The lack of clarity surrounding electronic signatures has meant that some businesses have continued to sign legal contracts on paper, despite evidence showing that it would be more timely and cost effective to sign documents electronically.
There are a variety of ways an individual can sign electronically, and these do not necessarily need to look like a typical ‘wet-ink’ signature. These include a handwritten signature on paper which is then scanned and either emailed or faxed to the recipient, a typewritten name, a tick box, electronic versions of a handwritten signature, for example, using a finger or pen on a screen or even digital representations such as fingerprint scanners. Further information on what constitutes an electronic signature can be found here.
The Law Commission has now confirmed that electronic signatures are valid and Robert Buckland (Secretary of State for Justice) said in his March 2020 ministerial statement that “the existing framework makes clear that businesses and individuals can feel confident in using e-signatures in commercial transactions“.
In this article we’ll be exploring various ways in which electronic signatures can and cannot be used, along with some practical considerations to be aware of. The existing framework makes clear that businesses and individuals can feel confident in using e-signatures in commercial transactions.
For information on the electronic witnessing of deeds, affidavits and statutory declarations, please refer to our recent article Coronavirus – deeds, affidavits and statutory declarations.
Where a document is governed by English law and executed in England and Wales
Simple and informal formal contracts can be signed using electronic signatures, as in the absence of any statutory requirement, there is no need for simple contracts to be in any form or even in writing. Electronic signature can therefore be a practical and efficient way to manage day-to-day signing of documents.
In certain circumstances in England and Wales a more formal instrument, known as a ‘deed’, is sometimes required. Examples include where the agreement doesn’t contain valid consideration, or where the usual limitation period applicable to simple contacts is insufficient. A transfer or creation of an interest in land must also be effected by deed.
A deed can be validly executed if it is signed by an authorised signatory (such as a director) in the presence of a witness who attests the signature. The witness must not be a party to the agreement. Deeds can be electronically signed, but importantly the witness must be physically present when the deed is signed. The government are considering the question of video witnessing of electronic signatures but no timetable has currently been set for addressing this question.
Although there is no legal requirement that the witness should be either (i) an adult or (ii) “independent”, as a matter of best practice it is best to avoid having close family members or interested parties witnessing the execution of deeds. However, where it is not possible to find an independent witness (perhaps because of extreme geographical remoteness or self-isolation during a time of public health crisis) then a family member, including a spouse, can witness a signature – though clearly an “independent” witness is always preferable as unbiased evidence that the relevant document was correctly executed.
The Law Commission and the government have both acknowledged the need for review of the law regarding the execution of deeds, although it is not clear when this review will take place.
There are sometimes occasions where contracts will need to be signed across two or more jurisdictions. Whether the document(s) in question can be validly signed depends on a number of variables, including whether the agreement is based on English law and whether the relevant jurisdiction allows for contracts to be signed electronically. Where applicable, we would always recommend that advice be sought from local counsel to clarify the position before signing. the timing for the review will be subject to overall Government and Law Commission priorities given the volume of law reform work which exists. the timing for the review will be subject to overall Government and Law Commission priorities given the volume of law reform work which exists. The Government will ask the Law Commission to undertake this review, although the timing for the review will be subject to overall Government and Law Commission priorities given the volume of law reform work which exists.
Where a document is governed by English law and executed by an overseas company
An overseas company will have validly executed an English law-governed contract provided that (a) the document has been validly executed as a matter of English law (as described above) and (b) the signatory is acting under the authority of the company they are signing on behalf of and this is expressed accordingly.
Where a document is validly governed by a law other than English law
Within the EU, the eIDAS regulations will apply. These regulations govern the use and validity of electronic signatures throughout all EU member states, and provide for the mutual recognition of trust services. There are three types of electronic signature under eIDAS:
eIDAS will cease to apply to the UK after the UK leaves the EU. However, the European Union (Withdrawal) Act 2018 confirms that all direct EU legislation (including eIDAS) will be deemed to form part of domestic law on and after the day the UK exits the EU. Nonetheless, there may be some implications in respect of mutual recognition of third party services, especially where those service providers are not providing qualified electronic signatures. However, the Information Commissioners Office confirm that in the event of a no deal Brexit, provided you are using a qualified trust service before exit day (whether UK or EU based) then this will continue to be recognised in the UK and EU.
For other countries outside of the EU, whether or not such a document can be validly executed using electronic signatures will be a matter for that governing law. Several countries (such as Scotland, the USA, Canada, Hong Kong, and the British Virgin Islands) have already adopted into legislation measures which allow for electronic signing to take place, provided certain criteria are met. Broadly speaking, these are that (a) all parties must intend to sign, and consent to sign electronically, (b) the electronic signature can be linked to the signatory and no other person and (c) any subsequent change in the data is detectable.
Where any litigation, or other action in relation to a document governed by English law may take place, or be required, outside England
For example, there is a foreign jurisdiction clause in an English law contract, or an English judgment needs to be enforced in another jurisdiction, or a document needs to be notarised/apostilled etc. In such circumstances, the parties may wish to seek local law advice in advance of signing by electronic signature. This is particularly important where the relevant jurisdiction is outside the EU (or UK).
Which electronic signature service provider should you choose?
There are a wide range of platforms that provide electronic signing services. Other services are available, but top service providers include Docusign, Adobe and Dealflo. Each of these provide a variety of options to sign and authenticate a document, including those which are qualified. Not only would the use of such services assist in the signing of many corporate, commercial, financial and other documents but could also assist in the storage of such documents, eliminating the need for physical storage and easier access to past transactions.
We often manage electronic signing on behalf of clients and are happy to advise on suitable platforms to use.
Do HMRC, Companies House and the Land Registry accept electronically signed forms and documents?
The Land Registry currently still requires “wet ink” signatures and will not currently accept documents which have been executed electronically. Whilst it has been anticipated for a number of years that there will eventually be a movement towards e-conveyancing, it is not yet clear when or how this will be implemented.
Another context in which “wet ink” signatures are still required is the signing of stock transfer forms to transfer an interest in shares or other securities.
However, Companies House have confirmed that they do accept electronically signed forms and documents which have been properly approved by the signatory.
Practical Issues to consider when signing documents electronically
All companies should check their articles of association and any other agreements (such as shareholder agreements) to ensure that they do not include any restrictions within that would prevent or constrain the use of electronic signing. Updating articles of association to allow for electronic signature of documents will often be a sensible and cost-effective way to make the administration of signing of documents more straightforward. This is something that we are happy to assist with.
Another very practical consideration is thinking through who will be witnessing any documents that need to be executed as a deed. Traditionally, this might have involved popping over to a neighbour’s house, but when setting up electronic signature packs it is necessary to pre-identify the witness so that the documents can be emailed to them. This also raises questions of privacy – the parties might not actually want independent third parties having access to electronic copies of documents. There are various ways in which we can manage this and plan carefully to make the signing process as efficient and secure as possible.
In our view, the use of electronic signing should continue be encouraged; we see no reason why this cannot be successfully used for both informal and formal agreements. Based on our current understanding, the position will not be changed in any material way by Brexit, and many of our clients have come to expect electronic signature as the default position when closing a transaction or signing a contract.