Are Contracts with OverseasCompanies Signed with Electronic Signatures Valid?

In cross-border transactions, sending paper contracts by international courier is time-consuming, expensive and creates risks of loss or delay. Signing online with electronic signatures is convenient and cost-saving. More and more companies therefore are willing to use electronic signing. A significant question remains: when a Chinese legal entity and an overseas legal entity sign in this way, what legal effect does the electronic signature have, and does it affect the validity of the contract?

As a general rule, the legal effect of electronic signatures certificates is territorial. Certification may give rise to a statutory presumption of authenticity in one jurisdiction, but that presumption does not automatically apply elsewhere. The electronic signature must therefore be assessed against the requirements of the relevant jurisdiction’s electronic signature laws.

More specifically, the legal effect of an electronic signature must be assessed under the governing law chosen by the parties.

Scenario 1 Japanese Law Governs

Company A in China and Company B in Japan enter into an equipment purchase contract governed by Japanese law, with disputes subject to the jurisdiction of a Japanese district court. Company A signs with an electronic seal backed by a certificate issued by a Chinese certification authority (CA). What legal effect does that seal have?

Under the Japan’s Act on Electronic Signatures and Certification Business, an electronic document bearing an electronic signature that meets the statutory requirements is presumed to have been authentically executed, meaning that it was created in accordance with the signatory’s intention. This gives it a presumption comparable to that associated with a handwritten signature or a physical seal. Accordingly, an electronic seal certified by a locally recognized Japanese CA is presumed authentic and valid. Company A’s Chinese CA electronic seal does not enjoy that presumption in Japan and is not automatically treated as valid. If a dispute arises, Company A must provide evidence of its reliability, such as signing audit logs, metadata, certificate validation reports, and authorization records, to establish its authenticity.

Scenario 2 Chinese Law Governs

Company A in China and Company B in Japan enter into an equipment purchase contract governed by Chinese law, with disputes subject to the jurisdiction of a court at Company A’s domicile. Company B signs with a Japanese CA electronic seal. What legal effect does that seal have in this situation?

Under Article 14 of the Electronic Signature Law of the People’s Republic of China (the “Electronic Signature Law”), a reliable electronic signature has the same legal effect as a physical company seal or a handwritten signature. (Exceptions in Article 3 of the Electronic Signature Law apply to certain contracts concerning personal status, contracts for the termination of water, electricity or gas supplies, and other matters for which the law excludes the use of electronic signatures.) The reliability requirements in Article 13 can be summarized in three categories:

1. Exclusivity. The electronic signature must belong exclusively to the signatory. Identity verification before a digital certificate is issued helps prevent misuse by others and ensures that the digital signature belongs to the signatory alone.
2. Exclusive control. Passwords, verification codes, facial recognition or similar methods should be used to ensure that the materials involved in obtaining the electronic signature certificate remain under the signatory’s control.
3. Preventionof tampering. Any change to the electronic signature after signing, and any change to the content or form of the data message, must be detectable.

To verify these three requirements, Article 16 further provides that, where third-party certification is required, it must be supplied by a lawfully established electronic certification service provider. Articles 17 and 18 further set out the qualifications for such providers and the procedures for applying for and obtaining certification licenses. These provisions do not extend to overseas electronic certification service providers. Under Article 26, certificates issued abroad by overseas providers have equivalent legal effect only after approval by the State Council’s competent authority for the information industry, based on a relevant agreement or the principle of reciprocity. As of now, no overseas provider has received such approval or a license from the Ministry of Industry and Information Technology. Certificates issued abroad by overseas providers therefore do not currently receive recognition under the Electronic Signature Law and the relevant departmental regulations.

In judicial practice, Chinese courts have not reached a uniform opinion on whether a third-party’s certification is a necessary condition for recognizing an electronic signature as authentic and legally valid. In case (2018) Jing 03 Min Zhong No. 4845, the court treated the third-party certification as one of the conditions for an electronic signature to have legal effect. In case (2016) Jing 01 Min Zhong No. 726, the court stated: “Company X contends that it made its Code of Business Ethics available to Ma and delivered it through an overseas company’s electronic signature system. However, under the Electronic Signature Law of the People’s Republic of China, where an electronic signature requires third-party certification, that certification must be provided by a lawfully established electronic certification service provider. Company X has provided no evidence that its electronic signature service provider holds a license from the competent Chinese authority. Given Ma’s objection, there is insufficient legal basis to accept the electronic signature evidence.” Other courts have taken a different approach. In case (2019) Yue 03 Min Zhong No. 824, the court recognized the legal effect of the electronic signature based on a complete chain of evidence, including how the electronic contract was signed and performed. It did not treat an electronic signature certificate as a necessary condition.

In conculsion, the current legislation and judicial practice leave uncertainty over whether a Japanese CA electronic seal qualifies as a reliable electronic signature. A court may accept it if the parties provide sufficient evidence of reliability, such as signing audit logs, metadata, certificate validation reports, and authorization records.

For a Chinese legal entity, it is therefore preferable to negotiate for Chinese law to govern the contract in order to reduce its risks. If its bargaining position means that foreign law must apply and the counter-party is not an affiliated company, the following measures may help reduce risk depending on the circumstances:

1. If electronic signing is used simply for efficiency, it is suggested to ask the overseas counter-partyto follow it with a scanned paper copy bearing its physical company seal or a handwritten signature, and to send the original by post. This provides an additional safeguard.
2. If the overseas counter-partywill not provide a physically sealed or signed copy, then ask it to send the electronically signed document as an email attachment after signing. This may make the document easier to prove as evidence and reduce risk.