As part of its 13th Programme of Law Reform, the Law Commission published a Consultation Paper1 on the electronic execution of documents on 21 August 2018. Whilst the Law Commission provisionally clarified that existing law accommodates the use electronic signatures and that legislative reform is not required, it considered ‒ and is seeking feedback on ‒ certain proposals in relation to the use of electronic signatures in both agreements and in deeds. The consultation closes on 23 November 2018.

Electronic Signatures

The Law Commission considered the current position under both EU legislation, the eIDAS Regulation2 and domestic legislation, the Electronic Communications Act 2000 (as amended), and recent case law. The Commission’s provisional conclusion was that whilst domestic legislation does not expressly provide that electronic signatures are valid, the combination can be read to provide that an electronic signature is capable of meeting a statutory requirement for a signature if an authenticating intention can be demonstrated. The Consultation Paper highlights that it is important for users of electronic signatures to satisfy themselves that the procedures adopted in using an electronic signature have sufficient evidential weight for the purposes of the transaction.

Deeds

Witnessing and attestation

Deeds require more stringent formalities than simple agreements and the fact that they must be witnessed and attested can present practical and legal problems when using electronic signatures. The Law Commission acknowledged that some stakeholders had suggested that the formalities of deeds in general should be abolished but noted that the scope of the current project was limited to electronic execution and invited opinion on a separate project to consider such change. For now, it is seeking views on certain provisional proposals for reform to allow more flexible arrangements for deeds executed electronically. These provisional proposals include:

  • permitting witnessing of an electronic signature by video links
  • allowing the use of online signing platforms on which both signatory and attesting witness log in, sign and attest in real time
  • introducing a new concept of “electronic acknowledgement” where a signatory would sign a document electronically and then acknowledge to the witness by telephone call, email or even in person that they had signed it, showing or sending the document to the witness. The witness would then sign the document with their own electronic signature and include a statement that the signatory had “acknowledged” the signature.

Delivery of deeds

Deeds have an additional requirement that they be delivered before they take effect. The Law Commission noted that delivery does not necessarily require the physical handing over of the deed, which could be confusing. However, the Commission noted that it was not aware of any strong demand for the removal of the “delivery” requirement for deeds and sought views as to whether there was such demand. Alluded to in the paper is the fact that the requirement for delivery enables to a certain extent the use of escrow and the holding to order of deeds, which can assist in closing more complex transactions.

Mercury guidance applied to electronic signatures

The Law Commission also considered the implications of the decision in R (on the application of Mercury Tax Group Ltd) v HMRC3 (Mercury) and the recommendations in the 2009 paper by the joint working group of the Law Society Company Law Committee and the City of London Law Society Company Law and Financial Law Committee (2009 Note) in the context of electronic signings.

Mercury looked at the use of ‘virtual’ completions, whereby documents (or indeed signature pages) to documents are signed and scanned and then circulated by email to effect completion. The 2009 Note set out three options for effecting a virtual completion in compliance with Mercury:

  • Option 1: The concluded final form agreement is circulated, the signatories print off, sign and scan signature pages and attach these to an email together with the final form agreement (in Word or PDF).
  • Option 2: The concluded final form agreement is circulated, the signatories print off, sign and scan signature pages and attach only these to an email.
  • Option 3: While the agreement is still being negotiated, signature pages are signed and scanned and then held to the signatories’ order. The final form agreement is then circulated and the co-ordinating lawyers are authorised to attach the pre-signed signature pages to effect completion.

The 2009 Note provides that only Option 1 is appropriate for use with a deed as there needs to be a “discrete physical entity at the moment of signing.”

The Law Commission concluded that the application of an electronic signature to an electronic document would be the same as having a document signed under Option 1 as the signature page is not removed from the agreement and were the electronically signed signature pages so detached the same principles would apply as apply in virtual signings. The execution of a document over an online platform would be analogous with Option 1 and therefore suitable for a deed. In the Consultation Paper, the Law Commission asked consultees to submit their views on whether the legislative reform is required in respect of Mercury and if a wider review of the law of deeds is needed.

Next Steps

The Law Commission considers that the provisional conclusions and proposals included in the Consultation Paper should lead to increased confidence in the legal validity of electronic execution, benefitting business and individuals by increasing efficiency in relation to the signing of documents.

The Law Commission has asked readers to provide quantitative and qualitative evidence as to what they believe to be the consequences of the provisional proposals included in the Consultation Paper by 23 November 2018. The responses received will form the basis of an impact assessment to be published by the Law Commission, alongside its final report on this topic.

Comment

Ensuring that business can be done with the speed and convenience that modern technology allows without compromising the security and certainty that established and tested law provides is more important than ever. The Law Commission needs to ensure that the law reflects and relates to modern commercial practices whilst avoiding legislative reform for the sake of it. Arguably, the main stumbling block to using electronic signatures is ensuring compliance with the formalities of deeds; so perhaps the real question is not how modern business practice can accommodate deeds, but whether they are still necessary.