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Ideas & Debate

E-signatures can ease contracts pressure on essential businesses

 Law of Contract Act
A number of Kenyan statutes, including the Law of Contract Act, were recently amended to recognise use of advanced electronic signatures. PHOTO | FOTOSEARCH 

These days, companies are pushing full throttle to accelerate their digitisation roadmaps. With "shelter in place" ordinances and social distancing mandates, most workers are at home. The days of closing ceremonies are all but forgotten.

Emergencies, challenges and opportunities are popping up left and right. No one has time for snail mail, ink and paper. "Essential businesses" remain open. But, they, too, cannot easily meet counterparties to sign contracts. Even essential businesses feel an urgent need to revisit e-signature essentials.

The pandemic notwithstanding, companies have to continue to comply with existing laws and protect their interests with enforceable contracts, valid consent declarations, formal records, effective applications for government approvals, and other documents. All in-house and outside counsel need a basic understanding of legal form requirements and practical guidance for their clients.

ARE ELECTRONIC SIGNATURES LEGAL?

This is usually not the right question to ask. No one is prohibited from using electronic signatures anywhere in the world. The better questions to ask are: are electronic signatures effective and binding? Do electronic signatures and documents meet statutory form requirements? Do they protect interests as well as handwritten signatures on paper documents? Precise answers to these right questions are, unfortunately, much harder to come by.

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LEGAL FORM REQUIREMENTS

To determine whether you can create a contract or record electronically to meet a certain legal objective, you have to analyse the laws applicable to such objective.

For example, if you want to assign copyright protected works in Kenya, you have to make reference to the Copyright Act, 2001. If you want to hire an employee in Kenya, you have to consult the Employment Act, 2007. For some types of documents and transactions, you must satisfy form requirements that cannot easily be achieved electronically, such as certification before a public notary or witnesses, official recordals, or handwritten documents or signatures, for example, in Kenya for negotiable instruments wills, codicils and testamentary trusts. But, many other transactions are subject to lighter or no form requirements, including most commercial agreements between corporate entities.

The Kenya Information and Communications Act, 1998 recognises the validity of advanced electronic signatures. In addition, a number of Kenyan statutes including the Law of Contract Act were recently amended vide the Business Laws Amendment Act, 2020 to recognise use of advanced electronic signatures.

In addition to individual form requirements, most countries have enacted specific statutes concerning electronic commerce, signatures and transactions. Even though use of electronic signatures is recognised under Kenyan law as highlighted above, there are practical difficulties that could arise with regard to certification of advanced electronic signatures.

PRACTICAL CONSIDERATIONS

Even before the Covid-19 pandemic, individuals, companies and governments recognised many advantages that electronic signatures and documents offer over ink and paper, including speed, cost savings, convenience, easier search and analysis, cheaper archiving and retrieval, automation of retention/deletion, additional options to protect authenticity and integrity, better evidence and identification, scalability, standardisation opportunities, and arguably a plus for sustainability: Don't print this article, save a tree. Forgery concerns apply equally to electronic and ink-on-paper signatures, but electronic signature technologies offer additional security measures.

Despite all these advantages of electronic documents and signatures, companies opt for "ink and paper" where they determine that an electronic document or signature will not be accepted by a customer or government authority, does not meet a particular form requirement, does not suffice to create an enforceable contract, or will otherwise result in a disadvantage.

Until recently, many have also still resorted to ink and paper when they were not sure — forgoing benefits of digitisation. But, the Covid-19 pandemic is putting extreme pressures on default inertia.

Clients and their counsel are revisiting the question whether ink and paper is necessary with acute urgency. Here is a checklist for electronic signature essentials to assist in this process:

IS THE SIGNATURE OR DOCUMENT EVEN REQUIRED?

Even if a document or signature is not legally required, companies nevertheless often have good operational, customer or human relationship reasons to document a consent or acceptance.

IS THE SIGNATURE LIKELY TO BE CHALLENGED?

Companies should spell out applicable terms in documents, to reduce risks of disputes or misunderstandings and to protect against undesirable legal consequences.

WHERE WOULD THE SIGNATURE BE CHALLENGED?

Companies can reduce risks under laws of unfamiliar jurisdictions with an express choice of law and arbitration in a jurisdiction that recognises electronic forum.

WHAT EVIDENCE DO YOU RETAIN TO PROVE VALIDITY?

Parties who use electronic signatures should ensure that they have, retain or present in court evidence to substantiate that it was the other party who signed the electronic contract.

The checklist also includes: Which additional measures can help reduce risks? How do you manage the process? What e-signature technology is right for your client?

Determann is a partner at Baker McKenzie, Palo Alto, Syekei is a partner in the Bowmans Kenya office and Mwathe is a senior associate in the Bowmans Kenya office.

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