The way business is conducted constantly changes. Technological developments provide more efficient, convenient and immediate methods for entering into binding transactions. However, issues surrounding the electronic execution of documents, including uncertainty over the legal status of electronic signatures, can hinder the use of new technology, particularly where legislation requires a document to be “signed” or executed as a deed.
Electronic signatures are nothing new. Their use in larger commercial transactions, however, has been somewhat limited in the absence of definitive guidance on their legal validity and effectiveness.
In response, the Law Commission is undertaking a consultation process to end the uncertainty regarding formalities around the electronic execution of documents and ensure that the law governing them is sufficiently certain and flexible to remain competitive following Brexit.
The consultation paper, “Electronic execution of documents”, published in August, sets out their provisional conclusions and potential options for reform, with the intention of allowing businesses to speed up transactions by going fully digital.
Having reviewed EU law, UK legislation and case law, the Law Commission has provisionally concluded that an electronic signature can meet a legal requirement for a signature if an intention to authenticate the document is demonstrated.
Currently, the law is very flexible, allowing contracts to be created in many ways, with most not even required in written form. However, procedures known as ‘formalities’ must be followed for certain documents to be valid in law, such as witnessing.
Formalities have numerous purposes:
- providing evidence of the transaction
- helping to ensure the maker realises what they are doing
- protecting weaker parties
- making the type document and its effect apparent to third parties
The EU regulation, eIDAS, is part of UK law. It provides that:
- electronic signatures cannot be denied legal effectiveness solely because of their electronic nature;
- qualified signatures (see below) satisfy any legal requirements in the same way as handwritten signatures;
- electronic signatures are admissible in evidence in legal proceedings.
The Electronic Communications Act 2000 mirrors the admissibility provision in eIDAS but does not expressly confirm the validity of electronic signatures. This partly contributes to the uncertainty surrounding electronic signatures.
The UK Courts have concluded that electronic methods of signing, such as a typed name in an email or clicking an “I Accept” button, satisfy a statutory requirement for a signature where there is an intention to authenticate the document.
Currently, no law deals with electronic execution of deeds and, therefore, the position remains uncertain. Deeds have more onerous formality requirements than documents which simply require a signature.
Deeds are written documents executed pursuant to necessary formalities, through which an interest, right or property passes or is confirmed; or a binding obligation on someone is created or confirmed. Transactions which must be made by deed are relatively few - such as land transactions, agreements made without reciprocal obligations (for example, without payment) and for granting powers of attorney.
Generally, to be validly executed, deeds must be signed in the presence of a witness, who attests (confirms) the signature, and be delivered as such. The Law Commission finds that this requirement means that the witness must be physically present at the signing of the deed, adding their own signature at that time.
What does this mean in practice?
The Law Commission’s provisional findings should provide reassurance to parties wishing to conduct business through modern technology and use electronic signatures to execute agreements.
Under English law, simple contracts (those not requiring execution as deeds) need not be written and can take any form. Consequently, in such instances, there are no restrictions on the use of electronic signatures.
The Law Commission states that electronic signatures will be valid where law requires documents to be executed “in writing” (words reproduced in a visible form), “under hand” or “signed” (using any mark intended to give authenticity to the document).
Electronic signatures could be used for minutes and written resolutions, subject to the intention to authenticate requirement.
Certain organisations still require ‘wet-ink’ signatures on paper versions of documents. This includes The Land Registry and Land Charges Registry for any paper versions of documents sent to them, and HMRC “would normally” expect to stamp a wet-ink version of documents, such as stock transfer forms.
The Law Commission consultation proposes steps which could further boost business, helping them capitalise on new technologies:
- witnessing of electronic signatures via a webcam or video link
- formation of a Government-backed industry working group to consider on-going practical issues and improvements regarding the use of electronic signatures
It is also considering whether the law should facilitate the electronic execution of deeds, by allowing the witnessing of documents from different locations via a real-time, shared online platform.