What Amounts to Legal Electronic Signature and What are the Issues/ Risks to Consider?
- Due to the outbreak of the Coronavirus (Covid-19) pandemic, many countries are on lockdown and companies and organizations are forced to adapt to the new norm of working from home.
- This has disrupted the daily operations of most businesses, causing them to resort to electronic dealings for continuity of their business activities and commercial transactions. Amongst others, the usage of electronic signatures (also known as e-signatures) has become increasingly popular as the new standard and as a practical alternative to the conventional wet-ink signature that has long been the practice in commercial transactions.
- The main concern that most people have is whether the documents signed electronically are valid and have legal effect in Malaysia.
- This Legal Insights aims to provide general understanding on e-signature in Malaysia and issues/ risks to ponder upon when using e-signature.
What Is An Electronic Signature?
Electronic signature is a way of signing a contract electronically. In Malaysia, the Electronic Commerce Act 2006 (“ECA”) provides for the legal recognition of electronic messages in commercial transactions. An electronic signature is defined in ECA 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.”
What are the 4 Conditions for a Valid Electronic Signature?
Pursuant to Section 9 of the ECA, an electronic signature is legally enforceable if:-
(a) it is attached to or is logically associated with the electronic message;
(b) it adequately identifies the person and adequately indicates the person’s approval of the information to which the signature relates
(c) the means of creating the electronic signature is linked to and under the control of that person only; and
(d) any alteration made to the electronic signature or the relevant document after the time of signing is detectable.
In the Federal Court case of Yam Kong Seng & Anor v Yee Weng Kai [2014] 6 CLJ 285, the court held that the legal requirement for an electronic signature pursuant to section 9 of the ECA is fulfilled in the form of a short messaging service (SMS) as the sender is adequately identified with the telephone number representing the caller or the sender of the electronic message. This case has therefore widened the definition of “electronic signature” to include SMS where the owner of the number is identified.
What Type of Documents Cannot Be Executed Through Electronic Signature?
The e-signature is applicable to any commercial transaction so long as the requirements under ECA are fulfilled. However, ECA expressly prohibits the use of e-signature for:-
(a) powers of attorney;
(b) the creation of wills and codicils;
(c) the creation of trusts; and
(d) negotiable instruments.
In addition to the above, certain documents which require formal notarisation or attestation before a Commissioner for Oaths and Notary Public, for example statutory declaration, affidavits and other documents, the execution will still subject to the conventional wet-ink signatures and could not be substituted by electronic signature.
For the above, the wet ink signatures shall be used and adopted while executing the relevant documents.
What Are The Possible Issues/ Risks to Consider When Using E-Signatures?
While the usage and adoption of electronic signatures are broadly accepted to reduce turnaround time and ensure business efficacy, there is a need to weigh the convenience of using electronic signatures against the legal risks of such electronic signatures being challenged. The legal and practical considerations that need to be taken into account are as follows: –
(a) Consent
Section 3 of the ECA expressly provides that it is not mandatory for a person to use, provide or accept any electronic form of a commercial transaction, unless a person consents to it (consent may also be inferred by conduct).
This means that the validity of electronic signatures may be challenged if a party to the transaction disputes consenting to the transaction to be in electronic form.
(b) Authentication
Since the electronic signature is merely a letter, character, number, sound or any other symbol, there is quite impossible to track any changes made to the document after the time of signing. It is also unlikely to ascertain whether the person who electronically signing the documents is the actual signatory or whether the signatory is free from any duress and undue influence while electronically executing the documents.
(c) Stamping
In practice, where there are physical submission of documents for stamping, the Malaysian Inland Revenue Board may opt for a more conservative approach and insist on the production of original documents with wet-ink signatures.
(d) Cross Border Transaction
Where it is a cross-border/ international transaction, a party who executes via e-signature may be subject to different or additional e-signature laws in his jurisdiction.
The parties to the contract must be mindful on the legal principles in using electronic signature in both jurisdictions where the parties are located and consideration shall include the governing law of the documents.
All these issues should be scrutinised and considered to mitigate the legal risk of authentication or validity being raised.
Conclusion
To conclude, the use of electronic signature during the pandemic is a viable solution since it would avoid and prevent physical contact between humans during the execution of documents. At the same time, it brings benefits and efficacy to the company by reducing the time and costs of the parties.
As working from home is likely to stay for awhile, companies and business owners may consider adopting electronic signatures if they have not done so. Companies and business owners must scrutinise and understand the legal implications and issues on using electronic signature to mitigate any unwanted risks as discussed above.
Companies and business owners must impose a strict standard operating procedure on the use of electronic signature to avoid any abuse of electronic signature by unauthorised person and keeping the interest of the company and business intact.
Published by Messrs Benjamin Tan & Co.
© Messrs Benjamin Tan & Co 2021. All rights reserved. The views, opinions and contents of this publication are intended for purposes of general information, academic discussion and personal purpose only and this publication is not meant to be comprehensive and does not necessarily deal with every important topic nor cover every aspect of the topics with which it deals. It should not at any time be construed as legal advice, legal opinion and/or other advice/opinion on any fact or circumstance.
