Intent and admission outweigh technical deficiencies when determining the validity of surety agreements that are signed electronically. This is what the High Court in Cape Town concluded this month when it upheld a claim by Momentum Metropolitan Life to claw back commissions on cancelled and lapsed policies.
Noluvuyo Alicia Makaluza (second respondent) signed a deed of suretyship in September 2022, making her jointly liable with Lavender Hill Trading 544 CC (first respondent) for any debts owed to Momentum Metropolitan Life. (According to the FSCA’s website, Lavender Hill’s FSP licence was withdrawn in June last year.)
Lavender Hill sold life insurance policies and received commissions, which it was obliged to refund if the policies lapsed or were cancelled within a specified period. When certain policies did lapse or were cancelled, a debt of R1 279 248.03 accrued, which Lavender Hill allegedly failed to repay.
Momentum Metropolitan sought summary judgment against the respondents for the R12m, plus interest and costs.
In opposing the application, the respondents raised two defences. The court lacked jurisdiction, and they could not comment on the correctness of the amount claimed because Momentum failed to provide Lavender Hill with statements.
During the hearing, Makaluza’s counsel dropped these defences and instead challenged the legal validity of the deed of surety itself.
The new argument hinged on the electronic nature of Makaluza’s signature.
Section 6 of the General Law Amendment Act requires that a suretyship agreement be in writing and signed by the surety to be legally enforceable.
The deed was signed electronically, and Makaluza argued it must comply with the Electronic Communications and Transactions Act (ECTA).
Section 13(1) of ECTA states: “Where the signature of a person is required by law and such law does not specify the type of signature, that requirement in relation to a data message is met only if an advanced electronic signature is used.”
Makaluza contended that because section 6 of the General Law Amendment Act requires a signature but does not specify whether it must be traditional or electronic, ECTA imposes the requirement of an advanced electronic signature for electronic suretyship agreements.
Sections 37 and 38 of ECTA relate to the definition and accreditation of advanced electronic signatures. An advanced electronic signature is one that meets specific security standards and is accredited by an authority recognised under ECTA.
It was agreed that Makaluza’s electronic signature was not accredited; therefore, the defence argued that Momentum should have pleaded compliance with these rules. Without such proof, it was claimed the deed was invalid, and the applicant could not win judgment.
The defence referred to Massbuild (Pty) Ltd t/a Builders Express, Builders Warehouse and Builders Trade Depot v Tikon Construction CC and Another (2020), where the High Court dismissed a similar claim for failing to meet ECTA’s standards.
‘Form over substance’
Judge Lister Nuku rejected Makaluza’s challenge to the validity of the deed. Its reasoning rested on both procedural and substantive grounds:
The court noted that Makaluza did not properly raise the defence of invalidity based on the electronic signature in her initial plea or in her affidavit opposing summary judgment, as required under Rule 32(3)(b) of the Uniform Rules of Court. Instead, Makaluza only raised this legal point about the signature’s validity at the hearing. The court found this procedural failure significant, stating that the applicant’s counsel had correctly argued that the defence was neither pleaded nor included in the affidavit.
Makaluza’s reliance on the General Law Amendment Act to challenge the Deed of Suretyship’s validity was deemed problematic. She argued that her electronic signature did not meet legal requirements, but this contradicted her earlier admission in her plea, where she acknowledged binding herself as a surety and co-principal debtor.
Judge Nuku criticised Makaluza’s argument as “elevating form over substance”. It reasoned that despite the technical argument regarding the type of electronic signature, the substance of the matter was clear: Makaluza had intended to be bound as a surety and had admitted to doing so. The court distinguished this case from Massbuild, where the issue was whether the surety had signed at all. Here, Makaluza admitted to signing, albeit electronically.
Judge Nuku concluded that Makaluza “failed to satisfy the court of the nature and grounds of her defence”, and her legal point regarding the signature was “bad in law”.
The court did not definitively rule on whether an advanced electronic signature is required under ECTA for a suretyship agreement. Instead, it found that the respondent’s admission to being bound as a surety overrode any technical deficiency in the signature.
The court granted summary judgment in favour of Momentum.
