What’s the issue?
The EC adopted the Regulation on electronic identification and trust services for electronic transactions in the internal market (eIDAS) in 2014. It has been implemented into UK law by the Electronic Identification and Trust Services for Electronic Transactions Regulations 2016 (SI 2016/696), which came into force on 22 July 2016. The regulations repeal the E-Signature Regulations 2002. The ICO is appointed as the UK’s supervisory body for the purposes of the Regulations and will be required to oversee trust service providers’ compliance and impose sanctions including fines of £1000 for non-compliance. Under eIDAS, there is an element of discretion given to Member States both in terms of when and whether to join mutual recognition schemes but also to make any decisions about particular requirements for certain transactions (for example, transfers of land).
While the recognition of the validity of e-Signatures is not new, they have been used with caution in the UK and lawyers have been historically wary of using them in certain situations, for example, deeds, due to the evidentiary requirements around witnessing signatures.
What’s the development?
The introduction of eIDAS has prompted a working party led by the Law Society of England and Wales, to provide guidance on e-Signatures. It has published a non-binding note (the note) based on a full legal opinion by Mark Hapgood QC, setting out good practice for the use of electronic signatures in business contracts under UK law. The note sets out principles for determining whether different types of contracts can be or have been validly signed electronically as well as the evidential weight of electronic signatures, conflict of law issues and other considerations.
What does this mean for you?
The Law Society takes a robust approach to the use of e-Signatures. Its view is that, provided they are used in accordance with any relevant statutory requirements, they can be validly used not only in simple business to business contracts, but also to satisfy statutory requirements for documents to be signed in writing or under hand, for deeds and for company documents. Evidentiary consideration of their validity and practical considerations (such as capacity of the signatory) should be addressed in the same way as ‘wet ink’ signatures. Where, however, a cross-border contract is being entered into, advice should be sought on applicable law and potential conflict of laws.
With this endorsement, we are likely to see more organisations use electronic signatures in legal documents which will often be facilitated by dedicated providers, although it is fair to say that many are waiting for the practice to spread and/or for legal precedent to be established in the more controversial situations.
The relevant legislative framework consists of:
Common law principles also apply.
The note does not consider particular types of electronic signatures but includes within its scope:
- a person typing their name into a contract or email which contains the terms of the contract;
- a person electronically pasting an image of their signature into the contract in the appropriate place;
- a person accessing a contract through a web-based e-signature platform and clicking to have their name typed or in handwriting font, inserted in the appropriate place; and
- a person using a finger or stylus on a touchscreen to write their name electronically in the appropriate place.
The note concludes that there is nothing to prevent simple contracts being signed in electronic form.
Documents subject to a statutory requirement to be in writing and/or signed and/or under hand can be signed electronically. The note takes the view that:
- a requirement to be in writing includes electronic form due to the wide definition of “writing” in the Interpretation Act 1978;
- the test for determining whether or not something is a signature is: “whether the mark which appears in a document was inserted with the intention of giving authenticity to it” and this covers electronic signatures;
- a document is understood to have been executed under hand if it is executed other than by deed.
Most lawyers have taken the view that deeds should not be executed electronically due to potential evidentiary issues. The note suggests that deeds can be validly made electronically. The writing requirement is satisfied for the same reasons as above. The requirement for a company subject to the Companies Act 2006, that the deed be executed and delivered as a deed can be met as follows:
- execution can be achieved by two directors or a director and secretary adding their signatures either in counterpart or sequentially to the same version (electronic or hard copy) of the deed;
- delivery can be achieved through electronic signing but the parties will have to ensure the signing arrangements adequately address when delivery takes place, particularly if the parties propose that their lawyers hold their signed documents to the order of the relevant party prior to the deed coming into effect.
For an individual executing a deed or for a company executing it using one director and a witness, the evidentiary burden of showing that an electronic document signature has been witnessed has always been thought to be hard to satisfy. The note suggests that there is no significant difference between witnessing wet ink and electronic signatures. The witness must observe the signing. For this reason, it suggests that a witness be physically present to observe the signature rather than viewing it through a live televisual feed.
The note also has no issue with signing company documents electronically provided all requirements of the Companies Act 2006 are followed.
In terms of evidential weight of electronic signatures, it is suggested that the courts would apply the same principles to assessing any challenge to the validity of an electronic signature as they would to a wet ink one. Similarly, rules on originals and counterparts should not be any different for electronic signatures.
Where the contract is cross-border or not governed by English law, it is recommended that advice be sought on conflict of laws or on the applicable law.
Other considerations to be taken into account are largely practical ones such as considering the intention, authority and capacity of the signatory, any relevant filing requirements, security etc.