Electronic signatures have been around for a number years, but the absence of definitive statutory or common law guidance on their legal efficacy has meant that their use on larger transactions has been somewhat restricted.
In order to help overcome this, the Law Society and the City of London Law Society jointly instructed leading counsel to distil some of the emerging law around electronic signatures and provide practitioners with some clarity around what electronic signatures can and can’t be used for in the context of commercial contracts. This has resulted in the publication of a new practice note.
Why has the Law Society issued this guidance now?
We have known for some time that the Law Society and the CLLS were looking at putting out some guidance on this topic. The driver was an increased desire amongst both law firms and their clients to use online electronic signature platforms on their deals. Because of the legal uncertainties mentioned above, there was a need to build consensus that electronic signatures were valid under English law.
Is any of the guidance new or surprising?
Not really – the courts have been willing over the last few years to accommodate technological developments in the way that businesses engage with each other, and the practice note builds on existing legal principles on the execution of documents set down by the English courts. The practice note largely confirms our current understanding of the law around electronic signatures, but provides some helpful practical guidance.
Is the practice note binding on the court?
No, but we think it is highly likely that the court will follow the principles set out in it.
What is an “electronic signature” for these purposes?
The practice note states that electronic signatures can take a variety of forms:
- somebody typing their name into a contract or email with contractual terms
- a person pasting a scan of their signature into a soft copy contract in the execution block
- a person using an electronic signature platform to click to insert a typed or handwriting font into the execution block
- a person using a e-pen or finger to sign their name on a tablet
The note does not distinguish between any of these modes of electronic signature. Whilst there are harmonising EU regulations which govern the use and acceptance of “advanced” electronic signatures, they are not commonly used in England, and so the guidance does not rely on EU harmonisation rules to reach its conclusions, which are instead based on principles developed in the English courts over time.
So, what can electronic signatures be used for?
Pretty much anything in terms of the execution of agreements, subject to a couple of exceptions where HMRC and the Land Registry currently expect “wet ink” versions of executed documents, which we look at below.
Because simple contracts (i.e. agreements that do not need to executed as deeds) don’t need to be in any particular form under English law (and do not even need to be in writing) there are no restrictions on the use of electronic signatures.
Documents subject to specific statutory requirements
The practice note looks at various statutory requirements requiring documents to be executed “in writing”, “under hand” or “signed”. The practice note basically confirms that electronic signatures will satisfy each of these tests: “in writing” just means words reproduced in a visible form, a “signature” is any mark intended to give authenticity to the document, and so can be any of the forms of electronic signature mentioned above – as the practice note states “it does not matter how the signatory inserted the electronic signature into the document“, and “under hand” means anything executed other than by way of deed.
The note is particularly helpful on the question of the electronic execution of deeds, which are potentially the most problematic given the formality requirements which apply. The relevant requirements include:
- for individuals, that the deed is executed in the presence of a witness
- for English companies, that the deed is executed by one director in the presence of a witness, or by two directors or a director and the company secretary (as required by the Companies Act 2006)
The practice note provides that:
- it is possible to witness electronic signatures through the witness being physically present when the electronic signature is applied and applying their own signature (electronic or otherwise). Although the guidance leaves open the possibility of the witness observing signature by videoconference or similar technology, it is “best practice” for the witness to be physically present
- where two directors or a director and the company secretary are signing a deed on behalf of a company, the officers can sign documents in counterpart to meet the requirements for due execution of a deed by a company (historically, it had been thought that both officers might need to sign the same physical document to meet the Companies Act requirements)
Minutes and resolutions
Minutes and members’ statutory written resolutions can be signed electronically, subject to certain authentication requirements discussed in the practice note.
Do I need to say in the document or in authorising board minutes that an agreement is being signed electronically?
No, this isn’t necessary.
Can one party sign electronically and another one in wet-ink?
Yes, this is possible.
Do I need to use an electronic signature platform in order to use electronic signatures?
Not necessarily. But the reason such platforms are used is because it gives increased evidential weight to the electronic signature process (through recording IP addresses, sending documents locked down for execution to pre-determined signatories at specific email addresses etc.), in order to reduce the scope for one party to subsequently allege that the document wasn’t authentic (i.e. produced fraudulently, not signed by the person who had purportedly done so, or not properly witnessed). Any person seeking to do so would need to prove, on a balance of probabilities, that this was the case. The practice note also looks at relevant court practice rules which require credible evidence of fraud to be in existence before alleging or pleading fraud.
The issue of evidential weight is looked at in paragraph 5 of the practice note.
Are there any situations in which electronic signatures can’t be used?
The practice note recognises that the Land Registry and Land Charges Registry currently require wet-ink signatures on any paper versions of documents sent to them, and HMRC “would normally” expect to stamp a wet-ink version of the stampable document (e.g. stock transfer forms). The practice note also sets out other considerations before using electronic signatures, including:
- are there any capacity restrictions on the entity signing electronically? This is probably unlikely in the absence of specific restrictions on the use of electronic signatures in articles or in authorising board resolutions
- is there sufficient certainty that the person “signing” the agreement is the person who is in fact doing so, or someone acting with that person’s authority? This is where processes built in to electronic signature platforms come into play, as discussed above
- will the document require registration with an authority or registry which might require wet-ink signatures?
- if the place of signature or location of the document has legal consequences (e.g. liability to stamp duty), this will need to be looked at carefully
Is an electronically signed document an “original”?
Yes. The practice note sets out some principles around what constitutes “original” documents for these purposes. The practice note provides that:
- originals can be held in hard copy or electronic form, and multiple originals can be created
- where signatories sign the same document uploaded to an electronic signature platform, they will each be deemed to have signed the same counterpart
- where a document has been signed by a combination of methods, a single “composite” document can be created
- undated documents can be dated electronically or through printing out and inserting the date by hand
- amendments can be made to an electronic or hard copy original following the same rules for amendments to wet-ink documents.