Legal validity and enforceability of electronic contracts and electronic signatures in corporate transactions

Authors: Kurt Hyzler & Rebecca Galea

In today’s legal landscape electronic contracts and signatures have become indispensable in corporate transactions, offering speed, efficiency, seamless execution, and enhanced practicality. As such, ensuring the legal validity and enforceability of electronically executed documents is crucial. This responsibility adds complexity to the role of legal professionals, who must ensure that such contracts and signatures comply with applicable laws to guarantee the binding nature of corporate transactions.

Legal validity of electronic contracts

Under Maltese law, a contract is valid if it satisfies four essential elements: (i) the capacity to contract; (ii) the consent of the parties; (iii) a defined subject matter; and (iv) lawful consideration.[1] To satisfy the element of consent, it is generally expected that consent be expressed externally—whether orally, in writing, or through the solemn form (public deed). However, not all forms of external consent are valid in all circumstances. For example, in transactions involving rights in rem for instance the sale of immovable property, Maltese law requires, under pain of nullity, that consent be expressed in a public deed.[2] Other agreements such as leases[3] or promises of sale[4] must be in writing, while other agreements (like the purchase of movables) may be made orally unless the law explicitly provides otherwise.

This raises an important question: is a written agreement in electronic form legally valid under Maltese law? The Electronic Commerce Act (the “Act”) affirms that electronic contracts, defined as contracts concluded wholly or partly by electronic communication or wholly or partly in an electronic form,[5] are not to be denied legal effect, validity or enforceability solely because they are in electronic form or have been entered into wholly or by way of electronic communications or otherwise.[6] Nonetheless, certain exceptions apply. By way of example the Act excludes contracts of suretyships granted by individuals acting outside the scope of their trade, business, or profession. Therefore, electronic contracts falling within such excluded categories may be denied legal effect or enforceability.[7]  

The signature on a contract as proof of consent

In practice, especially within corporate, banking, and finance sectors, the prevailing method of execution often involves closing on the basis of scans with originals to follow. Typically, each party signs in wet ink, often independently and remotely and transmits scanned copies electronically. Original signed versions would then be exchanged by post or courier after the transaction closes.

The wet-ink signature, whether physically appended to a paper-based contract after receiving the original thereof or scanned and attached to a digital version without receiving the original thereof, has long served as reliable evidence of consent. However, this method can be logistically burdensome, highlighting the need for a more streamlined and secure signature solution.

Legal framework for electronic signatures

The European Regulation (No 910/2014) on electronic identification and trust services for electronic transactions in the internal market (the “Regulation”) establishes a harmonised legal framework across the European Union for electronic signatures, electronic seals, electronic timestamps, and related services.[8] It establishes the legal framework for electronic signatures, electronic seals, electronic timestamps, and related services. Maltese law has been aligned with this Regulation through amendments to the Act.[9]

The Regulation classifies electronic signatures into three categories:

1. Simple electronic signatures (“SES”): these electronic signatures have no specific security requirements and are defined as “data in electronic form which is attached to or logically associated with other data in electronic form and which is used by the signatory to sign.”[10] A scanned wet-ink signature sent electronically (without the subsequent exchange of originals) typically qualifies as an SES.
2. Advanced electronic signatures (“AES”): These must meet four conditions:“(a) Be uniquely linked to the signatory; (b) Be capable of identifying the signatory; (c) Be created using electronic signature creation data that the signatory can, with a high level of confidence, use under his sole control; and (d) Be linked to the data signed therewith in such a way that any subsequent change in the data is detectable.”[11]
3. Qualified electronic signatures (“QES”): These are a specific type of AES that meet the highest legal standards under the Regulation. A QES is created using a qualified electronic signature creation device, which ensures that the signatory’s electronic signature creation data is protected and confidential and that the signature practically occurs only once. It is also based on a qualified certificate for electronic signature, issued by a qualified trust service provider after verifying the identity of the signatory. The certificate includes key data such as the signatory’s identity, the certificate’s validity period, and the issuing qualified trust service provider. Together, these safeguards ensure the authenticity and integrity of the signature, granting it the same legal effect as a handwritten signature across the European Union.

Significantly, the Regulation affirms that electronic signatures shall not be denied legal effect and admissibility as evidence in legal proceedings solely because they are in electronic form or that they do not qualify as QES.[12] Nonetheless, where a QES is used, it enjoys legal effect equivalent to that of a handwritten signature.[13]

It is also important to note that regulators such as the Malta Business Registry require electronically signed documents submitted to them to comply with the applicable provisions of the Regulation.[14] Therefore, the form of electronic signature recognised by the Malta Business Registry in terms of article 82 of the Companies Act, Chapter 386 of the Laws of Malta (“Companies Act”), is the QES.[15]

Legal opinions

It is customary for the closing of transaction to be made subject to the issuance of legal opinions  addressing the validity and enforceability of transaction documents and confirm that the parties had the requisite authority and capacity to bind themselves or the entities they represent.

However, legal practitioners generally refrain from opining on the authenticity of signatures, whether electronic or wet-ink, as this could expose them to liability in cases of undetected forgery or fraud. Accordingly, it is standard practice for legal opinions to include express qualifications regarding the nature and reliability of signatures.

Thus, although a QES provides a high level of assurance due to its technical safeguards, lawyers generally avoid confirming whether the QES was properly issued or whether all underlying technical requirements have been met.

Final considerations

Should the parties to a transaction agree to execute documents electronically, it is prudent for them to determine in advance the form of electronic signature to be used. For significant transactions, the use of a QES is strongly recommended due to its legal equivalence to a handwritten signature and its presumption of validity under the Regulation.

To reinforce legal certainty, agreements should expressly provide that execution by QES is valid and binding. This is particularly important where regulatory authorities, such as the Malta Business Registry, require execution in this manner.

While electronic execution offers numerous advantages, including efficiency and cross-border practicality, it also requires careful legal planning. By aligning execution methods with the applicable legal framework and incorporating clear provisions into agreements, parties can confidently adopt electronic signatures while safeguarding the enforceability of their transactions.

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[1] Article 966 of the Civil Code, Chapter 16 of the laws of Malta.

[2] Article 1363 of the Civil Code (Chapter 16 of the laws of Malta).

[3] Article 1525 of the Civil Code (Chapter16 of the laws of Malta) provides that “a contract of letting and hiring, whether of things or of work and labour, may be made either verbally or in writing, provided that a contract of letting and hiring of urban property and of a residence and of a commercial tenement entered into after the1st January, 2010 shall be in writing.”

[4] Article 1233(a) of the Civil Code (Chapter 16 of the laws of Malta), provides that “saving the cases where the law expressly requires that the instrument be a public deed, the transactions hereunder mentioned shall on pain of nullity be expressed in a public deed or a private writing: any  agreement  implying  a  promise  to  transfer  or acquire,  under  whatsoever  title,  the  ownership  of immovable  property,  or  any  other  right  over  such property.”

[5] Article 2 of the Electronic Commerce Act (Chapter 426 of the laws of Malta).

[6] Article 9 of the Electronic Commerce Act (Chapter 426 of the laws of Malta).

[7] Schedule 8, Electronic Commerce Act (Chapter 426 of the laws of Malta).

[8]  Article 1(c) of the EP and C Regulation 910/2014 of 23 July 2014 on electronic identification and trust services for electronic transactions in the internal market and repealing Directive 1999/93/EC [2014] OJ L 257/73 (Regulation).

[9] Act No. XXXV of 2016.

[10] Article 3 of the Regulation.

[11] Article 26 of the Regulation.

[12] Article 25(1) and (2) of the Regulation.

[13] Article 25(3) of the Regulation.

[14] Malta Business Registry, ‘Notice on the Use of Electronic Signatures’ (MBR, 2022).

[15] Ibid.