An old problem in a new guise: Fraud in the age of electronic signatures

Marketlend Pty Ltd v Blackburn [2020] NSWDC 358

The recent case of Marketlend Pty Ltd v Blackburn [2020] NSWDC 358 (9 July 2020) provides a timely reminder of what fraud looks like in the context of electronic document execution, and how that risk can be minimised.

Facts

• Marketlend lent funds to a small company operating a business selling caravans and RVs on the basis that this would be guaranteed by its directors Matthew and Sarah. Matthew and Sarah were married but separated.
• Marketlend required that the agreements be signed electronically using DocuSign. Both Sarah and Matthew had DocuSign accounts. 
• A number of emails attaching relevant documents were sent by DocuSign on behalf of Marketlend to Matthew’s company email address. Each relevant document in the case was purportedly signed by Sarah using DocuSign. Marketlend had no contact with Sarah prior to this. While not specifically addressed in the judgement, it appears that Marketlend did not seek or obtain evidence  of independent legal advice from Matthew or Sarah.
• The company went into liquidation and Matthew was declared bankrupt. Marketlend pursued Sarah for payment of the outstanding amount (over $700,000).
• After analysis of the evidence, including DocuSign metadata and mobile phone location evidence, the court held that Matthew used Sarah's account to sign the relevant agreement without her knowledge or consent because she did not sign it when he asked her to do so. Sarah was not liable to pay the outstanding amount to Marketlend.  

Lessons

Marketlend is a good example of one of the benefits of using electronic signing platforms such as DocuSign – the generation of an auditable document execution trail – but also a good reminder to lenders of the importance of adopting sound fraud prevention practices, even when signing in this way.   

The case illustrates that the ability of lenders (and others) to claim against a contract counterparty may be compromised if the counterparty's DocuSign account, or the email address connected to it, 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 company email account. 
• Access to Sarah’s DocuSign account was not protected by a password or other means of authentication such as the provision of a confirmation code by text message. 
• No notification was given to an account holder that their DocuSign account had been accessed from a new device.

Although it wasn't considered directly in the judgement, clearly obtaining evidence of independent legal advice in relation to director guarantors is another fraud prevention practice that could have avoided the issues that arose.  

Fraud prevention

The table below sets out some key fraud prevention lessons from the case. They are particularly important where the counterparty is not represented by a lawyer. Most are equally as applicable to documents signed in a traditional manner (eg in wet ink) as to documents that are signed electronically (eg by DocuSign).

 Authors: Christine Baumberg and Tae Royle.