The Use of Electronic Signatures and Digital Signatures in Contracts

It used to be common practice for parties to attend physical meetings to complete business transactions and execute transaction documents in one place, unless the transactions involve multiple parties locating in different areas, rendering physical meetings impracticable. However, the lasting impacts of the Covid-19 pandemic and the increasingly globalised world have shifted this norm; individuals and companies are increasingly reliant on technology to conduct business transactions, as well as to execute transaction documents. Against this backdrop, we often receive enquiries from clients in relation to the legal effect and requirements of using electronic signatures (“e-signature(s)”) in Hong Kong.

In this article, we will examine the legal position of e-signature and digital signature under Hong Kong law. We will also look at the documents and contracts that accept e-signatures as well as the exceptions to their application.

The Electronic Transactions Ordinance (Cap. 553 of the Laws of Hong Kong)

In Hong Kong, the Electronic Transactions Ordinance (Cap. 553 of the Laws of Hong Kong) (“ETO”) is the main legislation which governs e-signatures. Subject to some exceptions (see below section ‘Exceptions to the Application of E-signatures’), e-signatures and digital signatures have the same legal effect as wet signatures on a document as long as certain requirements are met.

E-signature vs Digital Signature 

(a) E-signature

Pursuant to section 2 of the ETO, e-signature means any letters, characters, numbers of other symbols in digital form attached to or logically associated with an electronic record, and executed or adopted for the purpose of authenticating or approving the electronic record.

There are no express requirements for an e-signature to be in a certain form or format under the ETO. Below are some common examples of the application of e-signatures:

1. typing a name on a signature line at the bottom of an email;
2. signing a physical wet signature on a contract which is scanned into a PDF document and sending the same to the other party to the contract via e-mail;
3. signing an e-signature pad to approve a credit card transaction;
4. signatures generated through an e-signature provider (e.g. Docusign and Adobesign); and
5. signatures on faxed documents.

Where a contract does not involve any party that is either a government entity or acting on behalf of a government entity, e-signatures are valid and enforceable provided that the requirements as stipulated under the ETO are complied with, which are highlighted as follows:

1. the signatory uses a method to attach or logically associate the e-signature with an electronic record for the purpose of identification or indicating authentication or approval of the information contained in the document in the form of the electronic record;
2. the method used is reliable and appropriate, for the purpose for which the information contained in the document is communicated; and
3. the recipient of the signature consents to the use of the method of the signatory.

(b) Digital Signature

Pursuant to section 2 of the ETO, a digital signature, in relation to an electronic record, means an e-signature of the signer generated by the transformation of the electronic record using an asymmetric cryptosystem and a hash function such that a person having the initial untransformed electronic record and the signer’s public key can determine (i) whether the transformation was generated using the private key that corresponds to the signer’s public key; and (ii) whether the initial electronic record has been altered since the transformation was generated.

Where a contract involves a party that is a government entity or acting on behalf of a government entity, save and except e-signatures, other types of signatures, including wet signatures and digital signatures will satisfy any legal requirement for a signature. For the avoidance of doubt, non-government entities may either use e-signatures or digital signatures for transactions.

Under section 6(1A) of the ETO, the digital signature must be:

1. supported by a certificate issued by a recognised certification authority^[1];
2. generated within the validity of that certificate; and
3. used in accordance with the terms of that certificate.

Documents and Contracts that Accept E-signatures

E-signatures or digital signatures can be used in most documents and contracts. Below are some examples:

(a) Simple contracts

A simple contract can be signed using e-signatures provided that such contract does not specify restrictions or requirements relating to the form of signatures and such contract does not fall within the list of the Excluded Documents (as defined below).

(b) Board minutes and written resolutions of directors

Subject to the articles of association of a company, board minutes and written resolutions of directors signed using e-signatures will generally be accepted. It is worth noting that section 655(2) of the Companies Ordinance (Cap. 622 of the Laws of Hong Kong) (the “CO”) stipulates that company records may be kept electronically.

(c) Written resolutions of shareholders

Contrary to written resolutions of directors, section 560 of the CO expressly states that if a company has given an electronic address in any document containing or accompanying a proposed written resolution, it is to be regarded as having agreed that any document or information relating to that resolution may be sent by electronic means to that address (subject to any conditions or limitations specified in the document).

Exceptions to the Application of E-signatures

Notwithstanding that e-signatures and digital signatures are enforceable for most contracts and documents as mentioned above, certain documents must be executed with wet signatures and cannot be signed using electronic means. These excluded documents (“the “Excluded Document(s)”) are set out in Schedule 1 of the ETO, which include, but without limitation, the following:

1. a will, a codicil or any other testamentary document;
2. a power of attorney;
3. oaths and affidavits;
4. statutory declarations;
5. a trust document (other than resulting, implied or constructive trusts);
6. Government conditions of grant and Government leases;
7. a document effecting a floating charge referred to in section 2A of the Land Registration Ordinance (Cap. 128 of the Laws of Hong Kong) (the “LRO”);
8. any deed, conveyance or other document or instrument in writing, judgments, and lis pendens referred to in the LRO by which any parcels of ground tenements or premises in Hong Kong may be affected;
9. any instrument which is required to be stamped or endorsed under the Stamp Duty Ordinance (Cap. 117 of the Laws of Hong Kong) other than a contract note to which an agreement under section 5A of that Ordinance relates;
10. any assignment, mortgage or legal charge within the meaning of the Conveyancing and Property Ordinance (Cap. 219 of the Laws of Hong Kong) or any other contract relating to or effecting the disposition of immovable property or an interest in immovable property;
11. negotiable instruments (but excluding cheques that bear the words “not negotiable”).

Conclusion

Using e-signatures can significantly streamline business transactions subject to the compliance of all applicable laws. While non-government entities have the flexibility to adopt both e-signatures and digital signatures in contracts and documents, government entities may only adopt other types of signatures in contracts and documents, such as digital signatures and wet signatures, but not e-signatures. Most importantly, before signing a document using electronic means, it is crucial to ensure the document or contract to be signed is not an Excluded Document.

If you have any enquiries in relation to this article, please contact our team and we will be happy to assist you.

[1] As at the date of this article, there are two recognised certification authorities in Hong Kong: (1) the Hong Kong Post Certification Authority of the Postmaster General; and (2) Digi-Sign Certification Services Limited.