Electronic signatures: City of London Law Society publishes guidance

Electronic signatures are far from a new phenomenon, yet there has been a distinct lack of clarity with regard to their validity in the execution of legal documents which has resulted in a reluctance to use them in larger transactions.

In response to this, a joint working party of the City of London Law Society Company Law and Financial Law Committees (the JWP) has published guidance on the enforceability of electronic signatures to execute legal documents (JWP guidance). Please note that the JWP guidance relates only to commercial contracts entered into in a business context, rather than those to which consumers or other individuals (outside a business context) are a party.

What is an electronic signature?

The JWP guidance accepts that electronic signatures can take the following forms:

• a person inserting their name into a contract or an email containing contractual terms by typing their name
• a person pasting their electronic signature image in a soft copy version of a contract within the signature block
• a person using an electronic signature platform through which the person clicks to have their name inserted in typed handwriting font into the signature block
• a person using their finger or an e-pen to write their name electronically on a touchscreen (i.e. a tablet)

Which documents can be signed electronically?

Simple contracts

English law makes a distinction between ‘simple contracts’ and ‘deeds’. To be enforceable, both need to contain an offer which is accepted, the payment of consideration, the intention to create legal relations and certainty of the terms forming the basis of the contract. However, whilst deeds must be in writing and be executed in a particular way (see below), English law does not dictate a particular form for contracts and provided a simple contract (i.e. an agreement not to be executed as a deed) contains the main elements of an enforceable contract, it can be validly executed by way of an electronic signature.

Documents subject to a statutory requirement to be ‘in writing’, ‘underhand’ or ‘signed’

Certain statues require various types of documents to be executed ‘in writing’, ‘underhand’ or ‘signed’.  The JWP guidance confirms that, in principle, all documents that can be signed in wet-ink can be signed electronically and an electronic signature will satisfy the requirement for any document to be signed ‘in writing’, ‘underhand’ or ‘signed’.

Deeds

A deed is a document that, under common law, must be in writing. In the case of individuals, a deed must be executed in the presence of a witness and in the case of English companies, must be executed by a director in the presence of a witness, or by two directors, or a director and the company secretary.

The use of electronic signatures does not remove the need for a deed to be properly witnessed.

The JWP guidance does not describe how an electronic signature is to be witnessed (leaving that to be decided on a ‘case by case’ basis) but considers it best practice for the witness to be physically present at the signing of a deed, as opposed to witnessing remotely via a videoconference facility, which limits the convenience of electronic signatures if the signatory cannot find a nearby witness.

Also, a deed must be formally delivered in order to take effect and the delivery method for the deed signed electronically must be the same as those required for a deed signed in wet-ink.

Minutes and resolutions 

Minutes and members’ statutory written resolutions can be signed electronically and will be validly signed for the purposes of Section 1146 of the Companies Act 2006 if:

• sent or supplied in hard copy form by or on behalf of the person who signed, or
• sent or supplied in electronic form, provided that the identity of the sender is confirmed in a manner specified by the company or (where no such manner has been specified by the company) if the communication contains or is accompanied by a statement of the identity of the sender and the company has no reason to doubt the truth of that statement.

When can’t electronic signatures be used?

This may be relevant where the document needs to be filed with an authority or registry. For example, the Land Registry and the Land Charges Registry require wet-ink signatures on any paper documents lodged with them and HMRC ‘would normally expect’ to stamp a document executed in wet-ink.

However, Companies House does accept electronically signed documents and it is likely that other registries will follow suit.

The JWP guidance states that where a document may be subject to the jurisdiction of a foreign court, it will be a matter of local law as to whether electronic signatures are recognised and advice should be sought from overseas counsel in advance of signing by electronic signature. 

What constitutes an ‘original’ document?

Electronic signing understandably raises questions as to whether an electronically signed document constitutes an ‘original’ document. The JWP guidance provides that:

• where an ‘original’ document executed electronically was to be produced as evidence, an electronic version of that executed document or a hard-copy print out would suffice
• where an undated document is executed electronically, it may be validly dated with the authority of the parties by either inserting the date electronically or by printing it out and inserting the date by hand
• after a document has been executed electronically, amendments may be made to it (electronically or in manuscript) to the same extent as amendments may be made to a document executed in wet-ink

Comment

The desire of clients to use electronic signatures in commercial transactions is becoming increasingly common. The guidance confirms the validity of use of an electronic signature and concludes that there is no legal reason why an advanced electronic signature cannot be used in place of a wet-ink signature, with a few exceptions. Whilst the JWP guidance contains nothing new or surprising, it does provide a degree of clarity and stands as a practical and helpful summary of current understandings.

The practice note of the joint working party of the Law Society Company Law Committee and the City of London Law Society Company Law and Financial Law Committees can be accessed here.