Electronic execution and e-signatures
Frequently asked questions
14 December 2018
How and if documents can be executed electronically is becoming a frequently asked question by businesses, governments and others globally. As our daily environment becomes increasingly digitised there is an expectation that putting pen to paper should not be necessary to sign legally binding documents. In this briefing we examine the current position of electronic execution and electronic signatures under English law.
What is electronic execution?
Electronic execution is a broad term.
It can mean a person typing his or her name in an email containing the terms of a contract; scanning and attaching signed pages to an email; attaching a pre-saved pdf signature into an electronic version of the document; or signing via an electronic signing platform. Essentially, it means a method of execution that does not involve physically signing a paper document.
What are e-signing platforms?
E-signing platforms are cloud based services which allow a person signing a document to open a link sent by email and to simply click a tab or type their name to sign the document. There is no need to print the document and manually sign it. Once each signatory has so “signed” the platform applies a computer generated signature of each party to the electronic document and a fully signed pdf version is deemed created. The system produces a digital certificate which records who signed the document, the time and date of signing and the IP address of the computer used by each signatory. The pdf executed document is also digitally sealed and this seal will evidence if the document is tampered with after signing.
Has the Law Society published guidance on electronic signatures?
Yes, the English Law Society published a practice note Execution of a document using an electronic signature in July 2016. This followed discussions between Mark Hapgood QC and a Joint Working Party, of which Clifford Chance was a member. The practice note looked at execution of commercial contracts using any type of electronic signature.
Can simple contracts and deeds be executed by electronic signature?
Yes; in a large number of cases but not always. We discuss a number of the circumstances in which it may not be appropriate to use an electronic signature in the following paragraphs.
The broad conclusion reached by the Law Society is that, generally, electronic signatures can be used to execute both simple contracts and other documents which are subject to additional formalities, such as deeds and guarantees. It concludes that the statutory requirements of a document being “in writing” and “signed” can be satisfied by an electronic document signed with an electronic signature.
When should you not use an electronic signature?
Clearly a document executed using an electronic signature will not produce a document manually signed by the parties in wet ink so, as a basic proposition, electronic signatures cannot be used where, for whatever reason, a wet ink signature is required.
An important example of when a wet ink signature is required is in relation to documents filed with a registry, for example the HM Land Registry and the UK Ship Registry.
When might using an electronic signature not be appropriate?
There will be other occasions, depending on the circumstances, when an electronic signature may not be an appropriate method of execution and further analysis will be required. These include:
- if the place of execution of the document is important, for example if there are tax or stamp duty consequences;
- if the executing party wishes, or is obliged, to use its corporate seal;
- if the executing party does not have the corporate capacity or authority to execute by electronic signature, for example there may be restrictions in the party’s constitutive documents;
- a negotiable instrument such as a promissory note or negotiable bond; and
- if there are any cross border issues that may impact the document or transaction (see next question for relevant considerations).
What are the cross border implications?
The position set out above relates only to English law. Where a document is governed by the law of another jurisdiction or where non English parties are involved confirmation from local counsel that an electronic signature will be a valid method of execution will be needed. This should include confirmation that the non English party has the authority to execute the document by electronic signature.
Similarly, if litigation or other action in relation to the document, such as enforcement, takes place outside of England, the form of the original executed document may be important and an electronic signature may not satisfy the relevant formalities involved in taking such action. Also, if it is a local law requirement for a document to be apostilled or notarised this may not be possible for a document signed electronically.
Is there anything extra to consider if using an e-signature platform?
E-signature platforms have the potential to simplify execution arrangements, keep a record of who signed when, and provide an accessible storage site, but they do have drawbacks. These may or may not be considered significant depending on the views of the parties involved.
Fraud: there is a slight risk of fraud inherent in e-signing systems in that it may be “easier” to click a tab/ type a name than replicate a manual handwritten signature. Although this risk also exists in respect of other types of electronic signatures and in the case of platform providers there may be additional levels of security, such as one time passcodes sent to mobile phones, that can alleviate some of the perceived risk.
Witnessing: e-signature platforms do not completely deal with witness requirements. For a document to be validly witnessed, the person attesting the execution of the document must actually see the signatory sign the document and be physically present. There is no way of confirming that the witness did in fact see the signatory execute the document using an e-signature platform, although arguably this position is not different from the practice in relation to witnessing of hard copy document. Again, there are likely to be workarounds that can alleviate concerns.
Cyber-security: e-signature platforms are cloud based and any party wishing to use them will need to satisfy themselves that the platforms are sufficiently secure for their purposes. Parties will also want to consider the appropriateness of storing executed documents on the platforms’ storage sites rather than transferring them to their own servers.
What is the law in England on electronic signatures?
In England the Electronic Communications Act 2000 provides that all electronic signatures and any certification of such signature are admissible in evidence.
However, the legislation does not attempt to address issues such as whether the signature is genuine, or demonstrates the necessary intent.
The European eIDAS Regulation, which has had direct effect across the EU, provides that a "qualified electronic signature" (QES) will have the equivalent legal effect of a handwritten signature and, when supported by a qualified certificate, will be recognised in all EU Member States. The Regulation sets out what technical requirements must be met for a signature to be a QES, essentially such a signature must be uniquely connected with one signatory in accordance with prescribed rules. The Regulation also identifies other types of less “sophisticated” electronic signatures such as an advanced electronic signature. The types of signatures discussed in this briefing are unlikely to constitute a QES, although in some jurisdictions the e-signature platform providers may be able to able to generate one. The distinction between a QES and an advanced electronic signature may be of significance in EU cross border transactions.
How often are electronic signatures used?
To date there has been very little demand for electronic signatures to be used on the transactions on which we advise. This is likely to be due to two reasons. First, manual signatures have historically given the various transaction parties a level of confidence that the person executing the document is who they say they are, that they have the authority to sign the document and that they intend the document to be binding on them or the entity on whose behalf he or she is signing. Partly, this is a result of the ability to confirm a handwritten signature against a certified signature to ensure that the correct party signed the document, or rely on an officer’s certificate. We would suggest however, that a certain level of identity risk has already been accepted in the market, given that documents are typically no longer executed at physical signing meetings. Second, lawyers and transaction parties have generally felt more comfortable that certain statutory formalities, such as documents being signed, in writing and witnessed, are easier to satisfy by way of a manual, handwritten signature. And notwithstanding the conclusions of the Law Society’s practice note, some may continue to feel this way, particularly as we are not aware of any statutory authority or case law confirming the views expressed in it. Third, for transactions with multiple parties, the effort of explaining and convincing many institutions that the methods of execution are appropriate for their institution are time consuming and expensive and there is little appetite to undertake this when a transaction is up and running. We expect this to lessen as more institutions undertake their own due diligence on electronic execution over time.
We do however, expect that practice will change in the near to medium term, in part due to the publication of the Law Society’s practice note, which is likely to go some way in easing market concerns, and also due to the increasing familiarity with, and the convenience of, the electronic signature technology. Although for many, the cross border considerations will continue to play a significant part in their decision on whether to use electronic signatures or not.