Electronic Signatures: Contracting From Home - Arista Lai


Rising Relevance

The lockdown measures and workplace distancing precautions effected worldwide to slow down the spread of COVID-19 have an obvious impact on contract law in a commercial context. When those with the authority to execute crucial, time-sensitive documents are quarantined or working from home, this begs the question of whether technology can provide a solution, just as video conferencing has done for in-person meetings. As with most legal issues, the ability of electronic signatures (in their present sophistry) to replace wet-ink signatures is dependent on the fact situation, the type of document being executed, and the method of administering the electronic signature. This article will consider the law in England and Wales as it stands today, with particular regard to simple contracts, deeds, and non-contractual documents.

Innovative Solutions

The Electronic Communications Act 2000 (“the ECA 2000”) is the reigning piece of UK legislation on electronic signatures, and provides a definition in section 7(2): an electronic signature is so much of anything in electronic form as is incorporated into or otherwise logically associated with any electronic communication or electronic data, and purports to be used by the individual creating it to sign.


In practice, electronic signatures encompass a wide variety of methods. At present, R (on the application of Mercury Tax Group and another) v HMRC[1] is authority for the most commonly used method: a virtual signing. This involves the signatory signing a hard-copy document in wet-ink, then converting it into an electronic form such as by scanning it, finally delivering the signed document in full via electronic communication. In the past, the courts have held that, inter alia, typing a name at the bottom of an email[2] and clicking an “I accept” tick box on a website[3] constitute legally valid signatures where there is a statutory obligation to provide one.

As demand for stronger cybersecurity increases, so too do we find innovations in the electronic signature arena. The newest development concerns digital signatures, which are a subset of electronic signatures. These platforms follow a standard Public Key Infrastructure format. They allow documents to be uploaded onto a cloud environment, which signatories access via personalised links or passwords; during signing, the software creates a ‘fingerprint’ associated with the signatory’s personal information such as their IP address, the date and time of access, their PIN etc. Digital signatures are already put to extensive use in other jurisdictions, such as Hong Kong, which specifies that only digital signatures certified by designated authorities will be valid when signing government contracts[4].

Legal Implications

Simple Contracts

The English law of contract requires offer, acceptance, consideration, intention to create legal relations and certainty of terms. These are all matters of substance rather than form, with no prescription as to the means of creating the contract—indeed, when a hard-copy meets these requirements, it is unthinkable that an electronic version will not do so as well. It is in relation to executing documents that questions of validity arise. The relevant Regulation (EU) No 910/2014 on electronic transactions (“eIDAS”) provides that electronic signatures are valid if the signatory intends to authenticate the document, and any statutory formalities relating to its execution are satisfied. The latter requirement may vary depending on the type of document in question. Notably, the test for validity remains focussed on the intention to authenticate rather than the form of the signature: Golden Ocean has held that electronic signatures hold the same status in law as wet-ink ones.


With regards to the admissibility of electronic signatures in legal proceedings, the ECA 2000 in section 7(1) lays down that an electronic signature incorporated into or logically associated with a particular electronic communication or particular electronic data, if certified by any person of its validity, will be admissible in evidence in relation to any question as to the authenticity or integrity of the communication or data. In contractual disputes, the signature may be adduced to question the identity of a signatory, or their intention to authenticate the document, taking into account the method of signing.

Deeds

Deeds are a different species of contracts; they do not require consideration, however have more stringent formalities for valid execution. These include the need for a witness to be able to attest the signature. Although there is no case or statutory authority on this matter, the Law Commission has written that electronic signatures can be witnessed through seeing the signatory add their signature onto an electronic document. However, a hurdle remains that the physical presence of a witness is required, and thus the act of witnessing a signing cannot be done virtually. In any event, there is flexibility to be found here, as there is no statutory requirement for witnesses to be independent or disinterested, thus allowing for family members or roommates to act in such a capacity. In the case of a company incorporated under the Companies Act 2006 (“the CA 2006”), a workaround may be found in section 44, which allows documents to be validly executed by two authorised signatories (where at least one is a director). This does not require the physical presence of a witness. However, there are two important exceptions to the validity of creating binding deeds electronically, which are deeds registrable with the UK Land Registry and wills.

Non-contractual Documents

Regarding to minutes and resolutions of companies which require authentication to evidence the proceedings of board meetings, there is no bar to electronic signatures being used. However, there must be additional evidence of the identity of the sender or supplier of the signed electronic document, which can be confirmed by adhering to the company’s own specified method, or by adding a truthful statement of identity to the communication. Directors’ written resolutions for private or public companies limited by shares that have adopted the CA 2006 Model Articles may equally be signed electronically.

Risky Business

Parties wishing to use electronic signatures must be cognisant of the important exceptions to the general rule of their admissibility and validity. Some governmental bodies do not yet accept all documents signed electronically; there are still complications surrounding witnessing of deeds; there are sometimes formalities requiring signatures by hand, or stamps and seals that cannot be added electronically. Furthermore, where there are multiple parties to the contract, it is preferable that all use the same method of signing for ease of auditing, ie. wet-ink counterparts should not be mixed with digital signatures. There is also the issue of jurisdiction with the divorce of the UK from eIDAS regulations and the different approaches to validity of electronic signatures worldwide, which companies seeking to contract with foreign entities must take into account. Finally, as with all electronic transactions, cybersecurity poses a looming risk and opens up the possibility that a counterparty may argue that documents were signed by another person fraudulently, without authority, or by mistake. Hence, it is crucial that companies seeking to pivot to electronic signing find a viable method or platform that avoids such factual doubt.

 

[1] [2008] EWHC 2721 [2] Golden Ocean Group Ltd v Salgaocar Mining Industries PVT Ltd [2012] EWCA Civ 265 [3] Kathryn Bassano v Alfred Toft [2014] EWHC 37 (QB)

[4] Electronic Transactions Ordinance (Cap. 553 of the Laws of Hong Kong)


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