Automatically generated email footer was a valid electronic signature

The court has said that a footer including the name, role and contact details of a person sending an email amounted to a signature, even though it was inserted automatically by the email software.

What happened?

Neocleous v Rees concerned a contract under which three individuals agreed to settle a dispute between them in return for one of them selling a piece of land to the other two.

Because the contract concerned the sale of land, it needed to comply with section 2 of the Law of Property (Miscellaneous Provisions) Act 1989 (the “1989 Act”). In particular, it needed to be in writing, contain all the terms of the sale, and be signed by each party to it.

In this case, the alleged contract took the form of a chain of emails between the parties’ lawyers. The court has previously held that a chain of emails can amount to a contract, provided all the essential elements of a contract are satisfied (Golden Ocean Group v Salgaocar Mining Industries PVT Ltd).

The individual who was to transfer the land later claimed that the terms of the settlement had not been finalised and so she was not required to transfer the land.

In particular, she said that her solicitor had not signed the chain of emails on her behalf, because his name had been attached to his email automatically by his email software.

As a matter of law, a person signs a document by making a mark on it in order to “authenticate” it. The court has previously said that a person can sign an email by typing their name into it, as this shows that they intend to authenticate it, but that an automatically generated name is not a signature, because it does not involve any action by the sender that amounts to “authentication” (J Pereira Fernandes SA v Mehta).

The court has also previously suggested that a contract under section 2 of the 1989 Act must be signed physically, rather than electronically (Firstpost Homes Ltd v Johnson). However, many commentators, as well as the Law Commission, have suggested that this is not the correct conclusion to draw from that case and, since that case, the court has in fact suggested the very opposite (Re Stealth Construction Ltd).

What did the court say?

The court said that the chain of emails had been validly signed and amounted to a contract. It was clear from the beginning of his discussion that he did not take kindly to the argument that a “serendipitous technical defect” could allow an individual to renege on a deal she had made.

However, on the technical aspects of the case, he made the following comments:

  • The meaning of words has a “tendency to develop”, so that they may come to include things that previously they might not have.
  • The more important question is whether a person applies the signature or footer with an authenticating intent.
  • Although previous case law (Pereira) suggests that an automatic footer cannot count as a signature, it is important to understand what “automatic” means in this sense. It does not necessarily mean that the sender did not intend to authenticate the email.
  • Where a person stores a name in the “signature” function of an email client (such as Microsoft Outlook), with the intention and in the knowledge that the program will automatically insert it onto the bottom of every email, this will count as a signature.
  • Although previous case law (Firstpost) suggests that, for a contract to sell land, a signature must take a conventional form, in that case the signature was unconventional because it appeared above the text of the contract. Here, the signature appeared where it would be expected.

In this case, the court said the lawyer signed the email because he:

  • took active and conscious steps to set up a rule that automatically generated the footer;
  • knew that the footer would be added to his email; and
  • typed the words “many thanks” into the email, which strongly suggested that he was relying on the automatic footer to sign off his name.

What does this mean for me?

In some ways this is a helpful judgment, tying up loose ends left by previous cases. Above all, it clarifies that the key question is one of intention not form. It is arguably more important to focus on whether a person meant to authenticate a document, rather than the way in which they did so.

In practical terms, however, the decision cuts both ways. On the positive side, it shows that the courts continue to make efforts to find that a wide range of actions amount to an electronic signature. This flexibility is particularly useful for organisations that want to sign documents quickly, remotely and efficiently. At Macfarlanes, we offer our clients the ability to sign documents electronically through an electronic signing platform.

On the other hand, the decision highlights the potential risk of signing a document without realising it, such as by merely sending an email. The judge’s decision that an automatically generated footer can amount to a signature is surprising, given previous case law, but is backed by logic.

However, the judgment pits two competing arguments against each other:

  • On the one hand, the judge said that an automatic footer is a signature if the sender consciously creates the rule that inserts it. It is not clear whether an automatic footer will amount to a signature if someone else has created the rule (e.g. the organisation’s IT department).
  • On the other hand, the judge emphasised the need to protect third parties. He said a recipient has no way of knowing whether a footer has been generated automatically or consciously typed in. Viewed objectively, the mere presence of the footer indicates an intention to sign the email.

It is difficult to conclude that a footer is a signature only if the sender has taken active steps to ensure it is inserted if a recipient can rely on the footer no matter how it was generated.

Following this decision, individuals and businesses should bear the following in mind:

  • Be careful when sending emails. A chain of emails can, in the right circumstances, create binding legal obligations. The courts will find ways to conclude that a party has signed an email if justice demands it.
  • If emailing on a transaction or in the context of a negotiation, consider including the words “subject to contract” in emails, or make it clear that nothing is agreed until a written contract has is signed. This should show that the parties do not intend the email chain to be the final contract.
  • Think about picking up the phone, rather than emailing. A telephone conversation and an attendance note normally create a reliable record of negotiations, but there is no way a telephone call can amount to a signature.

IA announces approach to pensions, diversity and audit in 2020

The Investment Association (IA) has announced the approach its investor information services – IVIS – intends to take towards issuing “red tops” and “amber tops” to publicly traded companies for the 2020 AGM season in the areas of executive pensions and diversity.

The announcements follows the IA’s initiative, originally launched in February this year, publicly to flag companies that are not complying with expected targets in relation to board diversity or executive pension contributions. (See our previous Corporate Law Update for more information.)

For the 2020 AGM season, the IA has confirmed the following:

  • IVIS will “amber-top” any company with an existing director who has a pension contribution over 25% of salary. This will rise to a “red top” if the company has not set out a credible plan to reduce the level of contribution to that of the majority of its workforce by the end of 2022.
  • It will also “red-top” any company that appoints a new executive director, or where an existing director changes role, if that director’s pension contribution is out of line with that of the majority of the company’s workforce.
  • IVIS will also “red-top” any company seeking approval for a new remuneration policy unless the policy explicitly states that any new director will have their pension contribution set in line with the majority of the workforce.
  • A company will receive an “amber top” if it is not on course to meet the Hampton-Alexander target of 33% of its board comprising women by 2020.
  • Finally, IVIS will “red-top” any company with no women, or only one woman, on its board.

In addition, the IA is encouraging more insight in audit committee reports of listed companies. In particular, it has recommended that a company’s audit committee should:

  • explain why it recommended a particular auditor and why that firm would provide a quality audit (if it put its audit out to tender);
  • declare whether it thinks the auditor has provided a quality audit, been challenging enough and questioned the detail of key accounting issues; and
  • explain how the auditor challenged management’s judgement and assertions, and exercised professional scepticism.

ESMA publishes guidance on risk factors in prospectuses

The European Securities and Markets Authority (ESMA) has published final guidelines on risk factors to be included in prospectuses under the EU Prospectus Regulation.

Under the Prospectus Regulation, a prospectus is required when a company offers transferable securities to the public or makes an application to admit securities to a regulated market in the European Economic Area (EEA).

The prospectus must contain a separate summary section, which must set out (among other things) risk factors relating to the issuer and the securities being offered or admitted. The prospectus cannot contain more than 15 risk factors.

The new guidelines are designed to assist issuers with compiling their risk factors. The key points from the guidance are as follows:

  • Risks should be limited to those that are material, specific to the issuer or securities, and (normally) corroborated by the content of the prospectus.
  • Risk factors should not amount to generic disclosure. However, issuers in similar industries may be exposed to similar risks and so might end up publishing “similar” risk factors.
  • Risk factors should not be used as disclaimers. In these circumstances, they are unlikely to be “material” or “specific”.
  • Issuers should not simply copy risk factors over from other documents, as these are less likely to be “specific”.
  • Risk factors must describe their “potential negative impact” on the issuer or securities. This should be done quantitatively or (if that is not possible) qualitatively.
  • Issuers should not include “mitigating language” in a risk factor unless it illustrates the probability of the risk arising or the expected magnitude of its negative impact.
  • If the issuer has risk management policies in place, it should take those policies into account when assessing the materiality of each risk factor.
  • Issuers can categorise risk factors. This should help people reading the prospectus. However, each risk factor should appear only once, in the most appropriate category. The most material risk factors should appear first in each category. Category headings should be meaningful, and there should not be too many categories (normally, not more than ten).
  • Risk factors should not be too long.

The guidelines apply from 4 December 2019, although issuers preparing a prospectus before then may well wish to follow them from now.

The UK is currently scheduled to leave the European Union at 11:00 p.m. on 31 October 2019. However, should the UK leave on that date without a transitional arrangement, under UK legislation, the EU Prospectus Regulation will continue to apply in the UK (with modifications).