The use of electronic signatures

Introduction

As technology continues to become further integrated into our lives, it is increasingly the norm for documents to be prepared and reviewed entirely in their digital format.  Generally speaking, however, the use of electronic signatures has not yet replaced the practice of signing documents by hand.  This article summarises some key aspects of the law in New Zealand relating to the use of electronic signatures on legal documents and also compares the approach in other jurisdictions.

The Electronic Transactions Act 2002

The Electronic Transactions Act 2002 (the “Act”) was introduced in New Zealand as a means of facilitating the use of electronic technology.  Its aim (with certain exceptions) was 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.

So long as certain requirements are met, an electronic signature will be considered just as valid as a written signature.

Under the Act, an electronic signature can meet the legal requirement for a signature (other than the signature of a witness) if:  

• It adequately identifies the signatory and adequately indicates the signatory’s approval of the information to which the signature relates;
• It is as reliable as is appropriate given the purpose for which, and the circumstances in which, the signature is required; and
• The person receiving the signed information consents to receiving a signature of that nature.

If there is a legal requirement for a signature to be witnessed, that witness can sign by electronic signature if:

• It adequately identifies the witness and adequately indicates the signature has been witnessed; 
• It is as reliable as is appropriate given the purpose for which, and the circumstances in which, the witness’ signature is required; and
• The person requiring the witnessing consents to receiving the signature of the witness in electronic form.

For the purpose of the Act, an electronic signature is deemed reliable (subject to rebuttal) 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.

There are some significant general exceptions to the application of the part of the Act that deals with meeting legal requirements by electronic means (Schedule to the Act, Part 3).  Some of the key exceptions comprise:

• 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.

Case law on electronic signatures

The validity of an electronic signature has yet to be fully examined in the New Zealand Courts.  However, the case of Welsh v Gatchell [2009] 1 NZLR 241 demonstrated the Court’s desire to accommodate the use of technology in meeting legal requirements.  In that case, it was held a fax header printed using a fax machine’s capacity to add writing to a document as it is copied and sent could satisfy the legal requirement for a signature if there is evidence that it was specifically inserted for the transaction concerned.  

Some comparisons – the Commonwealth approach

Electronic signatures are generally considered valid across a wide number of international jurisdictions.  Australia takes a similar approach to New Zealand in that it requires the person receiving the information to consent to receiving that information in an electronic format. 

The framework for electronic signatures in England & Wales is provided by Regulation (European Union) No 910/2014 (otherwise known as the “eIDAS Regulation”), effective in member states of the EU from 1 July 2016.  It establishes that a “qualified legal signature” will have the equivalent legal effect of a handwritten signature.  A qualified legal signature is defined by the eIDAS Regulation as an advanced electronic signature that is created by a qualified electronic signature creation device, and which is based on a qualified certificate for electronic signatures.

Previous to this regulation, the validity of electronic signatures was not codified in English legislation.  It was an established rule of common law that a deed must be in writing.  It is the opinion of leading English counsel that, in light of the eIDAS Regulation and the Courts’ willingness to interpret statutory requirements for writing to include where a document is executed with an electronic signature, deeds can now be signed electronically.  It is still best practice, however, to have witnesses physically present when necessary.

Digital signature software

The most technologically secure signature is a digital signature (popular digital signature technology packages includes DocuSign and RightSignature).  An electronic signature (sometimes referred to as an e-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.  A digital signature is different from an e-signature; a digital signature is a form of encryption technology that is created and verified by code, and provides a platform from which a secure electronic signature can be built.  Its purpose is to provide verification of the authenticity of a signed record.

As robust digital signature software is not available free to users, the cost of obtaining and maintaining a digital signature can be high and may not be viable 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.

Conclusion

As will be seen from this article, 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.