E-Signing : A Faster, Easier and Safer Way to Sign Your Documents

  1. Introduction

    The COVID-19 crisis has fundamentally changed the way that we work on a day-to-day basis. Many common, everyday actions have become unsafe, inconvenient or even, impossible. For example, the execution of contracts and other documents which are typically required to be formalized in person by signing a ‘wet’ signature. This has become increasingly difficult as face-to-face meetings are discouraged and cross-border movements are restricted. As such, many corporations and businesses are moving towards signing documents electronically or digitally.
    This leads to the question: Are electronic or digital signatures legally recognized in Malaysia? Can they be used to sign any type of agreements and documents? In this article, we will discuss the law surrounding electronic and digital signature, and some salient points for your consideration.

  2. What is an Electronic Signature or a Digital Signature?

    While the terms ‘electronic signature’ and ‘digital signature’ are often used interchangeably, they are not synonymous. ‘Digital signature’ is a sub-set of ‘electronic signature’. They are separate concepts and have different legal connotations. The key distinctions between the two are summarised below:

    MATTER ELECTRONIC SIGNATURE DIGITAL SIGNATURE
    Governing Law Electronic Commerce Act 2006 (“ECA 2006”) Digital Signature Act 1997 (“DSA 1997”)
    Simple Definition Section 5 ECA 2006
    Any letter, character, number, sound, symbol or any combination of the above which is created in an electronic form and adopted by a signer as a signature.
    This definition is wide enough to include a simple check-mark or “I accept” button on a website, click-accept or click-to-sign agreement online, a scanned image of a signer’s wet signature, a marking made electronically on a PDF document, and e-signatures generated by software such as HelloSign and DocuSign.
    Section 2 DSA 1997
    A signature generated by an asymmetric cryptosystem and verified by a licensed certification authority (“LCA”) which is capable of identifying the signer of a document and ensuring the integrity of the document.
    This definition necessarily requires digital signatures to be administered by an LCA. There are currently 4 recognized LCAs in Malaysia. A list of the LCAs can be found here.
    Requirements for an electronic signature to be valid Section 9(1) ECA 2006
    The electronic signature must:
    (a) be attached to or logically associated with the electronic document;
    (b) identify the signer and indicate his approval of the information to which the signature relates; and
    (c) be as reliable as is appropriate given the purpose for which, and the circumstances in which, the signature is required.
    Section 9(2) ECA 2006
    An electronic signature is ‘reliable’ if:
    (a) the creation of the electronic signature is linked to and under the control of the signer only;
    (b) any alteration made to the electronic signature after the time of signing is detectable; and
    (c) any alteration made to the document after the time of signing is detectable.
    Section 62 DSA 1997
    (a) the digital signature is verified by reference to a valid certificate issued by an LCA;
    (b) the digital signature is affixed by the signer with the intention of signing the document; and
    (c) the recipient (the person relying on the digital signature) has no knowledge or notice that the signer—
    (i) has breached a duty as a subscriber (eg. has kept his private key safe); or
    (ii) does not rightfully hold the private key used to affix the digital signature.
  3. What Documents Can Be Signed Using Electronic Signature and/or Digital Signature?

    DOCUMENTS THAT CAN BE E-SIGNED DOCUMENTS THAT CANNOT BE E-SIGNED
    ECA 2006 Various contracts and agreements in the course of any ‘commercial transactions’ including the supply or exchange of goods or services.

    For example, consumer agreements and commercial agreements.

    Section 2(2) ECA 2006
    o Powers of attorney.
    o Wills and codicils.
    o The creation of trusts.
    o Negotiable instruments such as cheques.
    ● Documents requiring a seal cannot be electronically signed under the ECA 2006. (A digital signature under the DSA 1997 will be required to fulfil the requirement of a seal.)
    ● Forms or other documents that are required to be filed over-the-counter at land offices or the Companies Commission of Malaysia.
    DSA 1997 ● Any document signed with a digital signature in accordance with the DSA 1997.

    ● Documents requiring a seal.

    ● The documents excluded under Section 2(2) ECA 2006. (This section is also applicable to digital signatures under DSA 1997 since digital signatures are a form of electronic signature.)

    ● Forms or other documents that are required to be filed over-the-counter at land offices or the Companies Commission of Malaysia.

  4. Limitations of E-Signing

    1. Stamping
      Most documents and agreements are required to be stamped by the Inland Revenue Board (IRB) of Malaysia to ensure that it will be admissible as evidence in court in the event of any dispute. It is unclear whether the IRB will readily accept documents that are signed electronically or digitally. Prior approval of electronic or digital signatures should be obtained from the IRB as a prudent measure.
    2. Notarization, Attestation & Witnessing of Execution
      Documents which are required be notarised or attested must be signed in the presence of a notary public. This may not be satisfied by electronic and digital signatures. Further, electronic and digital signing do not provide for the witnessing of a signature. The authenticity of a signature which is not physically witnessed and verified is more likely to be disputed.
    3. Cross-Border Transactions
      Where international transactions are concerned, there arises the issue of whether an electronic or digital signature created outside of Malaysia would be recognised domestically and vice versa. As there are currently no foreign authorities which are licensed as an LCA, it is clear that digital signatures administered by foreign authorities will not be recognized in Malaysia. On the other hand, the position in regards to electronic signatures remain unclear as the ECA 2006 does not specifically address this issue.
    4. Inapplicability to Certain Transactions and Documents
      E-signing cannot be used in respect of certain documents and transactions as summarized in the table under Part C above.
  5. Conclusion

    E-signing is a faster, easier and safer way to execute certain documents and agreements. In light of the various limitations, practical uncertainties and issues of acceptability by the governmental authorities as stated above, the trade-off between the convenience of e-signing and such limitations should be carefully weighted. One should consider the stakes at hand, the value of the contract and the likelihood that any such contract will be disputed in court before adopting e-signing on any such document or agreement. When in doubt, one should consult a lawyer for advice.

If you have any questions or require any additional information, please contact our lawyer that you usually deal with.

This article is written by 
Fiona Fong
Partners, Low & Partners
Chin Chyu Ern
Associate, Low & Partners
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