Electronic execution: Latest guidance

Electronic execution: Updated developments

The key changes made by the Law Society/CLLS recent update on electronic execution include the insertion of new paragraphs relating to the following:

• Remote Signings:

The latest guidance reaffirms the principles set out in the Law Societies’ note on the execution of documents by virtual means (known as the ‘Mercury Procedures’). Where an e-signature platform is used to obtain signatures, it remains important that:

1. any signature and its attestation are from the same physical document when signed;
2. the signed document is a discrete physical entity; and
3. a party signs an existing, authoritative version of the document.

The new guidance also highlights the utility of e-signature platforms that enable users to upload the entire final version of the relevant document. This makes it easier to comply with limb one of the above. Those organising electronic execution should also still take appropriate authorisations from signatories to implement the dating and delivery of the relevant documents (and the affixing of signature pages to the final agreed form).

• Implications of the E-commerce Directive 2000/31:

Article 9(1) of the E-commerce Directive 2000/31 ensures that contracts within Member States’ legal systems can be concluded by electronic means, and that the legal requirements attached to electronic execution does not encumber its use. However the latest guidance has identified that there are some contractual exceptions to these protective obligations [1]. There is therefore a risk that an English law governed agreement (which both falls within the list of exceptions and has been electronically executed) may not be enforced by the courts of a Member State. Parties entering into such types of contract should take local law advice to check whether the signature of such contracts by electronic execution is supported.

• Implications of the Brexit-related Trade and Co-operation Agreement (TCA):

In a similar vein to the E-commerce Directive above, Article 205 of the TCA identifies types of contract which may not benefit from TCA provisions within the TCA which support the use and validity of electronic signatures. Again, parties entering into such contracts should take advice as to whether local law supports electronic execution.

• Use of Common Seal:

The latest guidance also provides novel recommendations in relation to the use of e-seals on electronic documents. It states that, where a party wishes to execute a deed by physically affixing its common seal, electronic execution is not recommended for Companies Act companies or limited liability partnerships [2]. This is because section 45(2) of the Companies Act 2006 requires a company’s name to be “engraved” on the company seal in legible characters. There is concern that an electronic seal may not pass this requirement, and could potentially open up responsible officers and other authoritative persons to a criminal offence on the part of the company.

The safest course for a company formed under the Companies Acts is not to use an e-seal on electronic documents, and not to substitute an e-seal for a corporate seal. The position may be different for other corporations. This will depend upon the wording of the Act or Royal Charter creating it and the corporation’s constitution.

How we can help with electronic execution

It is clear that the law and practice surrounding electronic execution of legal documentation is ever-evolving. Recommendations in this area change regularly, as legal and technical developments abound. If you have any queries or concerns in relation to electronic execution, or if you would like assistance with staff training, please contact Louise Norbury-Robinson or any member of the Commercial Dispute Resolution team. In the meantime, Walker Morris will continue to monitor and report on key developments.

[1] Article 9(2) exceptions: Contracts that create or transfer rights in real estate, except for rental rights; contracts requiring by law the involvement of courts, public authorities or professions exercising public authority; contracts of suretyship granted and on collateral securities furnished by persons acting for purposes outside their trade, business or profession; contracts governed by family law or by the law of succession

[2] This is despite the existence of The Regulation on electronic identification and trust services for electronic transactions in the internal market (the eIDAS Regulation) (in so far as it is retained-EU law applicable in England) and the Electronic Communications Act 2000, which both provide for the creation and use of electronic seals