COVID-19 Legal Series (3): How to Contract Electronically to Cope With the Coronavirus

Pursuant to the ESL, when examining the authenticity of a data message as evidence, the following factors must be considered: (i) the reliability of the means of generation, storage and transfer of the data message; (ii) the reliability of the means of maintaining the integrity of the content; (iii) the reliability of the means of distinguishing the sender; and (iv) other related factors. Therefore, companies using electronic contracts must take corresponding measures to ensure reliability.

The suggested measures include: (i) using secured and reliable hardware environments, software and/or services to generate, store and transfer electronic contracts; (ii) using technical and security tools and control systems to ensure electronic contracts will not be tampered with; (iii) adopting valid and reliable electronic signatures to ensure the identity of signatories in electronic contracts; and (iv) carefully and clearly recording the senders and receivers of electronic contracts and the time of issuing and receiving electronic contracts; and (v) retaining other evidence and materials related to the creation and exchange of electronic contracts.

In order to ensure the validity and reliability of an electronic signature, the ESL requires all of the following conditions to be met:

a .  when the electronic signature creation data is used for the electronic signature, it is exclusively proprietary to the electronic signatory;

b .   the electronic signature creation data is exclusively controlled by the electronic signatory at the time of signing;

c .  any subsequent alteration to the electronic signature after the signing can be detectable; and

d .  any subsequent alteration to the content and form of the data message after the signing can be detectable.

It may be difficult for a company using and managing electronic signatures to comply with the above strict requirements on its own, and seeking professional assistance would be a more practical solution for companies who want to conclude business contracts electronically. Although not compulsorily required by law, it is highly recommended that companies outsource this undertaking to professionals providing electronic signature services.

The advantages of electronic contracts have become more obvious during the COVID-19 outbreak because their use can avoid unnecessary contact among people…

In China, there are third-party electronic contract platforms providing entire solutions to companies who want to conclude business contracts electronically. In addition to providing a platform for companies to execute and store electronic contracts, these third-party electronic contract platforms also assist the signatory with communication to the certificate authority and time stamp authority for authenticating the digital certificate and validating the time stamp, which are important to ensure the validity and reliability of the electronic signature. In practice, a third-party electronic contract platform takes various measures to verify the identity of the signatory and also use new technology such as blockchain to safeguard the electronic contract from disclosure or tampering.

Companies need to carefully assess when to use electronic contracts to complete transactions

Other considerations regarding electronic contracts

The advantages of electronic contracts have become more obvious during the COVID-19 outbreak because their use can avoid unnecessary contact among people, as well as saving companies time and money. However, electronic contracts are not suitable for all transactions. Companies need to carefully assess when to use electronic contracts to complete transactions.

Generally, electronic contracts can be widely used in transactions such as:

• e-commerce transactions and other transactions completed though the internet;
• repeated transactions with comparatively low values;
• high-volume transactions with comparatively low values;
• regular transactions with long-term vendors/customers;
• transactions involving parties in different locations within China; and
• internal contracts between companies within a group.

It also should be noted that for certain transactions, the use of an electronic contract may not be an appropriate solution.

Article 3 of the ESL forbids the use of electronic contracts in the following circumstances:

• documents relating to personal relationships such as marriage, adoption and inheritance;
• documents involving suspension of public utilities such as water supply, heating supply, gas supply etc.; and
• any other circumstances where electronic documents are not applicable as stipulated by laws and administrative regulations.

In addition to the above circumstances, companies also need to avoid adopting electronic contracts for the following transactions:

• transactions with high contract values;
• transactions which are high-risk in nature;
• transactions with a party where the relationship is untested in terms of reliability; and
• transactions for which the hard copies of documents are needed.

… various jurisdictions may have different rules on the use of electronic signatures and electronic contracts, which may increase the complexity of concluding electronic contracts

In practice, some companies have the option to use electronic contracts in cross-border transactions and this solution has become more widely accepted since the global outbreak of COVID-19. However, various jurisdictions may have different rules on the use of electronic signatures and electronic contracts, which may increase the complexity of concluding electronic contracts. A few special measures are suggested to ensure the validity and legitimacy of electronic contracts:

• Engaging professionals to verify the veracity and reliability of electronic signatures used by signing parties. For example, electronic signatures used by the signing parties should be certified by certificate authorities according to internationally recognized standards.

• When choosing the governing law of the cross-border transaction contracts, the attitude and requirements of the law regarding electronic contracts should be taken into account.

• In addition to electronic signatures, other technical measures may also be considered to enhance the reliability of the electronic contract. For example, third-party electronic contract platforms that are exploring the use of blockchain technology smart contract mechanism to conclude electronic contracts.

The use of electronic contracts has grown remarkably during the coronavirus outbreak. Considering the special circumstances, it would be hard to predict if such a trend will continue once the virus has been contained, but it is expected that relevant authorities and the courts may issue more regulations and cases to guide the use of electronic contracts.

… a reliable third-party electronic contract platform is highly recommended for those companies that do not have the technical capabilities to conclude contracts electronically

For companies wishing to use electronic contracts, it is advisable to first evaluate specific needs and then make detailed plans on transferring from traditional contracts to electronic contracts. As mentioned, a reliable third-party electronic contract platform is highly recommended for those companies that do not have the technical capabilities to conclude contracts electronically. Companies should also seek professional advice from security consultancies, law firms and other professional agencies if they are unsure about how to use electronic contracts properly.