In Singapore, can contracts be concluded electronically?

• Yes, provided there is nothing in the contracting parties’ constitutions which requires contracts to be executed in any particular (non-electronic) fashion.
• At the outset, whether a contract can be concluded electronically will depend on whether the requirements for contract formation have been met. 
• These are:
  • an offer (which is a promise made by one party to another with the intention that the promise be legally binding if accepted);
  • acceptance of that offer;
  • an intention to create legal relations;
  • certainty of contractual terms; and 
  • consideration, which refers to something of value requested by the promisor and provided by the promisee (this is a question of law).
• The ETA provides that the enforceability and validity of a contract cannot be denied just because the offer and acceptance were made electronically (section 6).
  • The ETA stipulates that except with respect to the excluded matters listed below, electronic records can be used (and will be recognized) in expressing an offer or acceptance in contract formation (sections 11 and 12 ETA). 
  • Section 8 of the ETA provides that where the rule of law requires a signature, or provides for certain consequences if a document or a record is not signed, that requirement is satisfied by an electronic signature if:
    
    • a method is used to identify the person making the signature and to indicate that person’s intention in respect of the information contained in the electronic record; and
    • the method used is either (a) as reliable as appropriate for the purpose for which the electronic record was generated or communicated, in light of all the circumstances, including any relevant agreement; or (b) is proven in fact to have fulfilled the functions described. 
  • The matters presently excluded from the ETA include the creation of a will, negotiable instruments and contracts for the disposition of immovable property.  
  • However, pursuant to a public consultation on June 27, 2019, Singapore is looking to remove these exclusions from the ETA. In other words, Singapore may soon allow for contracts in relation to these currently excluded matters to be concluded electronically while recognizing their legal validity. 
  • In addition, electronic records are admissible as evidence in Singapore pursuant to Singapore’s Evidence Act.
  • With regard to the timing of an offer and/or acceptance, under the ETA, a message is deemed to have been received at the time when it is capable of being retrieved by the addressee at their designated email address. If such email address was not so designated, then the time of receipt is deemed to be the time when the message is capable of being retrieved at that address, provided that the recipient is made aware that the message has been sent to that address. 
• In relation to statements or communications by way of email, these may or may not be binding on the other party, depending on whether the agreement contains an “entire agreement” clause (i.e., where a written agreement contains all the terms of the agreement between the parties to the exclusion of anything contained outside of the written agreement, such as all previous drafts, statements, discussions, negotiations or communications between the parties, whether written or oral, relating to the subject matter) or a “no reliance” provision (i.e., otherwise than as set out in the agreement, neither party relies on any other information, representation, warranty or statement by the other or any of its representatives in entering into the agreement). If such a clause exists, then neither party can seek to rely on any statement or communication contained in the parties’ email exchanges. 

What about amendments to contracts – can these be made electronically? 

• It depends.
• If an original contract itself stipulates a specific requirement or format for amendment, then that must be complied with. Common examples of such formalities include requiring amendments to be made in writing, requiring all contracting parties to execute the same amendment agreement, excluding amendments by email, etc. Otherwise, the above principles in respect of electronic contract formation would apply similarly to amendments to electronic contracts. 

What constitutes an electronic signature?

• The case of SM Integrated Transware Pte Ltd v. Schenker Singapore (Pte) Ltd [2005] SGHC 58 demonstrated that the courts look to whether the method of signature used fulfils the function of a signature (i.e., demonstrates an authenticating function), rather than whether the form of signature used is one which is commonly recognized. In that case, typed names were sufficient to satisfy the signature requirement as the authenticating intention of the signatories had been clearly demonstrated.
• Hence, while there is sophisticated software such as DocuSign or Adobe Sign that can be used for electronic signatures and contracts, what actually constitutes an electronic signature is actually quite basic.

How is an electronic signature secured?

• An electronic signature can be made secure by applying a specific security procedure or an agreed form of security procedure. This can include two-factor authentication or having an electronic signature pad to capture signatures.
• Such procedure must be capable of verifying that, at the time that it was made, the electronic signature was:
  • unique to the person using it;
  • capable of identifying such person;
  • created in a manner or using a means that was under the sole control of the person using it; and
  • linked to the electronic record to which it relates in such a manner that if the record were changed, the electronic signature would be invalidated.
• There is a presumption that a secured electronic signature is authentic, i.e., it is: (a) the signature of the person to whom it relates; and (b) affixed by that person with the intention of signing or approving the electronic record.

How are the locations of a contractual offer and acceptance determined? 

• The location of a contractual offer matters to the extent that parties may be located in different jurisdictions, which would lead to a different governing law applying to the contract. Under the ETA, an electronic communication is presumed to be sent from the place of business of the sender, and received at the place of business of the recipient.

What are the anticipated changes arising from the review of the ETA?

• The following amendments to the ETA have been proposed:
  
  • allowing more transactions, including wills, powers of attorney and property transactions, to be entered into electronically;
  • providing more certainty on the use of new technologies such as distributed ledger technology, smart contracts, and biometrics; and 
  • providing updates on the certification authority to align Singapore’s developments with the latest international standards.

Can an offer and acceptance be communicated via an automated message system? 

• Yes.
• A contract formed by the interaction between an automated message system and a natural person, or between two automated message systems, will not be denied validity or enforceability solely because there was no review or intervention by a natural person (section 15 ETA). Hence, if an automated message would otherwise constitute a contractual offer or acceptance, the business that is in receipt of such message will be bound by it. This was borne out by the case of Chwee Kin Keong and Others v. Digilandmall.com Pte Ltd [2004] SGHC 71 where an autogenerated email with “Successful Purchase Confirmation” in its subject title was deemed to be an unequivocal acceptance by the business that sent the autogenerated email. It was noted in the case that “contracts can be effectively concluded over the Internet” and “programmed computers sending out automated responses can bind the sender.”
• However, where a natural person makes an input error in an electronic communication exchanged with the automated message system of another party and the system does not provide the person an opportunity to correct that error, that person has the right to withdraw the erroneous portion of the communication. This is conditional upon: (a) the person notifying the other party of the error as soon as possible upon becoming aware of the error; and (b) their not having used or received any material benefit or value from the goods or services, if any, received from the other party (section 16 ETA). 

Other considerations to note

• The embrace of electronic transactions brings with it increased opportunities for fraud. For example, electronic signatures can easily be replicated even by persons possessing basic computer skills. As can be seen from SM Integrated Transware Pte Ltd v. Schenker Singapore (Pte) Ltd [2005] SGHC 58, a typed name may be sufficient to satisfy the signature requirement. Care should therefore be exercised by parties when executing contracts, particularly where it is agreed that execution may be carried out via electronic means. Where the contract is one of high value or importance, the parties may wish to stipulate that the contract may only be executed in the conventional “pen to paper” way.  
• Additionally, parties who enter into contracts in an “automated” fashion through the use of complex computer algorithms should, from time to time, review the algorithms to ensure that these are working as programmed. As seen in Quoine Pte Ltd v. B2C2 Ltd [2020] SGCA(I) 2, a glitch in the algorithms (whether caused by human error or otherwise) can lead to disastrous financial consequences for the party responsible.  

Reed Smith LLP is licensed to operate as a foreign law practice in Singapore under the name and style, Reed Smith Pte Ltd (hereafter collectively, "Reed Smith"). Where advice on Singapore law is required, we will refer the matter to and work with Reed Smith's Formal Law Alliance partner in Singapore, Resource Law LLC, where necessary.

Client Alert 2020-241