Following the World Health Organisation’s declaration of a pandemic, governments around the world are implementing strict measures to manage the spread and implications of coronavirus (Covid-19). With employees advised to work from home (where possible) and in person meetings being cancelled or postponed for indefinite periods, companies are forced to adapt the way in which business is conducted. Possibly, well-timed and welcomed by many commercial parties is the UK government’s March 2020 endorsement of the Law Commission’s report on the execution and delivery of electronic signatures. In this client alert, we summarise the key issues and practical considerations around the use of electronic signatures.
Generally electronic signatures are a viable method of executing legal documents
English law generally takes a pragmatic approach on electronic signatures. Electronic signatures that have been held to be legally valid include: a person typing his or her name into a contract or into an email containing the terms of a contract, clicking “I accept” on a website page; inserting scanned manuscript or digital signatures to a document; making use of e-signing platforms; or electronically typing a signature into a document.
In March 2020, a UK government ministerial statement endorsed conclusions from the Law Commission’s September 2019 report on the law governing Electronic execution of documents and confirmed that “businesses and individuals can feel confident in using e-signatures in commercial transactions”. The report and guidance apply to electronically signed contracts and deeds. Once executed, such agreements would satisfy requirements of a contract being “in writing” and may be admissible in legal proceedings as proof of a valid and enforceable agreement, provided that:
(1) there is an intention to sign and be bound by the document; and
(2) formalities relating to execution (e.g. in the case of deeds signing in front of a witness) are complied with.
Furthermore, legislation recognising the validity of execution by way of electronic signature has been in place for several years. Under the Electronic Communications Act 2000 (the ECA) all electronic signatures and any certification of such signature are admissible in evidence in a court of law. In addition, following the introduction of the European IDAS Regulation electronic seals, electronic time stamps, electronic documents and any electronic communication sent and received using an electronic delivery service, and, in each case, any related certificates, are also admissible.
Deeds and witnesses
English law formalities with respect to deeds require execution by an authorised signatory in the presence of a witness (who will be required to attest the deed), or by two authorised signatories. Despite the aforementioned pragmatism as to the use of electronic signatures under English law, there nevertheless remains some uncertainty as to how to satisfactorily address the additional formalities of witnessing when a document is executed by electronic signature and there are logistical and evidential questions around the identity of a witness who attests a document executed by electronic signature. The Law Commission considered whether a deed could be electronically signed where the witness was not physically present, but nonetheless witnessed the deed by way of an acknowledgment (via video), but rejected this on the basis that parties cannot be confident that a witness, viewing the signing on a screen or through an e-signing platform, actually attested the signature. The essential criteria is that a person witnessing the execution of a document by a signatory must actually see the signatory sign the document. This normally requires the witness to be physically present when the signatory signs the document either manually or electronically. However, future reform on this area may be expected with the Law Commission tasking an Industry Working Group to review the existing law.
Exceptions to the use of e-signatures
In certain circumstances, a contract will only be valid with a wet-ink signature, creating exceptions to the general position and acceptance of e-signing.
Exception 1: Type of contracts
Certain contracts, including: guarantees; bills of exchanges; promissory notes; and negotiable instruments, are incapable of being electronically signed. Statute also mandates specific signing requirements. For instance, section 2 of Law of Property (Miscellaneous Provisions) Act 1989 requires contracts transferring or creating an interest in land to be made in writing and signed. Traditionally, this has been interpreted as requiring a wet-ink signature. However, in a recent UK decision, Neocleous & Anor v Rees  EWHC 2462 (Ch) it was determined that the statutory requirement as to form can be satisfied by automatically generated footers. In this case HHJ Pearce held that an email from a solicitor, with an automatically generated footer, was sufficient to satisfy the requirement that a contract for the sale of land be “signed” by or on behalf of each party. In that case, the fact that the solicitor’s name was applied with authenticating intent, meant that he had signed the relevant email on behalf of his client and therefore satisfied section 2 of the 1989 Act. Given that it is not yet clear how the law will continue to develop in this area, to avoid any confusion parties and lawyers would be wise to clearly mark emails “subject to contract” where there is no intention to be legally bound.
Exception 2: Court documents
For court documents, electronic signing and filing of documents/bundles with the High Court has been permissible since May 2014 and has expanded into other courts of England and Wales. In January 2020, the courts’ electronic filing system (CE-File) became mandatory for legally represented parties in the Senior Courts Costs Office. However, there are some limitations to the use of CE File under certain circumstances. For instance, as a result of two 2019 rulings, qualifying floating charge holders of insolvent companies should be aware that it is not possible for any party to request an administrator appointment out of court hours by using CE-File.
Exception 3: Registrable documents
For documents being registered with public registers, the approaches taken by regulators differ. Previously, Companies House required wet-ink originals for the registration of a debenture in favour of a lender, it is now possible to register a security interest with a certified copy of the original document. If the document was executed electronically, a PDF copy of the contract or deed can be uploaded and the person making the filing can certify that it is a true, correct and complete copy of the original without the need for a wet-ink signature. HMRC, on the other hand, will not accept electronic signatures for the payment of stamp duty. If time is of the essence to meet the 30-day deadline for the stamping, HMRC may accept an electronically signed version of the stock transfer form or transfer instrument and will only duly stamp the document once the original has been received.
HM Land Registry requires wet-ink signatures for the registration of certain land interests and will only accept electronic signatures provided there has been compliance with s91(5) of the Land Registration Act 2002 and the Land Registration (Electronic Conveyancing) Rules 2008, and where the Land Registry has issued a notice confirming the use of electronic signatures is acceptable for certain types of deeds. Currently, the only notice that has been issued is the Land Registry’s ‘Sign your mortgage deed’ service (a trust certification service) which accepts and certifies electronic signatures for mortgage deeds, provided that the lender or an adviser instructed to act on the mortgage are set up on the service. Acceptance of electronic signatures could extend to other types of registrable land interests in the future.
Exception 4: Cross-border issues
Despite the flexible approach under English law, parties should be aware of local law requirements when dealing with an overseas counterparty. It may be that, under certain jurisdictions, only wet-ink signatures can constitute a validly executed document, particularly where there is a further requirement for the document to be legalised (i.e. notarised and apostilled). We note that United States law, while not identical, is similarly pragmatic in orientation and, in some states, extends to include notarisation of documents.
Exception 5: Restrictions under constitutional documents and contract
Parties can contractually agree on the signing mechanisms and insist on physical signing for a document to be valid, effective and enforceable. Similarly, a legal entity’s constitutional documents could preclude electronic signatures and require wet-ink signatures or the company’s common seal to be affixed on a document.
Given the current climate the use of electronic signatures is likely to be widely considered and used. In the majority of cases the use of electronic signatures is a valid way to create legally binding rights and obligations, however parties should take note of the following points:
- Review existing articles of association and shareholder agreements for any restrictions which would otherwise limit the use of electronic signing, and amend accordingly if e-signing offers a more effective and efficient approach to business continuity, particularly during the uncertainty of Covid-19.
- Consider who is witnessing a deed in the case of an individual and when families are self-isolating. Witnesses need to be adults and although there is no requirement for independence, certain types of deeds (such as wills) cannot be witnessed by family members. Similarly, if a family member is party to the same deed, an independent witness would be necessary.
- Consider if the document needs to be filed with a registry, many of which will require an original executed in wet ink or otherwise an exception to be made in the circumstances.
- Consider if the execution is by a foreign party and whether additional formalities may need to be complied with.
- Consider if the document relates to litigation or other action, such as enforcement, which may need to take place outside of England where the court in the relevant jurisdiction may not accept electronic signatures in relation to such proceedings.
- For deeds creating land interests which are to be registered, be aware of the Land Registry’s prescriptive requirements as to the form and content of execution blocks acceptable particularly for overseas companies or companies executing by way of a power of attorney. Consider the form of execution block that is both Land Registry-compliant and suitable for business internal processes and available signatories.
- Assess cybersecurity/fraud risk and have adequate protections in place. E-signing platforms can be very useful when people are less mobile however, parties should be alert to IT risks. Entry into a legal agreement with the platform provider to safeguard against the leakage of information or content and against the possibility of documents being tampered with after signing, through the use of additional security features such as two-factor authentication, is a sensible precaution.
King & Spalding is continuously providing tailored advice to clients dealing business disruptions and implications arising from Covid-19. Through our global reach and expert teams, we are uniquely positioned to analyse multijurisdictional issues that apply to certain sectors and industries. Please reach out to any of the contacts listed for specific questions.