With many businesses now working remotely, questions are rapidly arising around how best to get contracts signed. The good news is that most contracts which would normally be signed by wet-ink signature can be executed entirely by electronic means (including any witnessing requirements), although some types of electronic signatures are likely to be more reliable and enforceable than others.
Electronic signatures range from scanned wet-ink signatures, signing by stylus/smart pen, and typing your name, to full digital signatures using specialist authentication products like DocuSign, where digital signatures are generated through encryption technology which only one person controls.
New Zealand's primary source of law for electronic signatures is The Contract and Commercial Law Act 2017 (CCLA). In brief:
- An electronic signature is "a method used to identify a person and to indicate that person's approval of that information".
- The CCLA sets out certain rules which are only mandatory where signatures (electronic or otherwise) are required by law, for example, sale/lease of land. For most ordinary commercial contracts, the CCLA will not apply (we discuss what this means in practice in more detail below).
- There are some types of documents which cannot currently be signed or witnessed electronically, for example, a Power of Attorney (POA) or affidavit. The exceptions are set out in Parts 1-4 of Schedule 5 of the CCLA.
- A counterparty or recipient of a relevant document must agree to the other party's use of an electronic signature.
- An electronic signature must adequately identify the signatory and adequately indicate the signatory’s approval, and should be "as reliable as is appropriate" in the circumstances (section 226 of the CCLA).
- The use of a digital signature that is only under the control of the signatory creates a rebuttable presumption of reliability in terms of the CCLA reliability test (see section 228 of the CCLA).
Subject to the exceptions in Schedule 5, the CCLA also allows witnesses to use an electronic signature, provided that the electronic signature meets the same test as for the signature being witnessed, i.e., adequate identification and as reliable as appropriate (section 227 of the CCLA).
Neither the CCLA nor case law have clearly addressed how the "watching" component of witnessing should be conducted electronically. We typically therefore advise clients to take a pragmatic approach. For example, in current circumstances, witnesses may be family members within the same isolation bubble watching the signatory sign on the same computer screen or, for those isolating alone, perhaps a colleague watching the signatory sign via a video link.
The degree of enforceability provided by each type of electronic signature varies. While case law has supported typed-name signatures to be enforceable, the use of a digital signature that is only under the control of the signatory receives the benefit of a legal presumption of reliability (Section 228 of the CCLA). This is therefore likely to be the most reliable method that businesses can use to ensure enforceability if a signature is required by law, particularly for high value or important transactions.
For most ordinary commercial contracts (i.e., where the law does not require a signature), the CCLA will not apply. This means that there are no statutory rules regulating the use of electronic signatures in these circumstances. However, to ensure enforceability of the contract it is still important to ensure that the method of signature (whether electronic or otherwise) sufficiently shows an intention to be bound by the terms of the contract. We therefore always advise that, even where a document is not required by law to be signed but an electronic signature is to be used, meeting the CCLA requirements is good business practice.
In recognition of the challenges created by mandatory social distancing, the New Zealand Law Society released a statement on 26 March 2020 confirming it is in discussions with the Ministry of Justice about regulatory guidance, particularly for the remote witnessing of POAs.
Overall, businesses should continue to adopt a pragmatic approach to assess what is appropriate and practical in current circumstances, unless or until further regulatory guidance is received. We will keep you posted as to any further updates or regulatory developments in this area.