UK: Understanding Electronic Signatures

Last Updated: 9 November 2018
Article by David Lowe

What are E-signatures, how do they work and what does best practice look like? David Lowe shares his insight into this important topic and provides practical guidance on using E-signatures to manage your day-to-day commercial contracts.

Transcript

Hi, I am David Lowe and I am one of the partners behind Thinkhouse. I am also a partner in our commercial contracts team and I am going to talk today about electronic signatures.

Electronic signatures have actually been around a long time, in fact a PDF signature is actually an electronic signature and we have all completed contracts using PDF, or back in the mists of time faxed signatures.

So why is it on the agenda now? Well a number of reasons, first of all we had a new European Regulation in 2016 which sought to harmonise the rules in electronic signatures across Europe, and that led to various software houses promoting their products to support e-signatures within organisations; we have also had a practice note from the Law Society on how we, as lawyers, should deal with electronic signatures; and most recently in August 2018 we had a Law Commission consultation about electronic signatures. Around all of that is a sense of unease as we are starting to see electronic signatures becoming more and more embedded within organisations, being used for bigger and bigger transactions, and I think many lawyers are starting to wonder just how does this work? Is it legal?

With electronic signatures there are two key issues. One is the legal requirements and the second is the broader issues of signatures such as, if the contract is authentic. I am going to deal first with legal requirements.

The legal requirements turn around the formality requirements of any document under English Law. The default position is that a contract does not need to be in writing and it does not need to be signed, you can create a contract under English Law verbally. However it is not a very good idea to do that because it is then difficult to demonstrate what the contract says, you need to have a recording of it to demonstrate absolutely what was in that contract and that is why we like contracts to be in writing. But there is no legal requirement for a contract to be in writing, at least that is the case under English Law and a big word of warning here is that other laws around the world may have different requirements. There have been cases which have said that an English Law contract with a Swiss company, where that Swiss company has not complied with its local law requirements is unenforceable, so always be careful to look out for the foreign law impact. I said that the default position does not need to be in writing and does not need to be signed but of course there are a list of exceptions. Deeds are obviously an exception, a deed needs to be in writing it needs to be signed and sometimes needs to be witnessed. Property documents often need to be in writing and signed, as do guarantees, stop transfers, consumer credit and intellectual property documents.

So if something needs to be in writing or signed or witnessed, how does that work in English Law? Well the legal obligations about what needs to be in writing is set out the Interpretation Act 1978 and that said as long as you can reproduce the words in a visible form that is writing. So basically a document that you can look at on screen is in writing, we do not need any enabling legislations such as the EU legislation to confirm that and that has been upheld by various cases and the Law Commission in its consultation papers says electronic documents viewed on a screen will satisfy the requirement for writing. Therefore there is no legal debate under English law about whether a document viewed on screen is in writing - it is. However, signed has no statutory meaning in English Law, there is no Interpretation Act definition of what we mean by signed. When you look at the case law which goes back hundreds of years a signature can be simply an "X" or somebody's initials or a stamp of a hand written signature or even just printing a signature. English Law is very flexible about what a signature means and there are many cases now about how people can sign using an email. So for example there is a case called Carrera Fernandez which was a guarantee where the person could type their name into the email and the Court said that typing of a name was a signature and therefore it complied with the obligations of the statute of frauds which requires a guarantee to be in writing and signed. The fact it was in an email which could be seen on a screen meant it was in writing so you ticked that box, the fact that there was somebody who had typed their name is considered a signature, so it ticked that box and therefore it formed a binding guarantee.

There has been a case under the consumer credit act where the question was by clicking "I accept" does that create a binding signature? The Courts were quick to say yes. It does not need a manuscript flourish of a pen to be a signature, clicking "I accept" that is itself a signature and so the Law Commission in its consultation recognises that electronic signatures satisfy the statutory requirements for a signature so long as there is evidence of an intention to authenticate the document. So the fact that you actively typed your name into the email is sufficient for there to be an intention to authenticate and will create a binding signature.

I should at this point touch on the European regulation eIDAS which is the Regulation Electronic Identification and Trust Services or Electronic Transactions. What that did is to recognise that an electronic signature can be admitted to a court anywhere in Europe as a signature. So the fact that a local law might say it has to be a real signature, a wet ink signature, to be produced in court has been harmonised away and that has always been the case in English Law. It does then set a framework for more complex signatures, digital signatures that use encryption allowing for a framework across Europe for digital signatures to be enforceable. But because under English law we do not have much in the way of formality requirements those electronic digital signatures that have been promoted by the EU have not had much penetration.

So we have talked about what is writing and how you can do that on a document on screen, I have talked about signature about how typing your name in an email can be a signature, clicking "I accept" is a signature. The third one is witnessed, some deeds, particularly where it is an individual, need to be witnessed. So there are two key questions here:

  1. Is it actually possible to witness an electronic signature? Can I witness your signature if I stood next to you as you typed your name into the email? Would that be sufficient?
  2. Does the witness need to be physically with the signatory? Do I need to actually be standing next to you as you read the document and type your name in or could I watch you through a video conference?
  3. There is no case law on this area so it is not actually clear what the requirements are for witnessing. The Law Commission thinks that it is perfectly possible to witness an electronic signature if I am stood next to you as you type your name into the email then I can witness your signature, I have watched you type it in and they are comfortable with that. But the Law Commission is not sure whether I could do that via a video conference so I need to be physically present for it to work.
  4. The last comment though is just because you have got something that is in writing and signed electronically and therefore should be legally binding it does not necessarily mean it is effective. If you have got to go and register that document with someone you have also got to comply with their rules so, for example, in the UK we have the Land Registry where you would need to take property documents to be registered. At the moment the Land Registry requires wet ink signatures and therefore is not open to electronic signatures, but other registers such as Companies House are open to them. So if your document is going to need to be registered after it has been signed make sure you know the requirements of that register to ensure that your signature will work.

We talked about the legal requirements for electronic documents and electronic signatures and how they should be perfectly possible under English law the only question mark really is around property documents which is the Land Registry and around witnessing because of the uncertainty as to whether you can witness remotely. But that is not the whole story.

When we sign documents it is not just about fulfilling the legal requirements, it is about authenticating the document. If a document has been signed then you have got more confidence that is the final version. So in some years' time when you are looking for what was the final version of this agreement, the signed version is telling you that this is the probably the final version. Also it authenticates the document in terms and helps guard against forgery, it also helps give you a sense of authority. If you require it to be signed by a director then you can check at Companies House whether that person is indeed a director and if you are comfortable with that signatory, and having a signature is a good way of helping caution a person signing. This is an important document, it has got legally binding obligations, so important that you have been asked to sign it and it just gives you pause for thought, am I comfortable about making this commitment? So, you need to bear in mind those broader requirements for signatures in your own processes. So do you have the authority levels and the systems to support signatures within your organisation? Do you have appropriate measures to make sure only an authorised signatory signs a document? So if you are looking at an e-signature system bear in mind you need to think through all of those processes. What are the authority levels? How do you check on the counterparty? Do you do a credit check? How do you create the contract? When is it signed internally? You need to have straightened all of that out before you start considering an e-signature system. Otherwise you are going to simply outsource a problem, and when you outsource a problem you do not get rid of it, it will definitely come back to you as a problem.

Of course buying an e-signature system is just like buying any IT system, so any of the issues you would normally consider with an IT system you should consider. Can it work on mobile phones? Is it on-site or is it in the cloud. How does it work with data privacy? It is no different to any other IT system.

The final comments to flag, the Law Commission consultation that was issued in August 2018, they are looking for responses by 23 November. What they are looking for is to see if the world at large agrees with their views on electronic documents/electronic signatures. But they have also asked questions about witnessing, should we scrap witnessing, should we scrap witnesses in contracts? Should we allow remote witnessing? In fact should the whole law on deeds be reviewed? Do we really need deeds anymore? Should there be an industry working group to support electronic signatures?

If you have got any views on those subjects then you should certainly be looking to respond to the Law Commission consultation.

Thank you.

Read the original article on GowlingWLG.com.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

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