to a credit agreement, that signing or initialling may be effected by an advanced electronic signature (as defined in ECTA) or an (ordinary) electronic signature, provided that:

The electronic signature is applied by each party in the physical presence of the other party or an agent of the party; and

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 document that the consumer intended to sign or initial.

The NCA does not expressly state that credit agreements must be signed, but it does prescribe certain forms with which credit agreements are required to comply, including those containing “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, Gunning says.

However, the NCA and the Regulations published in terms of the NCA allow consumers to enter electronic or telephone-originated credit agreements 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 to be valid, she says.

In this matter, 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,” Gunning says.