An introduction to electronic signing of documents
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.
Last year, the Law Commission (the Commission) confirmed that electronic signatures are valid and can be used to sign formal legal documents under English law. This follows on from, and affirms the conclusions of, a 2016 report by a joint working party of the Law Society Company Law Committee, the City of London Law Society Company Law and Financial Law Committees (together the JWP) and was approved by leading counsel Mark Hapgood QC.
Where a document is governed by English law and executed in England and Wales
Less formal contracts can be concluded 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.
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 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.
It is considered, in the opinion of leading counsel, the JWP and the Law Commission that where an authorised signatory signs a deed using electronic signature and another individual, who is physically present and genuinely observes the signing in the same way he or she would observe a handwritten signature, attests to what they have witnessed by completing their details (either by electronic signature also or otherwise) that deed will have been validly executed.
However, there are some 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 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:
Simple electronic signatures, which covers the broad spectrum of all electronic signatures
Advanced electronic signatures, which are those electronic signatures capable of uniquely identifying a signatory and linking data so that any change or tampering is detectable
Qualified electronic signatures, which is the only type of signature within the EU considered to be the legal equivalent of a wet-ink signature. This type of signature must be able to be backed up with a certificate issued by a trust service provider that is certified by an EU member state.
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).
What trust 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.
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.
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.
This article is for general information only and does not, and is not intended to, amount to legal advice and should not be relied upon as such. If you have any questions relating toyour particular circumstances, you should seek independent legal advice.