This article authored by DVC’s John Scott SC, JP and Jonathan Lee first appeared in The Hong Kong Lawyer‘s e-newsletter on 14 May 2021
It is no exaggeration to state that the COVID-19 pandemic has been one of the most trying tests of existing institutions in modern times, and the legal sector in Hong Kong has by no means escaped its effects. As a result of the unprecedented scale of travel restrictions and quarantine requirements around the world, parties have faced enormous difficulties in simply executing transaction documents in wet ink and in hard copy. As a result, the Electronic Transactions Ordinance Cap. 553 (“ETO”) has become a subject of newfound interest.
It is not possible to consider each and every provision of the ETO within the scope of this article. Instead, we propose to examine the scope and effect of some of the more common and contentious provisions, namely (i) the definition of “electronic signature” under s.2(1) (ii) s.6(1) concerned with the test for a valid and effective electronic signature and (iii) the exclusions to the use of electronic signatures set out in Schedule 1.
A. GENERAL PRINCIPLES ON CONSTRUING THE ETO
As the scope and interpretation of these provisions are questions of statutory interpretation, it is necessary to start with the principles governing statutory interpretation in Hong Kong, which are now well-established.
A helpful starting point is the CFA’s decision in Town Planning Board v Town Planning Appeal Board (2017) HKCFAR 196, where it was stressed that in construing statutory provisions, the Court does not merely look at the relevant words in isolation but construes them having regard to their context and purpose. In ascertaining the purpose of a statutory provision, the court adopts a flexible and open-minded approach. The purpose may be clear from the provision itself or it may be necessary to look at the Explanatory Memorandum to the bill introducing the provision or a ministerial or official statement may be utilized for this purpose.[1]
In addition, the maxim expressio unius est exclusion alterius is relevant here, particularly in respect of the Schedule 1 exclusions. In a nutshell, this provides that when a legislative provision sets out who or what is within the meaning of an expression, it ordinarily means that no-one else or nothing else is.[2]
Apart from these general principles, it is of note that the provisions of the ETO were described as being “modelled on” the UNCITRAL Model Law on Electronic Commerce (1996) (the “Model Law”).[3] However, the ETO does not expressly permit courts to have regard to commentaries or reports accompanying or in respect of the Model Law.[4] That said, it has generally been recognised that when construing legislation that seeks to implement or incorporate international treaties into domestic law, there is a presumption that where a statute is passed in order to give effect to international obligations arising from such treaties, the statute should if possible be given a meaning that conforms to that of the treaty. It is also well-established that the court is entitled, at least in cases of ambiguity, to make reference to the travaux préparatoires or preparatory work of the treaty, where the material is both public and accessible.[5]
In addition, subsequent commentaries on a convention or treaty may have persuasive value, depending on the cogency of their reasoning.[6] Whilst the Model Law is not a “treaty” in strict international law terms, and the ETO is not strictly speaking enacted to “give effect” to international obligations, Hong Kong has nevertheless endeavoured to implement or incorporate the Model Law into domestic law via the ETO.
Bearing in mind the fundamental principles of statutory interpretation mentioned above, particularly the need to give effect to the purpose and intent of the statute in question, there appears to be no obvious reason why courts should be prevented from referring to the Model Law and its commentaries as an aid to interpreting the ETO, especially in the absence of any existing judicial domestic guidance. In 2007, the UN ratified the United Nations Convention on the Use of Electronic Communications in International Contracts (2007) (“2007 Convention”), which Hong Kong is yet to ratify or adopt, but which contains some helpful additional guidance on the provisions contained in the Model Law, and hence the ETO. There is again no obvious reason why courts should be precluded from referring to the commentaries to the 2007 Convention.
B. ISSUES RELATING TO SECTION 2(1) – “ELECTRONIC SIGNATURE”
An electronic signature is defined under s.2(1) to mean “any letters, characters, numbers or 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”.
The open-endedness of the definition reflects and is consistent with the underlying rationale of the Model Law as well as the 2007 Convention, namely that the criteria for the legal recognition of electronic signatures should be “technologically neutral”. In other words, the definition itself does not make reference to any particular form of technology so as to maintain a degree of flexibility in view of potential future technological developments. Rather, the section adopts the tests of appropriateness and reliability of the method of attaching to or logically associating the electronic signature with the electronic record under s.6(1).
The ETO differentiates between two kinds of transactions, i.e. those that pertain to a requirement under a rule of law and those that pertain to a case of contract. The ETO is silent on the technology to be used to generate the electronic signature in the case of contract. This reflects the common law position, which is that this is “a matter to be determined by the parties concerned and implicitly, a technology-neutral approach is adopted”.[7]
The commentary to the 2007 Convention provides additional guidance. It suggests that signatures may take the form of “digital signatures” based on public-key cryptography, which are often generated within a “public-key-infrastructure” where the functions of creating and verifying the digital signature are supported by certificates issued by a trusted third party. However, they could also cover authentication through a biometric device based on handwritten signatures, the use of personal identification numbers (PINs), digitized versions of handwritten signatures and other methods, such as clicking an “OK box”.[8]
The English courts have, for instance, held that clicking an “I accept” tick box on a website[9] or header of a SWIFT message[10] amounts to valid signatures.
Similarly, the Singaporean High Court has held that “no real distinction can be drawn between a typewritten form and a signature that has been typed onto an e-mail and forwarded with the e-mail to the intended recipient of that message”.[11]
In the light of these rulings, a possible approach is to start with the principal function of a signature, namely to demonstrate an intention of the party to authenticate the document,[12] and then ask whether the method of signature adopted demonstrates an authenticating intention, adopting an objective approach and considering all of the surrounding circumstances.
C. ISSUES RELATING TO SECTION 6(1)
C1. Signature requirement under a “rule of law”
One of the key operational provisions of the ETO is s.6(1) which seeks to govern how electronic signatures can fit into existing requirements for signature under a “rule of law”.
s.6(1) provides the following
“(1) Where—
(a) a rule of law requires the signature of a person (the first-mentioned person) on a document or provides for certain consequences if the document is not signed by the first-mentioned person; and
(b) neither the first-mentioned person nor the person to whom the signature is to be given (the second-mentioned person) is or is acting on behalf of a government entity,
an electronic signature of the first-mentioned person satisfies the requirement if—
(c) the first-mentioned person uses a method to attach the electronic signature to or logically associate the electronic signature with an electronic record for the purpose of identifying himself and indicating his authentication or approval of the information contained in the document in the form of the electronic record;
(d) having regard to all the relevant circumstances, the method used is reliable, and is appropriate, for the purpose for which the information contained in the document is communicated; and
(e) the second-mentioned person consents to the use of the method by the first-mentioned person.”
As is evident from its format, the section is divided into two main parts – the first part spells out the requirement for signature under a rule of law, and the second part defines the conditions for which an electronic signature would satisfy that first requirement for signature.
Starting with the expression “rule of law”, this is defined in s.2(1) to mean (a) an Ordinance (b) a rule of common law or a rule of equity or (c) customary law.
The reference to “an Ordinance” is clear. The reference to “customary law” is also tolerably clear and is likely to be intended to cover requirements under Chinese or other customary laws, although the Court of Final Appeal (“CFA”) in Democratic Republic of the Congo & Ors v FG Hemisphere Associates LLC (2011) 14 HKCFAR 95 observed obiter that “customary law” under Article 8 of the Basic Law “obviously” means “the laws and customs of traditional China”.[13] Nevertheless, it would appear that the expression is not intended to cover areas of law that have not become part of the law of a state.[14] This suggests that, notwithstanding the CFA’s observation, customs that have not been statutorily or judicially recognised should be taken to fall outside of the ambit of “customary law” under s.2(1) of ETO.
The controversial part of s.6(1) ETO relates to subsection (b). Indeed, subsection (b) may appear somewhat out of place in a common law jurisdiction, given that legally binding contracts can be and are routinely created orally and in any event without signatures, and are routinely enforced. This may suggest that there is no “rule of common law” or “rule of equity” which requires the signature of a person for the purposes of creating a binding contract, as the word “requires” is mandatory in nature.
The immediate problem with this interpretation is that it takes away substantially the efficacy of the provision. Given that the purpose of ETO is to “provide a clear legal framework for the conduct of electronic transactions by giving electronic record and digital signature the same legal recognition as that of their paper-based counterparts”,[15] the expression should be given an expansive interpretation so as to further the legislative purpose of elevating the legal status of electronic records and digital signatures. In other words, one should not place undue weight on the mandatory nature of the word “requires”.
Related to the word “requires” is the elusive phrase “provides for certain consequences”. If one takes a literal approach to the words “certain consequences”, this could cover just about anything. However, the legislature is unlikely to have intended such a broad reading. In light of this ambiguity, the legislative materials of the ETO may shed some light.
First, the Office of the Government Chief Information Officer (“OGCIO”) stated, in its “Introduction” to the ETO, that “section 6(1) of the ETO provides that if a rule of law requires a signature of a person on a document and neither the person whose signature is required nor the person to whom the signature is to be given is or is acting on behalf of a government entity, an electronic signature satisfies the requirement”, which tends to suggest that the emphasis is on whether a signature is “required”.
Reference may also be made as to how the expression has been used by courts, although they are at most able to provide limited assistance to how the phrase should be interpreted when deployed in statute. In short, it appears that the expression “provides for certain consequences” is almost invariably used as a shorthand to describe consequences expressly defined and specified by statute. For instance, in Shun Hing Holdings Co Ltd v Li Kowk Po David [2020] HKCA 309, the Court of Appeal at §67 referred to the fact that section 157I of the old Companies Ordinance “provides for certain consequences for a loan advanced in breach of section 157H”, namely he “shall be liable to repay that sum to the company forthwith”.
It is also important to note that the provision is phrased in the negative – it is concerned with whether certain consequences would follow if the document is not signed. Taking this into account, s.6(1)(b) may be read as requiring some sort of causal connection between the consequence and the absence of signature, that is the absence of a signature needs to play a material role in the consequence to follow. However, if this approach were adopted, it is likely to substantially undermine the purpose of ETO, which is to normalise and promote the legal status of electronic signatures.
In our opinion, the phrase “provides for certain consequences” should be given a wide and liberal interpretation and should cover situations where negative consequences will flow from non-signatures, e.g. when the absence of a signature amounts to a factor that compromises or otherwise casts doubt as to the validity, enforceability or effectiveness of the underlying document.
Applying this liberal interpretation, an intention to create legal relations to form a legally binding contract is likely to be sufficient to meet the “consequences” element so as to allow an e-signature to be attached to a document for the purposes of this section. Put another way, since the absence of a signature is likely to compromise or cast doubts as to the validity, enforceability or effectiveness of the underlying document, notwithstanding that its absence per se does not render the document invalid or ineffective, it does provide for “certain consequences”.
C2. To “logically associate” the electronic signature with an electronic record
Having established whether a relevant rule of law is engaged, the next question is what “logically associate the electronic signature with an electronic record” is intended to mean.
The natural and ordinary meaning of the word “associated” is “connected with”. As such, “logically associated” simply means logically or rationally connected. Attaching a document signed electronically to an email is likely to be regarded as logically associating the electronic signature to two electronic records, the Word or PDF document on which the electronic signature appears, and the email to which the document is attached.
However, it is of course not sufficient to simply consider the natural and ordinary meaning of statutory wording. Regard must also be had to the statutory purpose and context. With some relief, we note that this interpretation appears consistent with the underlying rationale of Article 7 of the Model Law, on which s.6(1) is partly based, namely that the criteria for the legal recognition of electronic signatures should be technologically neutral. There is therefore no reason to prescribe any particular form or method of logical association under s.6(1), provided it satisfies the remaining conditions.
The final question is whether the method used is “reliable and appropriate”. The expression finds its origins in Article 7 of the Model Law. It may therefore be useful to refer to the commentary to the Model Law. Two points emerge from the relevant commentary.
First, the expression is intended to establish a flexible approach to the level of security to be achieved by the method of identification. It should be as reliable as is appropriate for the purpose for which the data message is generated or communicated, in the light of all the circumstances, including any agreement between the originator and the addressee of the data message.
Secondly, in determining whether the method used under paragraph (1) is “appropriate”, it is said that a wide range of legal, technical and commercial factors may be taken into account. These include ones that relate to the technology in play, such as the capability of communication systems and the range of authentication procedures made available by any intermediary. At the same time, they also cover some relatively subjective factors such as the sophistication of the equipment used by each of the parties, the kind and size of the transaction and the nature of their trade activity, amongst others.[16] In other words, the stringency of the test may vary depending upon whether the transaction is entered into with, say a high street tailor or an international technology company.
As to the meaning of “reliable”, its explanation may be found in the commentary to the 2007 Convention, which states that the “reliability” test was adopted so as to ensure the correct interpretation of the principle of functional equivalence in respect of electronic signatures. It reminds courts of the need to take into account factors other than technology, such as the purpose for which the electronic communication was generated or communicated, or a relevant agreement of the parties, in ascertaining whether the electronic signature used was sufficient to identify the signatory.[17] However, this is subject to the qualification that it is not intended for parties to invoke the “reliability test” to repudiate its signature in cases where the actual identity of the party and its actual intention could be proved i.e. where the authenticity of the electronic signature is not called into question.[18]
Whilst there is at present no way of predicting how Hong Kong courts are likely to interpret s.6(1), we believe that these commentaries ought to be accorded persuasive value before the Hong Kong courts. It can therefore be reasonably expected that Hong Kong courts will follow or at least adapt these approaches when construing the ETO.
D. ISSUES RELATING TO SCHEDULE 1 EXCLUSIONS
The final provisions to be examined in this article are the exclusions contained in Schedule 1. The relevance of Schedule 1 is spelt out in s.3, namely that ss.5, 5A, 6, 7, 8 and 17 do not apply to, inter alia, any requirement for the signature of a person under a rule of law in a matter or for an act set out in Schedule 1, unless that rule of law expressly provides otherwise.
Schedule 1 then provides a number of instances where e-signatures cannot be used. It is apparent that the matters set out in Schedule 1 are meant to be exhaustive. These include what can be generally described as instruments with strict legal consequences, such as wills, codicils or any other testamentary documents, oaths and affidavits, and judgments amongst others. The focus here is on §6, namely “[a]ny deed, conveyance or other document or instrument in writing, judgments, and lis pendens referred to in the Land Registration Ordinance (Cap. 128) by which any parcels of ground tenements or premises in Hong Kong may be affected.”
Whilst the words “in a matter or for an act set out in Schedule 1” are drafted in broad terms, they tend to suggest that requirements set out in s.3 must relate to or be in furtherance of the stated matters in Schedule 1. This would give rise to the curious result that a deed that is not executed in a matter or for any of the acts set out in Schedule 1 are not caught by the exclusions.
In addition, this interpretation is consistent with the principle expressio unius mentioned above. Since the legislation has deliberately set out what is within the meaning of an expression, namely the Schedule 1 exclusions, it ordinarily means that nothing else is caught by the exclusion. It follows then that deeds as a general class of documents are unlikely to be excluded and s.6(1) ought to apply to such deeds accordingly.
Indeed, deeds not falling within the specified categories in Schedule 1 would appear to be what the “provides for certain consequences” test is primarily intended to cover. This is because at common law, a deed is only effective if it has been signed, sealed and delivered.[19] In other words, the absence of a signature would render the deed invalid, thereby leading to “certain consequences”.
The obvious question which follows is whether deeds can be executed “electronically”. In this regard, the UK Law Commission’s 2019 report on “Electronic execution of documents” (the “Report”) suggests that an electronic signature is capable in law of being used to execute a document (including a deed), provided any formalities relating to execution of that document as required by law are satisfied.[20]
Indeed, on 3rd March 2020, the UK Lord Chancellor and Secretary of State for Justice issued a written ministerial statement (the “Statement”) in response to the Report, which confirmed that, in most cases, electronic signatures are legally capable of executing a document (including a deed) provided that intention to enter into contract and certain execution formalities are satisfied.
It is therefore essential to first identify what these execution formalities are. In the context of electronic transactions, three of such formalities are of particular interest (i) where a deed is required to be sealed (the “Sealing Requirement”) [21] (ii) where a deed is required to be witnessed (the “Witnessing Requirement”) [22] and (iii) the common law requirement that a deed must be executed on certain prescribed substance (the “Substance Requirement”).[23]
With regard to the Sealing Requirement, there is no provision for electronic seals in the ETO. If that were all, it might appear that the Sealing Requirement can only be met by a physical seal, which requires a physical copy of the relevant document.
However, if the above interpretation of s.6(1) is correct, s.6(1)(c) does not prescribe what happens subsequently to the electronic record. In other words, it may be possible for a signatory to sign a document electronically within the meaning of s.6(1), have it printed out and sealed physically.
Moreover, courts seem to have taken a liberal approach to seals. Sealing no longer requires the addition of a wax or wafer seal. Where there is no common seal, courts have said the requirement of a seal can be satisfied by symbols written or printed on the page, such as a circle containing “LS” or the word “seal” in parentheses.[24] An argument may be made to the effect that such symbols should also be able to be inserted electronically.
As for the Witnessing Requirement, it was stated in the Report that although a witness may not be able to see the digital information, what they can see is the signatory purporting to add their signature to a document on the screen. There is therefore no impediment per se to the witnessing of an electronic signature.
The issue of how witnessing may be carried out practically was addressed in Shah v Shah [2001] EWCA Civ 527, where Pill LJ said that he could “detect no social policy which requires the person attesting the signature to be present when the document is signed”.[25] Moreover, most of the cases which insist on physical presence of a witness were decided in the 19th century, when a presence other than physical presence would not have been in the contemplation of the court or the parties.
Nevertheless, the drafters of the Report are not persuaded that parties can be confident that the current law would allow for a witness viewing the signing on a screen or through an electronic signature platform, without being physically present. This conclusion is based on the combination of the restrictive wording of the statutory provisions and the serious policy questions underlying any extension to accommodate technological developments.[26] Hong Kong courts are likely to take a similarly conservative approach in the light of potential evidentiary risks and other risks of abuse.
This leaves the Substance Requirement, which is perhaps the most controversial. The requirement has been abolished in the UK but has been retained in Australia, which may provide some insight as to how its scope should be interpreted. The Substance Requirement has been summarised helpfully by Steytler J in Scook v Premier Building Solutions Pty Ltd [2003] WASCA 263 – “[a]t common law, there are three, somewhat antiquated, formalities which must be complied with in order for an instrument to amount to a deed. The first is that it must be written on parchment, vellum or paper”.[27] In Hong Kong, however, the Court of Appeal in AG v Wang Chong Construction (Unreported, CACV 172/1990, 28th June 1991) referred to a section in Halsbury’s Laws of England which only mentions parchment and paper, which is presumably reflective of the relatively more metropolitan and forward-looking nature of Hong Kong as a city.
Seddon on Deeds (2015) took the view that in Australia, “until there is legislative change, it would seem that an original version of a deed must be a signed and attested paper document”. This is because whilst it is open to argument that a statutory requirement of writing can be satisfied by an electronic document, in the case of deeds, the common law requires not just writing but writing on parchment, paper or vellum.[28]
However, one can detect a degree of circumspection on Dr Seddon’s part from his use of the words “it would seem”. There was also no analysis of the rationale or historical origins of the requirement that a deed must be written on paper, specifically whether the requirement can be satisfied provided the deed can ultimately be printed out on paper. To draw a distinction between a document that is capable of being printed on paper and one which has actually been printed on paper seems inconsistent with the underlying legislative purpose of the ETO of promoting legal recognition of electronic records, especially in light of the fact that the legislature has chosen not to include exclude deeds as a general category of documents in Schedule 1.
Moreover, as Mr. Diccon Loxton has pointed out,[29] Dr Seddon’s conclusion was apparently reached without consideration of Manton v Parabolic (1985) 2 NSWLR 361, a decision which suggested the contrary in relation to the Western Australian, Southern Australian and Tasmanian statutory provisions. Further, Mr. Loxton takes the view that the introduction of the “no-invalidity provisions” and s.11 of the Commonwealth Electronic Transactions Act 1999 enables the execution of electronic deeds.[30]
Reverting to the position in Hong Kong, the Substance Requirement requires a deed to be “written on” parchment or paper. It is possible to interpret the word “written” as referring to the consequence or effect, rather than the process. In other words, it does not technically prevent a deed from being signed and sealed electronically, and then printed out on parchment or paper.
Based on our interpretation of the ETO set out above, it appears to us that deeds, in general, are intended to be covered by s.6(1). In principle, therefore, we suggest that a deed that is executed wholly electronically ought to satisfy the Substance Requirement, provided that the document is capable of being printed or otherwise reproduced on paper. This is largely due to the ambiguity as to whether the Common Law Substance Requirement is one that relates to the end-product or the process of execution.
Against this, however, we recognise the well-established principle of statutory interpretation that fundamental changes to the common law “should not be effected by a sidewind but only by measured and considered provisions”.[31] This may suggest that the Substance Requirement can only be satisfied when the document is in fact printed out as a hard copy. In the ultimate analysis, there remains an unfortunate element of ambiguity, proper resolution of which will require a judicial decision. In the meantime, parties should generally err on the side of caution by adhering to the Substance Requirement in order to avoid unnecessary arguments as to the validity of deeds.
This article was authored by DVC’s John Scott SC, JP and Jonathan Lee
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[1] (2017) HKCFAR 196 at §29.
[2] Salisbury Independent Living Ltd v Wirral Metropolitan Borough Council [2012] EWCA Civ 84 at §23.
[3] Elsie Leung, Internet Law Symposium, 26th September 2003.
[4] Cf s.2(3) of the Arbitration Ordinance (which also gives legislative effect to a UNCITRAL Model law).
[5] Bennion on Statutory Interpretation (7th ed), Section 24.16.
[6] IRC v Commerzbank AG [1990] STC 285 at 297-298 per Mummery J, approved by the Court of Appeal in Revenue and Customs Comrs v Ben Nevis (Holdings) Ltd [2013] EWCA Civ 578 at §16.
[7] §4 of the Brief.
[8] §150 of the commentary.
[9] Kathryn Bassano v Alfred Toft and others [2014] EWHC 37 (QB) at §§43-44.
[10] WS Tankship II BV v Kwangju Bank Ltd and another [2011] EWHC 3103 (Comm) at §155.
[11] SM Integrated Transware Pte Ltd v Schenker Singapore Pte Ltd [2005] SGHC 58 at §91.
[12] Goodman v J Eban Ltd [1954] 1 QB 550 at 557.
[13] Emphasis added.
[14] 2007 Convention at §139.
[15] Legco Brief to Electronic Transactions (Amendment) Bill 2003 dated 11th June 2003 (the “Brief”) at §1.
[16] 2007 Convention at §§57-58.
[17] 2007 Convention at §163.
[18] 2007 Convention at §164.
[19] See e.g. Scook v Premier Building Solutions Pty Ltd [2003] WASCA 263 at §22.
[20] Electronic execution of documents at §3.32.
[21] E.g. s.19(2)(2) and 20(1) of the Conveyancing and Property Ordinance (Cap 219) (“CPO”).
[22] E.g. s.20(1) of the CPO.
[23] See p.18 below.
[24] E.g. First National Securities v Jones [1978] Ch 109 at 111; Santander UK plc v Parker (No 2) [2012] NI Ch 20 at §14. Whilst these cases have not been followed in Hong Kong, they are indicative of an increasingly expansive and pragmatic approach towards the Sealing Requirement.
[25] [2001] EWCA Civ 527 at §30.
[26] Report at §§5.34-5.35.
[27] [2003] WASCA 263 at §22.
[28] Seddon on Deeds (2015), section 2.28 at p.98.
[29] “Not Worth the Paper They’re not Written on? Executing Documents (Including Deeds) Under Electronic Documentation Platforms: Part B” (2017) 91 ALJ 205 at 219.
[30] Ibid, at 220-222.
[31] Ge Qingfu v L & A International Holdings [2020] 4 HKLRD 544 at §78.
