Electronic signatures – the new normal for commercial contracts in these uncertain times?
In just a few weeks, much of our working life as we know it has shifted online. With social distancing measures and travel restrictions likely to continue until at least the summer, businesses need to embrace electronic signatures and reconfigure their transacting processes accordingly.
Of course, a number of businesses have been moving in this direction for a while now, and the Law Commission published a report on electronic signatures last year, which can be found here.
The governing legislation across all EU Member States in respect of electronic signatures is 'EU Regulation 910/2014 on electronic identification and trust services for electronic transactions in the internal market and repealing Directive 1999/93/EC' ("eIDAS").
Since eIDAS is an EU 'regulation' it required no legislation at a national level and came into force on 1 July 2016 in all Member States. The UK has passed the 'Electronic Identification and Trust Services for Electronic Transactions Regulations 2016' ("UK Regulation") which came into force on 22 July 2016 and repealed the Electronic Signature Regulations 2002 and amended relevant sections of the Electronic Communications Act 2000 (ECA 2000) which dealt with electronic signatures under the previous regime.
There are several types of electronic signature. They can vary from a simple "I accept" button, to those, which require several layers of proof of identification and authentication. Depending on the contract in question (some contracts require a specific form of electronic signature), all may be valid under English law, but naturally those with the highest levels of authentication will carry the highest level of evidential weight.
a) Remote witnessing
Execution of commercial agreements expressed as deeds under English law require the signature of either two directors or a director and a company secretary, or the signature of a director and a witness' counter signature. Where a witness' counter signature is required, the current law requires the physical presence of the witness. Proponents of electronic signatures would like to see the use of "remote witnessing", for example over video links, but the Law Commission does not currently endorse this approach. This may well change given the current situation.
b) If the commercial agreement in question is expressed as a deed, but one or more of the parties have not executed it properly as a deed (perhaps because of practical issues over physical witnessing), can it take effect as a binding simple contract?
Possibly, yes. Such an agreement will still take effect as a simple contract provided that (i) all the elements required for a simple contract are present (ii) the transaction in question is not one for which a deed is required (such as a transfer of land) and (iii) those signing the document had the necessary authority to do so.
c) Does a witness have to be independent?
Clearly, given that most of the workforce is now working from home, asking a relative to witness a signature is likely to become commonplace. There is no requirement for a witness not to be a family member: husbands and wives can witness each other’s signature. However, in practice this is discouraged in case the veracity of the evidence of such a witness is called into question. Even more so, for example, where there is a personal guarantee or a charge over an individual’s shares in a company. If parties are prepared to relax their requirements on this subject, they should consider requiring additional steps to ascertain the identity of witnessing family members and ensure they were not a minor or visually impaired and are of sound mind.
As additional protection, someone independent could ‘observe’, for example via video conference, the signatory signing in the presence of the physically present witness (a second virtual witness if you like). That independent observer could provide additional evidence if the attestation was ever challenged. A note could also to kept with the deed of the practical reasons for the witness being related to the signatory.
d) Filing copy documents, which need to be certified as true copies of the original
Currently, UK Companies House does not accept e-signatures on its forms – that is, outside web-portal submissions. However, in relation to the underlying documents which are filed, there is some flexibility. Despite the absence of a "wet ink" original where a document has been signed electronically, it is still possible to file these documents and UK Companies House has accepted amendments to their standard certification statements. For example, we are aware of a situation where UK Companies House confirmed that it is acceptable to state “to the best of our knowledge…” the deed is a copy of the original.
e) Other practical issues with electronic signatures include:
i. English law requires that deeds are delivered, and the timing and method might be difficult to determinate depending on the e-signing platform used.
ii. Corporate authority issues and the need (or otherwise) to check that the person signing has the authority to bind the company by electronic signature.
iii. Cross-border issues where electronically signed documents may not be accepted to the same degree in another jurisdiction (although electronically signed documents are generally acceptable in the UK, mainland Europe and the US).
iv. As a best practice tip, consider including a specific clause or statement in the agreement to demonstrate an intention to authenticate with electronic signatures.
In these uncertain times, electronic signatures are very quickly going to become the new normal for most commercial transactions, which do not require "wet ink" signatures. However, this whole area of law is hamstrung by a lack of previous clear authority and much is currently open to interpretation. Moreover, it is changing daily and views are being shaped by the circumstances we are now encountering as a result of Covid-19.
Businesses therefore need to look carefully at their profile of contracts and take a considered approach before embracing this technology.
Of course, a number of businesses have been moving in this direction for a while now, and the Law Commission published a report on electronic signatures last year, which can be found here.
We are all navigating uncharted waters as business and society faces up to the impact of COVID-19. We very much hope you and your loved ones remain in good health.
Please be assured that Fieldfisher is continuing to work with clients to navigate COVID-19 related issues and on business as usual needs. Do get in touch with us if you would like to chat anything through.
What is the source of the current law?
The governing legislation across all EU Member States in respect of electronic signatures is 'EU Regulation 910/2014 on electronic identification and trust services for electronic transactions in the internal market and repealing Directive 1999/93/EC' ("eIDAS"). Since eIDAS is an EU 'regulation' it required no legislation at a national level and came into force on 1 July 2016 in all Member States. The UK has passed the 'Electronic Identification and Trust Services for Electronic Transactions Regulations 2016' ("UK Regulation") which came into force on 22 July 2016 and repealed the Electronic Signature Regulations 2002 and amended relevant sections of the Electronic Communications Act 2000 (ECA 2000) which dealt with electronic signatures under the previous regime.
What is an electronic signature?
There are several types of electronic signature. They can vary from a simple "I accept" button, to those, which require several layers of proof of identification and authentication. Depending on the contract in question (some contracts require a specific form of electronic signature), all may be valid under English law, but naturally those with the highest levels of authentication will carry the highest level of evidential weight.
What are the issues, particularly in light of Covid-19?
a) Remote witnessingExecution of commercial agreements expressed as deeds under English law require the signature of either two directors or a director and a company secretary, or the signature of a director and a witness' counter signature. Where a witness' counter signature is required, the current law requires the physical presence of the witness. Proponents of electronic signatures would like to see the use of "remote witnessing", for example over video links, but the Law Commission does not currently endorse this approach. This may well change given the current situation.
b) If the commercial agreement in question is expressed as a deed, but one or more of the parties have not executed it properly as a deed (perhaps because of practical issues over physical witnessing), can it take effect as a binding simple contract?
Possibly, yes. Such an agreement will still take effect as a simple contract provided that (i) all the elements required for a simple contract are present (ii) the transaction in question is not one for which a deed is required (such as a transfer of land) and (iii) those signing the document had the necessary authority to do so.
c) Does a witness have to be independent?
Clearly, given that most of the workforce is now working from home, asking a relative to witness a signature is likely to become commonplace. There is no requirement for a witness not to be a family member: husbands and wives can witness each other’s signature. However, in practice this is discouraged in case the veracity of the evidence of such a witness is called into question. Even more so, for example, where there is a personal guarantee or a charge over an individual’s shares in a company. If parties are prepared to relax their requirements on this subject, they should consider requiring additional steps to ascertain the identity of witnessing family members and ensure they were not a minor or visually impaired and are of sound mind.
As additional protection, someone independent could ‘observe’, for example via video conference, the signatory signing in the presence of the physically present witness (a second virtual witness if you like). That independent observer could provide additional evidence if the attestation was ever challenged. A note could also to kept with the deed of the practical reasons for the witness being related to the signatory.
d) Filing copy documents, which need to be certified as true copies of the original
Currently, UK Companies House does not accept e-signatures on its forms – that is, outside web-portal submissions. However, in relation to the underlying documents which are filed, there is some flexibility. Despite the absence of a "wet ink" original where a document has been signed electronically, it is still possible to file these documents and UK Companies House has accepted amendments to their standard certification statements. For example, we are aware of a situation where UK Companies House confirmed that it is acceptable to state “to the best of our knowledge…” the deed is a copy of the original.
e) Other practical issues with electronic signatures include:
i. English law requires that deeds are delivered, and the timing and method might be difficult to determinate depending on the e-signing platform used.
ii. Corporate authority issues and the need (or otherwise) to check that the person signing has the authority to bind the company by electronic signature.
iii. Cross-border issues where electronically signed documents may not be accepted to the same degree in another jurisdiction (although electronically signed documents are generally acceptable in the UK, mainland Europe and the US).
iv. As a best practice tip, consider including a specific clause or statement in the agreement to demonstrate an intention to authenticate with electronic signatures.
Conclusion
In these uncertain times, electronic signatures are very quickly going to become the new normal for most commercial transactions, which do not require "wet ink" signatures. However, this whole area of law is hamstrung by a lack of previous clear authority and much is currently open to interpretation. Moreover, it is changing daily and views are being shaped by the circumstances we are now encountering as a result of Covid-19.Businesses therefore need to look carefully at their profile of contracts and take a considered approach before embracing this technology.