Restriction of Movement Control Order: Signing contracts electronically during trying times

14 May 2020

With intensifying measures taken by the Government of Malaysia to address the spread of COVID-19 in the country, including the announcement of the Restriction of Movement Control Order (“Order”) by the Prime Minister of Malaysia, businesses must now find alternative ways to carry on with their usual commercial activities.

Pursuant to the Prevention and Control of Infectious Diseases (Measures Within the Infected Local Areas) Regulations 2020, all government and private sector premises (other than those providing essential services) must be closed from 18 March 2020 until 31 March 2020 (“Restricted Period”), and journeys from one place to another may not be undertaken except for certain permitted purposes such as the purchase or supply of food or daily necessities.

During the Restricted Period, from an operational standpoint, it may be business as usual for those businesses capable of adopting work-from-home arrangements by using technology such as cloud computing and teleconferencing. However, as it would not now be possible to conduct the usual face-to-face meetings amongst staff members or with clients or business partners, conventional wet-ink signing of documents and agreements may not be feasible during the Restricted Period.

In this alert, we consider the use of electronic signatures under the Electronic Commerce Act 2006 and how businesses may utilise electronic signatures to sign documents and agreements during the Restricted Period.

Validity and enforceability of contracts

At the outset, it should be pointed out that under Malaysian contract law, there is no general requirement for a contract to be in writing in order for it to be valid and enforceable.

A contract will generally come into existence even if the contract is not in writing, if the basic elements of contract are fulfilled (i.e. there is a valid offer and acceptance of terms which are sufficiently certain, sufficient consideration (e.g. an exchange of promises), and the conduct of the parties shows that they intended the terms to be legally binding). There are a few special exceptions such as deeds, powers of attorney, absolute assignments, bills of sale and the like, which must be in writing - however, the majority of documents and agreements will not fall into these categories.

Similarly, there is no general requirement under Malaysian law for a simple contract to be signed in order for the contract to be valid and enforceable. Traditionally, of course, signatures have been commonly used as a means of signifying a party’s acceptance of the terms of a contract. A valid and binding contract may, however, also be readily formed without the use of signatures (for example, through an exchange of email correspondence showing that the parties agreed to terms). Certain types of documents (for example deeds and powers of attorney) are required to be executed in a certain manner in order to be valid or effective, however again, the majority of documents and agreements will not fall into these categories.

In summary, the presence or absence of wet-ink signatures in a contract generally has no impact on the underlying formal validity or enforceability of the contract. The main concerns generally revolve around non-repudiability i.e. being able to prove that the parties agreed to the terms in question.

Electronic signatures as a viable solution

In Malaysia, electronic contracts are recognised as valid contracts. The Electronic Commerce Act 2006 (“ECA”) confirms the validity of electronic communications in the formation of contracts, and applies to any commercial transaction conducted through electronic means. However, it should be noted that the ECA does not apply to certain transactions or documents (including powers of attorney, the creation of wills and codicils, and the creation of trusts and negotiable instruments). For such documents or transactions therefore, the parties must ensure that wet-ink signatures are utilised.

Section 9 of the ECA introduces the concept of electronic signature, which for the purposes of the ECA, is defined widely to mean “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”. Given the wide definition of “electronic signature”, this would cover, for example, typing a name into a contract or scanning an image of a signature into a contract.

Section 9 further provides that where any law “requires” a signature of a person on a document, the requirement of that law is fulfilled, if the document is in the form of an electronic message, by an electronic signature which:

• is attached to or is logically associated with the electronic message;
• adequately identifies the person and adequately indicates the person’s approval of the information to which the signature relates; and
• is as reliable as is appropriate given the purpose for which, and the circumstances in which, the signature is required.

For this purpose, an electronic signature will be considered to be “as reliable as is appropriate” if:

• the means of creating the electronic signature is linked to and under the control of that person only;
• any alteration made to the electronic signature after the time of signing is detectable; and
• any alteration made to that document after the time of signing is detectable.

The case of Yam Kong Seng & Anor v Yee Weng Kai [2014] 4 MLRA 316 appears to indicate that the requirement above in relation to identifying the person signing the document does not represent a very difficult threshold to satisfy. In that case, it was held that a simple SMS could fulfil the legal requirement for a signature. The court held that “For purposes of this appeal, the legal requirement for a signature was fulfilled as, inter alia, the sender was adequately identified…The telephone number of the respondent from which the SMS was sent confirmed that it came from the respondent as the registered owner of that telephone …”.

It should be noted that section 9 of the ECA would only apply to situations where there is an actual legal requirement that a signature be affixed to a document (i.e. for these documents, the electronic signatures used must comply with the requirements relating to identification of the person signing, reliability etc).

Where the signatures to documents are only intended to operate as evidence of the parties’ agreement to the terms of the contract and there is no legal requirement that such documents be in writing or be signed, section 9 of the ECA will technically not apply to such documents. From a practical standpoint, however, parties may use the requirements under section 9 of the ECA as a useful guide when signing documents electronically, and accepting electronically-signed documents from counterparties, as it is likely that the courts would consider similar factors in the event that it had to consider the weight to be given to electronic signatures affixed to the documents.

Practical tips for using electronic signatures

We set out below some practical tips in using electronic signatures:

• Before considering the use of electronic signatures, ensure that the contract or document in question is not a document that falls outside the scope of the ECA (i.e. powers of attorney, wills and codicils, documents relating to the creation of trusts and negotiable instruments). In addition, electronic signatures should not be used where the document is required to be notarised, legalised, witnessed or attested by a notary public, commissioner for oaths or similar official.
• In addition, consider if the contract or document should not be signed electronically on the basis of practical considerations. For example, forms or documents which have to be submitted to a governmental or regulatory authority or agency, where the practice of such authority or agency is to accept only hardcopy documents with “wet-ink” signatures. Where the documents are required to be stamped, do note that there may be difficulties in presenting the document for stamping as the Stamp Office may insist on the production of original documents with wet-ink signatures.
• Similar to a situation where wet-ink signatures are used, consider evidence of the authority of the counterparty in relation to the execution of important documents and agreements. Review the board resolutions, constitution and, power of attorney (if applicable) to ensure that the person signing the document has the authority to bind the company.
• Consider requesting, particularly in relation to important documents, the use of methods of communication and electronic signatures that are able to show an undeniable connection between the signatory and the information or documents received to enhance non-repudiability (for example, the use of secure encrypted e-mail using passwords or the use of third party services such as DocuSign).

Maintain proper records of all electronically signed documents and communications with the counterparty.