LETTER | Ditching the pen and paper for e-signatures

LETTER | The movement control order (MCO) has restricted physical movements and business operations. These restrictions would necessitate meetings be conducted online and contracts concluded in this way too. 

Even after the MCO ends, the new normal of social distancing because of the Covid-19 pandemic would encourage businesses to continue such activities online more frequently.

The traditional way of concluding contracts by printing hard copies and signing in wet ink remains an option. However, concluding contracts online by way of electronic signature (e-signature) during and post Covid-19 may be cost-effective and “safer” in comparison.

In Malaysia, the Electronic Commerce Act 2006 (ECA) generally presumes that contracts concluded with e-signatures are as good as those signed in ink (except for specific exclusions).

What are e-signatures?

Under Section 5 of the Act, e-signature is defined as "any letter, character, number, sound or any other symbol or any combination thereof created in an electronic form adopted by a person as a signature”. 

The legal effect and validity of a contract (including its contents) may not be denied just because it is concluded electronically (Section 6 and 7 of the Act).

The e-signature is however different from a “digital signature”. Digital signatures are essentially signatures created through cryptographic protocols in a valid certificate (eg SSL certificates) issued by a licensed certification authority (eg Pos Digicert).

What makes e-signatures valid?

When a contract is conducted online by way of an e-signature, Section 9 of the Act requires an e-signature to be, amongst others:-

1. Attached to or is logically associated with the document;
2. Adequately identifies the signer and indicates his approval of the information to which the signature relates; and
3. As reliable as appropriate given the purpose and circumstances for which the signature is required.

The reliability of an e-signature is assessed through the following conditions: -

1. The means of creating the e-signature is linked to and under the control of the signer only; and
2. Any alteration made to the e-signature and document after signing is detectable.

The e-signature should be signed in the digital document the same way an ink signature is signed on a paper document. In other words, an e-signature in an image form attached to the document may not meet the requirement for a valid e-signature.

In this regard, if parties opted for a contract to be concluded online by way of e-signature, a digital audit trail would be generated with the time and IP address of the signing recorded. In the event of a dispute (as to when, where or whether the signing occurred), this digital audit trail is admissible as evidence under Section 13 of the Act.

When can e-signatures be used?

E-signatures can be used in most simple contracts, including tenancy agreements, commercial agreements between corporate entities, service agreements, and end-user agreements. 

For good practice, both parties to the contracts should agree for the contracts to be concluded online by way of e-signature.

When is usage of e-signature prohibited?

While the idea of signing documents in your loungewear sounds all cosy and convenient, there are instances where e-signatures cannot be used in signing, amongst others:-

1. Power of attorney
2. Will and testament
3. Bills of exchange and promissory notes
4. Moneylending agreement
5. Contracts relating to real estate transfer (other than tenancy agreements);
6. Bills of sale
7. Statutory declarations

Most jurisdictions around the world recognise the validity of e-signatures, albeit with varying degrees of legal formality in terms of thresholds to be met by the e-signatures. 

Some jurisdictions also tend to place less evidential weight on an electronically executed document in comparison with a traditional paper document. As a matter of precaution, you should always ensure the contracts that you are about to conclude can be signed and executed with e-signatures according to the relevant laws in the jurisdictions.

Authentication of e-signatures

Although we might be ditching the pen and paper to conclude contracts during or post Covid-19, e-signatures might be difficult to authenticate. 

To date, there is no verification or authentication process deemed adequate for the purpose of signature witnessing. While witnessing of signature through video links and applications have been considered by several jurisdictions (eg the UK, Australia and Singapore), it has not been fully approved nor adopted by any of these countries. 

It appears that the current position remains that the requirement for the physical presence of a witness cannot be dispensed with by remote witnessing through video links and applications. 

In this regard, the Malaysian Bar Council, in its Circular No. 095/2020 as at May 15 expressed the view that “watching someone sign a document on a screen when the person signing is not in the same room as the witness, is unlikely to be considered 'in the presence of'.”

In conclusion, the Covid-19 outbreak has tremendously altered the way the world thinks and works. A shift to finalising contracts electronically has always been inevitable. The arrival of the pandemic merely accelerated it. 

Nevertheless, the law on e-signature in Malaysia remains under development. As the practice of concluding contracts online with e-signature becomes common, this area of law is bound for a review to fulfil the demands of the market.

So, are we ditching the pen and paper? Not quite yet. Agreements involving high-value transactions should still be signed with ink signatures and witnessed in line with the traditional signing process.

The views expressed here are those of the author/contributor and do not necessarily represent the views of Malaysiakini.