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E-signatures in commercial contracts: More clarity please!

View profile for Chris Willison
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Whilst simple contracts and deeds can be executed using electronic signatures, there remains uncertainty around the legal validity of documents executed electronically and legislation would help clarify how contracts should be executed in an electronic environment. Until that clarity is provided, lenders should still ensure the current statutory requirements are complied with.

Background

For many years, there has been a legal framework in the UK which intended to facilitate the use of electronic signatures (or e-signatures) for executing contracts and ensuring their legal recognition and admissibility in legal proceedings.

E-signatures have been accepted in various forms, including typing a signatory’s name at the foot of an email, a scanned manuscript signature and clicking an icon on a website to confirm an order. Using a PIN or contactless technology to authenticate a transaction and clicking on an “I accept” or a “Submit” button on a website are also accepted forms of e-signatures. Additionally, more sophisticated and secure forms of e-signature (advanced and qualified electronic signatures) have been developed.

However, there remains uncertainty relating to the satisfaction of statutory requirements applicable to executing deeds and documents when signing them electronically, online authentication and attestation and the potential for fraudulent intervention in the signing process.

Agreements executed as simple contracts

Most contracts can be executed as simple contracts. In order to be valid, some simple contracts must be in writing and signed by or on behalf of each party. For example, a guarantee must be in writing and signed by the guarantor; and a legal assignment must be in writing and signed by the assignor. The authoritative view is that a contract executed using an e-signature and existing only in an electronic form satisfies the statutory requirement of being in writing and signed.

Software providers such as DocuSign and Adobe Sign have developed technology to facilitate virtual signings without the need for “wet ink” originals. These technologies ensure that the e-signatures are valid by issuing each signatory with a qualified digital certificate unique to that signature created by an electronic signature creation device. When the document is fully executed by the relevant signatories, a “Certificate of completion” is issued. This form of encrypted e-signature is known as a “digital” signature.

Electronic signing technologies are now commonly used by law firms for transactions, especially when the parties are located in different countries. However, the application of such technologies is not always straightforward. Before completion, both parties need to understand how to use them (which may require software training) and agree that they will not be receiving “wet ink” signatures post-completion. In addition, although the English courts give the same weight to e-signatures as “wet ink” signatures, some lenders have internal protocols requiring the delivery of original documentation, making virtual signings an unviable option.

Agreements executed as deeds

Certain contracts, including powers of attorney, mortgages, legal charges, leases and transfers of land, must be executed as deeds in order to be valid. There are some additional formalities (beyond a simple signature) for executing documents as deeds, including a requirement for a witness to be physically present when the signatory to the deed signs it, for the witness to attest the signature immediately following execution by the signatory and for the deed to be delivered.

In August 2018, the Law Commission published a consultation paper inviting views on potential options for reform. In this paper, the Law Commission set out its view that the statutory requirement for a deed to be witnessed requires a witness to be physically present when a deed is signed and for the witness to sign as a witness at the time of the signatory’s execution. The Law Commission was not convinced that these requirements could be satisfied if the witness was to view the signatory’s execution on a screen (for example, by video link). The consultation paper sought comments on facilitating the execution of documents by allowing a witness to observe the execution of the deed using video link, or to attest through a signing platform or to affix their own electronic signature to an emailed copy of the deed.

On 3 September 2019, the Law Commission published its response to the submissions to the consultation in a report entitled “Electronic execution of documents”. The report provides a summary of the Commission’s conclusions as to the law regarding the validity of electronic signatures, including the following statements:

  • An electronic signature is capable in law of being used to execute a document (including a deed) provided that (i) the person signing the document intends to authenticate the document and (ii) any formalities relating to execution of that document are satisfied.
  • Such formalities may be required under a statute or statutory instrument, or may be laid down in a contract or other private law instrument under which a document is to be executed. The following are examples of formalities that might be required: (i) that the signature is witnessed; or (ii) that the signature is in a specified form (such as being handwritten).
  • An electronic signature is admissible in evidence in legal proceedings. It is admissible, for example, to prove or disprove the identity of a signatory and/or the signatory’s intention to authenticate the document.
  • The Commission’s view is that the requirement under the current law that a deed must be signed “in the presence of a witness” requires the physical presence of that witness. This is the case even where both the person executing the deed and the witness are executing/attesting the document using an electronic signature.

The Commission recommended that an industry working group should be set up to consider practical issues relating to the electronic execution of documents and solutions to the practical and technical obstacles to video witnessing of electronic signatures on deeds, plus a holistic review of the execution of deeds generally. Accordingly, having particular regard to the fourth bullet point above, until there is more clarity, it will remain prudent to ensure that the strict formalities for executing deeds are followed.

It is probable that suitable technological systems will be developed to facilitate the secure execution of simple contracts and deeds electronically. It will be imperative to ensure that a person’s electronic signature cannot be accessed or used by another individual in order to avoid potential fraudulent activity (though the potential for forgery of an individual’s wet signature remains a current issue). This may require, for example, the integration of biometric technologies (using a fingerprint, iris and/or face to verify the signatory’s identity) with online systems, without which electronic authentication is likely to be an ongoing concern.

Next steps

It is likely to be some time before an industry working group provides further guidance and new legislation is introduced. In the meantime, it would be prudent to ensure that the relevant statutory requirements are satisfied when entering into simple contracts and deeds. In addition, businesses should not be discouraged from looking now at systems which facilitate the efficient execution of documents electronically if it would be quicker and more cost effective to use an online process.

Contacts

For further guidance in relation to electronic signatures, contact partner Chris Willison or your usual adviser at Francis Wilks & Jones.

The contents of this note are not intended to serve as legal advice and should not be considered as a substitute for taking legal advice