A Signature Move in the Right Direction?

Earlier this year the Law Commission published a Consultation Paper on the use of electronic signatures for the execution of written agreements. Whilst the Law Commission does provisionally conclude that in its view an electronic signature is capable of complying with existing law, it published the Paper in order to seek views on whether the current law inhibits the electronic execution of written contracts, and what concerns stakeholders have regarding the use of electronic signatures.

What constitutes an electronic signature?

An exhaustive definition of "electronic signature" doesn’t exist; but the Paper does contain a brief summary of what the Law Commission believes to be the main types of electronic signatures that contractual parties may seek to use:

• a scanned "wet ink" signature page which is then circulated by email

• manuscript signing on screen (such as through a stylus or fingernail to inscribe an image approximating a usual signature)

• "I accept" or "I agree" buttons

• Signing using a password or PIN

• Typing a name or initials on a document as a way of signing

• Biometrics (e.g. fingerprint or facial recognition)

• "Digital" signatures – which could cover numerous forms of signature, but is intended to mean a type of electronic signature produced by using asymmetric or public key cryptography

What is the current law?

As most law students learn on day 1 at Law School, an agreement can be binding on relevant parties if, among other requirements, there is an offer, an acceptance of that offer, some type of consideration (e.g. a cash payment) and the parties intend to be legally bound – even a trip to the local shop to buy a newspaper will form a type of "contract" under English law.

Therefore, it is not necessary for parties to ensure that any agreement they wish to make is in fact in writing (…but in a commercial setting, it is clearly very advisable to do so!).

Historically, the Statute of Frauds Act 1677 forms the basis of much of the current debate and states that certain kinds of contracts must be in writing and signed (principally to avoid fraud). Whilst the law has moved on significantly since 1677, this piece of legislation is still valid law and its modern day application is considered by the Law Commission in its Paper – who provisionally conclude that in its view an electronic signature is capable of complying with existing law.

The European Union has also provided its support for electronic signatures as a result of its eIDAS Regulation[1], stating that "an electronic signature should not be denied legal effect on the grounds that it is in an electronic form".

In further support, a number of England and Wales Court of Appeal decisions have concluded that electronic signatures can satisfy the requirements for documents to be executed as long as there is a clear intention of the parties to be legally bound by it.

Ok…why is there a concern then?

There are still some misgivings among corporates (as well as the legal profession) in respect of which types of electronic signatures are "valid" for the execution of written contracts under English law; and while the signing and circulation of scanned "wet ink" signature pages by email is now fairly common[2], the use of "digital" signatures (as described above) is not.

A lack of clarity (even if only perceived) in the law is evidently discouraging parties from using the various forms of electronic signature that are currently available... and in our fast-paced, technology-driven market, this nervousness amongst contractual parties is unhelpful (which is something the Law Commission wishes to address).

As a practical example, we very recently worked with a seller who wished to execute the sale and purchase agreement on his iPad by signing with his finger. Notwithstanding that this clearly meets the relevant contractual formation criteria, the buyer's lawyer had reservations about accepting such a signature and therefore requested a traditional hard-copy, "wet-ink", signature page.

So, can I use electronic signatures or not?

Although it would largely depend on the form of the electronic signature, if you want to use an electronic signature to sign a simple legal agreement, in most cases it is probably fine to do so as long as that signature is a clear indication by the parties that they wish to be legally bound to the relevant agreement.

The story is much more complicated for agreements that need to be in the form of a Deed, as the key formality requirement of a Deed is that a separate individual actually witnesses the signatory signing the relevant Deed. The question of whether this could be done remotely (e.g. over "Skype") is debated by the Law Commission but, for the time being, this is probably a step too far based on the current interpretation of the law.

As a result, the Law Commission is quite right in seeking views on the current law and its constraints. Since issuing its Consultation Paper, both the Law Society and the City of London Law Society have responded to the paper and, in general, they agree that an electronic signature is capable of satisfying a requirement for a signature under the current law where there is an intention to authenticate the document. However, there are still some reservations in relation to Deeds and the need to physically witness the signature itself.

In our view, it is only a matter of time before the flexibility of our common law catches up with modern ways of doing business.