It is a fact that wet signatures can easily be forged and tampered with, while electronic signatures have many layers of security and authentication built into them, along with court-admissible proof of transaction.
However, in legal practice, there are court decisions on illegal actions with documents in electronic format, which means that they may be of interest to all participants in electronic document management for protecting finances and business reputation.
The recent case of Marketlend Pty Ltd v. Blackburn [2020] NSWDC 358 (July 9, 2020) demonstrates what fraud looks like in the context of electronic documents execution and how the risk can be minimized.
Evidence
Marketlend lent the funds to a small company that runs a business selling mobile homes and residential vans, on the basis that the return will be guaranteed by its directors Matthew and Sarah. Matthew and Sarah were married but separated.
Marketlend required that agreements be signed electronically using DocuSign. Both Sarah and Matthew had DocuSign accounts.
Marketlend sent several emails using the DocuSign platform with the attachment of documents to the email address of Matthew's company. Each document was purportedly signed by Sarah using DocuSign. Before that, Marketland had no contact with Sarah.
The company went into liquidation, and Matthew was declared bankrupt. Marketlend pursued Sarah for payment the remaining amount (more than $ 700,000).
After analyzing the evidence, including DocuSign metadata and mobile phone location evidence, the court held that Matthew used Sarah's account to sign the agreement without her knowledge or consent since she did not sign it when he asked her to do so. Sarah was not liable to pay the remaining amount in favor of Marketlend.
Lessons
One of the advantages of using electronic signature platforms is the generation of a verifiable document execution trail. The case of Marketlend is a perfect example to prove that. But it is also a timely reminder to lenders of the importance of adopting reliable fraud prevention methods, even when signing documents with an electronic signature.
The case illustrates that the ability of lenders to claim against counterparty may be compromised if his signature platform account or the associated email address is compromised. For example, in this case, the judge found that:
- The person using Sarah's DocuSign account required access to emails sent to Sarah's company email address. Both Matthew and Sarah had access to emails sent to Sarah's corporate email account.
- Access to Sarah's DocuSign account was not protected by a password or other authentication means, such as providing a confirmation code in a text message.
- The account holder was not notified that their DocuSign account had been accessed from a new device.
Fraud prevention
Below we provide some key lessons on fraud prevention. Most of them are equally applicable to documents signed traditionally (for example, in wet ink), and to documents signed electronically (for example, platforms for signing electronic documents).
For lenders:
Send documents to be signed to each signatory directly, and not via another person.
Separately engage with each party before signing if a guarantee is given by two or more individuals.
Consider verifying the identity of each signatory.
For everyone:
If you have a signature platform account, consider setting up multi-factor authentication. It is especially important if there is any concern as to the integrity of your email system.
Make sure that all of your email accounts are secure and cannot be accessed by others.
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