8 April 2020

COVID-19 – Can we use electronic signatures to sign documents?

Electronic signatures have been considered valid by New Zealand law for some time.   Faced with the challenges of the Covid-19 crisis and ongoing restrictions on our ability to travel and meet with others, it is likely we will see widescale adoption of electronic signatures as parties seek to progress matters remotely. However, the use of electronic signatures has not yet completely replaced the practice of signing documents by hand.  This article summarises the law on electronic signatures, and discusses the differences (and advantages) of “digital signatures” versus other forms of electronic signature.

The validity of electronic signatures

So long as certain requirements are met, an electronic signature is just as valid as a written signature under New Zealand law.

Part 4 Subpart 3 of the Contract and Commercial Law Act 2017 (the “Act”) regulates the use of electronic technology for legal purposes.  It aims to promote functional equivalence (meaning the law will not discriminate between paper-based transactions and electronic transactions) and technological neutrality (meaning the Act does not specify or favour any particular technology platform).

For an electronic signature to be valid, the Act requires three core elements: (1) identification; (2) reliability; and (3) consent.  To elaborate further, an electronic signature meets the legal requirement for a signature (including a witness’ signature) if:

• It adequately identifies the signatory (or witness) and adequately indicates the signatory’s approval of the information to which the signature relates (or that the signature has been witnessed);
• It is as reliable as is appropriate given the purpose for which, and the circumstances in which, the signature (or witness’ signature) is required; and
• The person receiving the signed information (or requiring the witnessing) consents to receiving the signature in electronic form.

For the purpose of the Act, an electronic signature will be deemed reliable if:

• The means of creating the electronic signature is linked to the signatory and to no other person;
• The means of creating the electronic signature is controlled by none other than the signatory;
• Any alteration made to the electronic signature after time of signing is detectable; and
• Where the requirement for a signature is to provide assurance as to the integrity of the information, any alteration made to that information after the time of signing is detectable.

Are there any exceptions?

There are some significant general exceptions to the application of the part of the Act that deals with meeting legal requirements by electronic means.  Some of the key exceptions include:

• Affidavits, statutory declarations or other documents given on oath or affirmation;
• Powers of attorney or enduring powers of attorney; and
• Wills, codicils or other testamentary instruments.

These (and other) important categories of document must still be on paper.

Other documents common in a law office that have always required written signatures include bank documents and authority and instruction (A&I) forms.  While it remains to be seen whether lending institutions will collectively update their current policies regarding written signatures and witnessing in light of the Covid-19 crisis, we have already seen new guidance issued in relation to land transfer documents.    

In its Authority and Identity Requirements for E-Dealing and Electronic Signing of Documents Interim Guideline 2020 published 30 March 2020, Land Information New Zealand (“LINZ”) acknowledged the validity of electronic signatures under New Zealand law and permitted their use with land transfer documents, provided that the electronic signature complies with the requirements of the Act and that the signature is a “digital signature” as opposed to an image of a signature simply inserted onto a document.  Digital signatures are discussed in more detail below.  Practitioners will also have to ensure that an audit record of the digital signing log can be produced, and that the system provides sufficient assurances so that the required certifications can be made.

Digital signature software

The most technologically secure signature (and the form of electronic signature required to comply with the new LINZ guidance) is a digital signature.  A digital signature is a form of encryption technology created and verified by code, and provides a platform to build a secure electronic signature.  Its purpose is to provide verification of the authenticity of a signed record.  Digital signatures will provide a log of the signing activity and, once a signature has been made, that signature and its information, as well as the contents of the document, are locked and unable to be edited or tampered with.

Examples of popular digital signature technology packages include Secured Signing and RightSignature.  This software is not available free to users, and in some cases the cost of obtaining and maintaining a digital signature may not be viable/desirable for lower value and/or lower risk transactions.  However, where a document of significance is to be signed by electronic means, a digital signature offers the highest level of security and reliability, provided the statutory requirements have also been met.

An electronic signature that is not a “digital signature” is an electronic symbol or reference that captures the user’s intent, and is commonly used in email software as a means of signing off.  These simple forms of electronic signature are much less secure than digital signatures and more vulnerable to being challenged on the basis of reliability.

Conclusion

New Zealand law provides a mechanism for the use of electronic signatures on a variety of legal documents.  In most circumstances an electronic signature is a valid way of creating a legal signature where a handwritten written signature would otherwise be used.  For the purposes of security, it is best practice to use encrypted signing software.  There are some significant categories of document where electronic signatures are not yet recognised by the law.  Regardless of the preferred method for signing agreements (whether by hand or electronically), appropriate care should be taken, and advice sought, before assuming legally binding obligations.

If you would like further information please contact Laura Monahan on 07 958 7479.