All you need to know about electronic signatures

9 Apr 2020
Author: DTI Lawyers

In the modern age where parties may not have the opportunity to see each other or their solicitor in person, the ability to enter into legally binding documents from afar has become ever more crucial. This article examines the development of the process of entering into legally binding documents.

What used to happen?

Historically, where a pen to paper signature was legally required to enter into a legal document, the only means of support was posted mail. With the inception of the internet and the introduction of counterparts’ clauses, some documents could be instantly transmitted between parties and signed, with the resulting signed counterparts forming one in the same legal document. However useful the advancements up until this stage have been, they still necessitated printing and scanning capability and a physical signature. Physical witnessing of the signatory’s signature was also not able to be circumvented.

As we now know with the advances in technology, many people no longer see the need to have a desktop computer, printer and scanner in their home. So much more commerce and administration is done without these. In fact, many of the transactions people enter into and records of their lives exist entirely in cyberspace. With the evolution of blockchain and smart contracts, the domain of electronic commerce is only set to increase. Much of the same developments exist for other transactions, taking actions such as applying for a visa, renewing your passport, filing tax declarations are all moving to the online space.

How has New Zealand responded to advances in technology?

What has New Zealand Law done to recognise the utility in advances in technology? A good example is the Electronic Transactions Act 2002 (now incorporated into Part 4 of the Commercial and Contract 2017) which set out the legal requirements of electronic contracts which included duties to retain information. Of particular interest to us are the provisions regarding electronic signatures.

Sections 226 - 228 of the Commercial and Contract Law Act 2017 sets out the legal requirements for the electronic signing and witnessing of contracts. In summary, the legal requirements for signing and witnessing electronically are:

  • the electronic signature must adequately identify the signatory and adequately indicate their approval of the information to which the signature applies;
  • the witness’ electronic signature must adequately witness the signatory and adequately indicate their witnessing of the signatory’s signature; and
  • both the signatory’s and witness’ signature must be as reliable as appropriate for the purpose for which they are used. 

An electronic signature is presumed as reliable if it complies with the following:

  • the means of creating the electronic signature is linked to the signatory and not other person;
  • the means of creating the signature was under the control of the signatory (i.e. only the signatory can possess control);
  • any alteration to the electronic signature made after the time of signing is acceptable;
  • where the purpose of the legal requirement for a signature is to provide assurance as to the integrity of the information to which it relates, any alteration made to that information after the time of signing is detectable.

Practically, when can an electronic signature be used?

What does this mean from a practical standpoint? The main issue being addressed by the legislation is risk. Where an electronic signature is able to be used by a person other than the signatory, altered following the time of signing, or altered to revoke a warranty or representation valid at the time of signing, then it is unreliable in the eyes of the Act. This means an electronic signature completed on Microsoft Paint that cannot be verified or is easily altered will not result in a legally binding contract for the purposes of the Act.

Recent practice advice has indicated the best means of complying with the provisions of the Act to ensure your electronic contract remains legally binding by using a secure document signing service. Such services exist in great numbers, including DocuSign, SignNow and Adobe Sign. The Auckland District Law Society also provides an electronic signing service, which is operated by a third-party provider SecuredSigning. It is also advised that electronic signing takes place in conjunction with communication via audio visual link.

However, some documents will generally not be able to be signed electronically to form legally binding documents. Such documents include wills, enduring powers of attorney and affadavits. The process of signing of these documents is dictated by their respective governing statutes.

However, with reference to wills, the court does hold power to declare a will valid in spite of a plight of that will under section 14 of the Wills Act 2007. The court has done so with unorthodox testamentary documents including error laden wills, drafts, and even suicide notes. It remains to be seen as to the court’s attitudes toward an electronically signed will. Such circumstances may be tested in the face of the current COVID-19 Government lockdown, with new practices of witnessing documents online being a ‘best case scenario’ when a signed document may be necessary.

The nature of electronic transactions is a rapidly evolving area and one that will continue to prove its utility in the current circumstances.