Closing deals in lockdown: the shift to e-signatures accelerates

The coronavirus (COVID-19) pandemic has forced businesses into remote working.

The current circumstances may not allow proposed signatories to be physically present to provide ‘wet ink’ signed documents, nor will signatories necessarily have easy access to a printer and scanner in lockdown to exchange scans in a “Mercury Tax compliant” manner.

In the world of social distancing, the electronic signature may now be king.

What is meant by an electronic signature?

An electronic signature can take many different forms but in simple terms reference to an electronic signature or e-signature is to a signature in digital or electronic form. The Law Commission has confirmed the following as being electronic signatures:

• A person typing their name into a contract or into an email containing the terms of a contract.
• A person pasting their scanned signature into the signature block of an electronic (i.e. soft copy) version of the contract.
• A person clicking an “I accept” tick box.
• A person using an electronic signature platform (such as DocuSign, HelloSign or Abobe Sign) to click to insert a typed or handwriting font into the execution block.
• A person using a finger, light pen or stylus and a touchscreen to write their name electronically in the signature block of the contract.

Are electronic signatures valid?

The Law Commission has been closely looking at the validity of electronic signatures for quite some time.  We commented on the consultation published by the Commission in August 2018 and on the report they published in November 2019.

In summary the report firmly came down in favour of electronic signatures.  The Commission concluded that electronic signatures were capable in law of being used to execute documents (subject to certain exceptions e.g. land registry documents and stock transfer forms) provided the person signing electronically intends to sign and be bound by the relevant document and that any required formalities relating to execution of that document are complied with (e.g. a deed may need to be witnessed).

The British government in March 2020 confirmed they agreed with the Commission’s findings, with Robert Buckland the Lord Chancellor and Secretary of State for Justice stating:

“I agree with the report’s conclusion that formal primary legislation is not necessary to reinforce the legal validity of electronic signatures. The existing framework makes clear that businesses and individuals can feel confident in using e-signatures in commercial transactions“.

In the absence of further legislation, this position is obviously not without risk of being challenged in the Courts. Given, however, that the Commission’s report effectively confirms previous guidance on the topic and reflects common market practice we feel the risk of challenge is low.

Can you execute a deed with an electronic signature?

The short answer is yes.  However, the relevant formalities required for execution of a deed will still need to be met which can present difficulties when using electronic signatures.

The Law of Property (Miscellaneous Provisions) Act 1989 (the “LP(MA)”) sets out the necessary requirements for execution of a deed (which apply regardless of the execution method).

An instrument is validly executed as a deed by an individual if, and only if:

1. it is signed:

• by him in the presence of a witness who attests the signature; or
• at his direction and in his presence and the presence of two witnesses who each attest the signature; and

2. it is delivered as a deed.

Section 1(3)(a) of the LP(MA) states that a witness must be “present” in order to witness the signature.

Commentary on this point has been clear that “present” in this context means “physically present” – i.e. geographically proximate, literally witnessing the signature with your own eyes. It is not sufficient for the witnessing to be carried out by video (although the industry working group has been asked to look at this further).

It was thought that deeds could not be electronically executed because the witness could not – by definition – be physically present.

How have electronic signing platforms dealt with this issue?

Electronic signature platforms such as DocuSign have proposed a solution.

‘In person signing’ allows signatories to choose a witness and allows the signatory to execute the deed in the presence of the witness, but only where the IP address and the time of signing by the signatory and the witness both match.

The IP address and the time stamp evidence that the witness did in fact use her own eyes to watch the signature being applied.

What’s more, the signatures, the IP addresses and the time stamps are all simultaneously wrapped up together with the full and final form of the contract.

Mercury Tax

When executing and delivering deeds remotely (whether execution is by electronic signature or just where parties exchange scans of wet ink signatures) it is essential to follow the rules set out in the Mercury Tax case.

We have covered this in previous articles  and further information can be found in guidance published by the Law Society.

Keep on closing deals (if you can)

Virtual/remote closings have been common practice in the legal industry for a while now, but the use of electronic signatures on transactions of significance is relatively recent phenomena.

E-signing technology has been put to use by large law firms and businesses (including major banks), and the team at HLaw.

Prior to the COVID-19 pandemic it was still more common to see documents executed in wet ink with scans being exchanged than it was for electronic signatures to be used.

Although there was increasing acceptance of the tech there was still a small but significant part of the legal world who were firmly holding out against wider adoption. We sometimes came up against lawyers on deals who still refused to accept execution by electronic signatures due to concerns over validity despite there being very little nowadays to support this position.

In the current crisis though everyone will have to take a much more flexible position on this issue given signatories may not have any other option to get documents signed.

As in most other walks of life, life-in-lockdown is accelerating transitions away from traditional paper-based ways of doing things towards the digital.  Had there been no coronavirus lockdown then undoubtedly those transitions would have taken much longer.

The message is quite clear. Keep on closing deals if you are lucky enough to be in such a position during this difficult time – the tech allows you to do so and it is only going to become more widespread from here on out.

This piece was researched and prepared by Amir Kursun and Nick Westoll.

All the thoughts and commentary that HLaw publishes on this website, including those set out above, are subject to the terms and conditions of use of this website.  None of the above constitutes legal advice.  None of the above should be relied upon.  Always seek your own independent professional advice.

Humphreys Law