The ETA was introduced in 2010 and provides for electronic versions of documents ("electronic records") to be legally recognised as equivalent to their hard-copy counterparts. On 19 March 2021, the ETA was amended to recognise and provide for the validity and enforceability of electronic versions of transferable documents, particularly trade documents such as bills of lading and bills of exchange. This article deals with how the amended ETA will impact corporate lending and taking of security, especially in a post-Covid-19 environment whereby transactions are largely limited to the virtual realms.
Documents within the scope of the ETA
The ETA applies to all documents unless the document relates to certain subject matters specifically excluded under the First Schedule of the ETA ("Excluded Matters"). If a document contains an Excluded Matter, parties cannot rely on the ETA to satisfy any legal requirements for the document to be signed or to be in writing.
Prior to the amendments to the ETA, the Excluded Matters were:
(a) The creation or execution of a will
(b) Negotiable instruments, documents of title, bills of exchange, promissory notes, consignment notes, bills of lading, warehouse receipts or any transferable document or instrument that entitles the bearer or beneficiary to claim the delivery of goods or the payment of a sum of money (collectively, "Transferable Documents")
(c) The creation, performance or enforcement of an indenture, declaration of trust or power of attorney, with the exception of implied, constructive and resulting trusts
(d) Any contract for the sale or other disposition of immoveable property or any interest in immoveable property
(e) The conveyance of immoveable property or the transfer of any interest in immoveable property
Item (b) has now been removed from the list of Excluded Matters. Thus, the ETA is now applicable to all Transferable Documents.
Electronic Signatures, Secure Electronic Signatures and Digital Signatures – What are they?
While the three different types of signatures may be utilised in the electronic execution of documents, there are important implications arising from the use of each.
An electronic signature is an acknowledgement provided in an electronic format that can be used to (a) demonstrate the intention of a party; and (b) authenticate the party involved. Examples include:
- Typing one's name directly into an electronic document;
- Ticking an "I agree" checkbox; and
- Pasting an image of a signature into an electronic document
Pursuant to section 8 of the ETA, an electronic signature satisfies any legal requirement for a document to be signed if:
(a) a method is used to identify the signer and indicate his intention; and
(b) the method used is either —
(i) as reliable as appropriate for the purpose for which the electronic record was generated or communicated, in the light of all the circumstances, including any relevant agreement; or
(ii) proven in fact to have fulfilled the functions described in paragraph (a), by itself or together with further evidence.
Secure Electronic Signature
A secure electronic signature is an electronic signature which can be verified, through either a commercially reasonable security procedure agreed to by the parties or through a specified security procedure (i.e. a digital signature) to be (a) unique to the signer, (b) capable of identifying the signer, (c) created in a manner under the sole control of the signer, and (d) linked to the electronic record so that if the electronic record was changed, the signature would be invalidated.
Like an electronic signature, a secure electronic signature satisfies any legal requirement for a document to be signed if the requirements in section 8 of the ETA are satisfied.
A digital signature is an electronic signature which transforms an 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 accurately determine (a) whether the transformation was created using the private key that corresponds to the signer's public key, and (b) whether the initial electronic record has been altered since the transformation was made.
As mentioned above, a digital signature is a specified security procedure which may be used to convert an electronic signature into a secure electronic signature. By itself, a digital signature may also amount to a secure electronic signature provided that certain conditions as set out in Paragraph 3 of the Third Schedule of the ETA are satisfied.
Which signature to use?
Commercial Perspective: The electronic signature carries a higher risk of fraud as it is relatively easier to forge and/or alter. Conversely, secure electronic signatures and digital signatures require the use of more secure technologies and will provide greater assurance that such signatures were made and intended to be made by the intended counterparty.
Legal Perspective: Secure electronic signatures and digital signatures benefit from an evidential presumption under section 19 of the ETA that (a) the secure electronic signature is the signature of the person to whom it correlates; and (b) the secure electronic signature was affixed by that person with the intention of signing or approving the electronic record. This presumption is useful in the event of any dispute as to the validity or authenticity of an electronic record.
Nevertheless, there are limitations arising from the use of secure electronic signatures and digital signatures in that there are limited technologies/methods which will conclusively recognise secure electronic signatures:
(a) Digital Signatures as Secure Electronic Signatures: For a digital signature to be a secure electronic signature, it must be created during the operational period of a valid "trustworthy" certificate, which includes a certificate issued by an accredited certification authority. However, the only accredited certification authority in Singapore is Netrust Pte Ltd. If any other certification authority is used, any digital signature must be proved to be a secure electronic signature and this may be difficult to prove evidentially.
(b) Electronic Signatures as Secure Electronic Signatures: While there are two methods to convert an electronic signature into a secure electronic signature, both methods have its limitations. Firstly, there is only one specified security procedure under the ETA – the digital signature. However, while the commercially reasonable security procedure is more flexible, a certain level of trust between parties is recommended before any such procedure is used.
Impact of the ETA on the execution of finance documents
The main finance documents in a corporate lending transaction, especially the loan and security documents, will likely be executed in the conventional way for most cases. Some of the reasons are:
(a) lack of familiarity and comfort with the ETA;
(b) technical, practical and cost issues relating to electronic execution;
(c) recognition under foreign laws and jurisdictions;
(d) finance documents may be or contain Excluded Matters (e.g. power of attorney or disposition of immoveable property);
(e) witnessing, attestation and notarisation requirements;
(f) sealing requirements;
(g) systematic electronic and fraud risks; and
(h) prevailing market practice
There may be more opportunities for ancillary finance documents to be executed electronically on a case to case basis. Such ancillary finance documents include corporate approvals and resolutions, directors' certificates, certain condition precedent documents, due diligence documents and registration forms.
Impact of the ETA on trade finance
The recognition of electronic transferable records under the amended ETA means that electronic bills of lading, electronic promissory notes and electronic bills of exchange are recognised.
The use of such electronic instruments increases control and transparency, enhances efficiency, creates new financing structures and platforms and reduces the risk of fraud and multiple financing. In addition, the use of electronic bills of lading will reduce the use of the relatively risker letters of indemnity as a substitute for physical bills of lading.
The amendment of the ETA is timely given the current climate of virtual interaction and an increasingly digitalized civilisation. It is important for all stakeholders in a loan transaction to understand the impact of the changes in order to capitalise on the opportunities and mitigate the risks. In addition, the viability and growth of electronic executions and records under the ETA in cross border transactions will also be dependent on the international development and harmonisation of such laws, customs and practices.
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.