Electronic Transactions

Introduction

As COVID-19 is sweeping across the world, running business online is becoming the new normal. As a result, it is often necessary to use e-signatures and make contracts online. This article will be divided into two parts: The first part will highlight certain points that companies should be aware of before contracting online; the second part will give an overview on the position of e-signatures under Hong Kong Law.

Formation and validity of electronic contract

The formation and validity of electronic contract is governed by Electronic Transactions Ordinance (“ETO”) (Cap. 553) in Hong Kong. Under S17 of ETO[1], contract can be formed by means of electronic record unless otherwise agreed by the parties.

To form a valid electronic contract, the elements required are the same as those in traditional contract[2]. They include:

  1. Offer
  2. Acceptance
  3. Consideration
  4. Intention to create legal relations

Incorporation of terms into contract

Regarding the terms of the contract, the terms must be sufficiently brought to the attention of the customer prior to the conclusion of contract. Otherwise, the terms would not be incorporated into the contract successfully. A way to ensure successful incorporation of terms is to design a website for the company and include the whole set of terms and conditions. Before customers confirm their order, they have to scroll to the bottom and tick “I agree”.

Position of E-signatures in Hong Kong

When we are contracting online, it often requires the signature of the contracting parties. Therefore, it would be necessary for start-up business to know the position of e-signatures in Hong Kong. E-signatures are regulated by ETO in Hong Kong. The definition of “signature” is broad in nature and no specific form or format is needed. In general, digital signature refers to any symbol executed or adopted, or any methodology or procedure employed or adopted, by a person with the intention of authenticating or approving a record[3]. Tying names at the end of an email would already suffice as a valid signature[4].

The default position is simple. E-signatures in transactions which do not involve government entity would be valid and enforceable if they satisfy the requirements in S6 of ETO[5]. The requirements are as follows:

  1. The signature of the person must attach the e-signature to, or logically associate the e-signature with an electronic record. This is to identify himself and indicate his authentication or approval of the information in the electronic document.
  • By taking into account all relevant circumstances, the e-signature process must be reliable and appropriate. This is to ensure the information in the document is communicated.
  • The recipient must also consent to the usage of e-signature.  

For cases where the transaction involves government entity, e-signatures must be supported by recognized digital certificate which is issued by a recognized Certification Authority.

However, not all documents are suitable to sign electronically. As a result, some of the documents are excluded from application of e-signatures.  A few examples are: Government conditions of grant and Government leases, power of attorney, testamentary documents, statutory declarations, judgments, oaths and affidavits etc[6].

Practical tips on e-signatures – Before you sign electronically in transactions, consider the followings: Does the transaction involve government entity? Check whether the limitations in Schedule 1 ETO would apply to the documents. If it does not, confirm whether the e-signature satisfied the requirements in S6 ETO.

[1] S17 of Electronic Transactions Ordinance (Cap. 553)

[2] Digital business in Hong Kong: overview < https://uk.practicallaw.thomsonreuters.com/6-622-8758?transitionType=Default&contextData=(sc.Default)&firstPage=true >

[3] Section 2 of Electronic Transactions Ordinance (Cap. 553)

[4] Yun Zhao, Cyber Law in Hong Kong (Wolters Kluwer), Part IV

[5] Section 6 of Electronic Transactions Ordinance (Cap. 553)

[6] Schedule 1 of Electronic Transactions Ordinance (Cap. 553)

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