The validity of electronic signatures: Implications

25th October 2019

This article was first published on Lexis®PSL TMT on 23 September 2019. Click for a free trial of Lexis®PSL.

Associate at Walker Morris, considers the Law Commission’s recent statement concluding that electronic signatures (e-signatures) are valid.

Original news

Law Commission confirms e-signatures are valid under current law, LNB News 04/09/2019 7

The Law Commission has confirmed e-signatures are valid and can be used to execute documents, including when there is a statutory requirement for a signature. The Commission’s view is based upon both legislation and court decisions relating to non-electronic and e-signatures. Alongside recommendations relating to the practicalities of e-signatures, the Commission has also set out an option for reform, in which the law of e-signatures would be codified, as this would increase the accessibility of the law.

What are the main concerns regarding the current law regarding e-signatures?

In a consultation paper published in August 2018, the Law Commission sought to address legal uncertainty surrounding the electronic execution of documents, which is causing practical problems in today’s fast-paced, technology-driven business world.

One of the key issues is that, while basic contracts can be validly formed without any documentation or formality, other contracts and legal documents must comply with certain formalities in order to have legal effect. In particular, contracts for the sale of land must be in writing, contain all agreed terms and be signed by all parties—transfers, charges and some leases must be made by deed (which involves signing, witnessing and attesting), while EU legislation (Regulation (EU) No 910/2014 of the European Parliament and of the Council of 23 July 2014 on electronic identification and trust services for electronic transactions in the internal market) and the UK courts accept electronic signatures as valid. While HM Land Registry is, as a matter of policy, moving towards digital conveyancing, the relevant UK statute, the Electronic Communications Act 2000, does not expressly allow electronic signature—neither does the law of England and Wales clearly or comprehensively confirm the validity of electronic execution in the context of deeds.

What are the key changes to the provisional proposals raised in the consultation draft? Are there any significant recommended changes to the current law?

In line with its provisional view published back in August 2018, the Law Commission has now concluded that e-signatures are valid, and the law as it currently stands allows documents including land contracts and deeds to be executed with an e-signature. In particular, the Law Commission has now confirmed:

• an e-signature is capable in law of being used to execute a document (including a deed) provided that the person signing the document intends to authenticate the document and that any formalities relating to execution of that document are satisfied
• such formalities may be required by legislation or may be laid down in a contract or other legal instrument under which a document is to be executed. Examples of formalities that might be required include that the signature be witnessed or that the signature be in a specified form (such as being handwritten)
• an e-signature is admissible in evidence in legal proceedings. It is admissible, for example, to prove or disprove the identity of a signatory and/or the signatory’s intention to authenticate the document
• save where the contrary is provided for in relevant legislation or contractual arrangements, or where case law specific to the document in question leads to a contrary conclusion, the common law adopts a pragmatic approach and does not prescribe any particular form or type of signature. In determining whether the method of signature adopted demonstrates an authenticating intention, the courts adopt an objective approach considering all of the surrounding circumstances.

The Commission has also recommended that an industry working group be set up to specifically consider practical and technical issues associated with the electronic execution of documents. The Commission suggests that the group should consider how different technologies can help with identification and authentication and should produce best practice guidance for the use of e-signatures in commercial transactions and by individuals, including focusing on issues surrounding security and reliability.

Also in line with its provisional view, however, the Law Commission has concluded that the requirement under the current law that a deed must be signed ‘in the presence of a witness’ requires the physical presence of that witness–that remains the case even where both the person executing the deed and the witness are executing/attesting the document using an e-signature.

Following on from that conclusion, the Commission has now recommended that there should be a review of the law of deeds generally, and that such a review should consider issues such as:

• efficiency
• whether the concept of deeds is fit for purpose in the modern commercial world, and
• whether technological alternatives and/or a concept of acknowledgement might work as an alternative, both for paper and for electronic deeds.

How should businesses prepare?

It is clear that the issue of electronic execution is ‘one to watch’ and all indications are that we may soon have some clarified and codified legislation and good practice guidance which, together, will offer speedy but safe options for parties wishing to execute contracts or other legal documents.

However, in the meantime, section 91 of the Land Registration Act 2002 (LRA 2002) does allow for certain electronic documents to be regarded as a deed. LRA 2002, s 91 and Land Registry policy and practice together provide that certification of e-signatures (which involves the stringent checking of the identity of the person providing the digital signature using the government’s ‘Verify’ service) can take the place of the traditional ‘wet’ signature and attestation process. That therefore seems to provide a practical ‘workaround’—at least in the context of e-conveyancing.

In other contexts, the Law Commission’s reports comprehensively explain the existing law relating to electronic execution, e-signatures and deeds. That, along with its considered conclusions that the law does allow documents including land contracts and deeds to be executed with an e-signature, should go some way to providing comfort to clients and practitioners who wish to proceed with electronic execution in the interests of ease and efficiency, pending any further action or legislation from the government.