13 November 2017

"Where do we sign?"- key considerations on electronic signatures

Electronic signatures are increasingly being used to execute documents, however there are issues surrounding their use which should be considered, particularly as they have not been fully tested in the courts and the statutory framework governing them does not expressly cover each situation.

Firstly, let’s recap what constitutes an electronic signature. The term “electronic signature” covers a range of execution methods, including:

  • advanced electronic signature – using a web-based platform to apply a signature to a document;
  • qualified electronic signature – based on a formal qualified certificate for electronic signatures, the requirements of which are set out in Regulation (EU) No 910/2014. This method is not commonly used in the UK; and
  • simple electronic signature – typing a name or electronically pasting an image of a signature into a soft copy version of a document.  

In terms of the legislative framework, Regulation (EU) No 910/2014 provides that a qualified electronic signature has the equivalent legal effect of a handwritten signature, otherwise it is for national law to define the legal effect of electronic signatures. The Electronic Communications Act 2000 confirms that electronic signatures are admissible in evidence, however it does not go as far as providing that they have equivalent legal effect as “wet-ink” signatures.

In general, a contract does not need to be in writing and signed to be legally binding. However, there are various statutory requirements that stipulate that certain documents need to be “signed” and some that also need to be effected as a deed. If a document is being effected as a deed, any necessary formalities such as attestation by a witness must be observed. For example, a contract for the sale or other disposition of an interest in land under s2 Law of Property (Miscellaneous Provisions) Act 1989 must be in writing and signed by or on behalf of each party to that contract. Similarly, s4 of Statute of Frauds 1677 requires that a guarantee or a memorandum thereof must be in writing and signed by the guarantor or some other person authorised by the guarantor. Examples of documents which must be effected as deeds include land transfers (s52 Law of Property Act 1925) and powers of attorney (s1(1) Powers of Attorney Act 1971).

The test for being a “signature” is based on whether the signature is inserted in a document with the intention of authenticating the document (Caton v Caton [1867] LR 2 HL 127). In J Pereira Fernandes SA v Mehta [2006] 1 W.L.R. 1543 the court found that the automatic insertion of a person’s email address after a document had been sent was merely incidental and did not amount to a signature. However, in WS Tankship II BV v Kwangju [2011] EWHC (Comm) the court found that the automatic addition of a party’s name to header (as a result of the party using the SWIFT system), was caused by the sender and accordingly constituted a sufficient signature for the purpose of creating an enforceable guarantee pursuant to s4 of Statute of Frauds 1677. The Court of Appeal in Golden Ocean Group Ltd v Salgaocar Mining [2012] EWCA Civ 265 held that if a person writes his name on an email to indicate that it comes with his authority it will be a signature for the purposes of s4 Statute of Frauds 1677. On this basis, inserting an electronic signature into the appropriate place in a document should be capable of meeting the statutory requirement for signature.   

Issues also arise when using simple electronic signatures as they could be difficult to verify. This is because questions could be asked as to who inserted the signature and did they have sufficient authority to do so. Furthermore, if the document being executed is a deed and a signature is being attested by a witness then the validity of the execution could be questioned as it is not clear what constitutes being “present” when an electronic signature is applied.

In light of the position on electronic signatures not being fully evolved under English law and the other issues referred to above, it would be advisable to consider the following points:

  • The use of advanced electronic signatures should be favoured over the use of simple electronic signatures as this method is likely to be less susceptible to fraud and not raise questions over whether the necessary authority was granted.
  • If a simple electronic signature is being used where a document is being executed by a company as a deed, ensure that two directors (or a director and the company secretary) are available to sign to avoid any issues with witnessing.
  • Until there is further guidance on the matter, we would caution against executing a document as a deed by way of an electronic signature where that electronic signature would need to be attested by a witness.
  • If the simple electronic signature is being applied on the signatory’s behalf, for instance if the signatory is travelling, ensure that the correspondence granting authority is made available.
  • If the relevant requirements for execution as a deed are not available (for example lack of availability of two directors, signatory being in a different location to a witness) consider whether it is possible to use a simple contract instead.
  • Questions arise in relation to how any requirement that a document be signed off-shore is satisfied when using an electronic signature. How is the location of the signature determined? Is it the location of the computer screen of the person using the electronic signature or the location of the e-signature company server? 
  • Check whether a company’s articles have any restrictions on documents being executed using electronic signatures.
  • Consider whether any document to be filed at a government registry needs to have a “wet-ink” signature. For instance, current practice is that HMRC require a stock transfer form to be executed with a “wet-ink” signature in order to stamp the document.
  • Similarly, the Land Registry require a “wet-ink” signature on a paper version of any document submitted to them for registration (even if the document is submitted to them electronically via the Land Registry Portal). The Land Registry are developing their own electronic signature solution, but a move away from “wet-ink” signatures would require a legislative change to the Land Registration Rules.  

Nicholas is an associate in our Corporate team.

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