News & Insight

Newsletter October 9, 2018
Law Commission publishes consultation on the electronic execution of documents

Law Commission publishes consultation on the electronic execution of documents

 

T

he Law Commission (the “Commission”) recently published a consultation paper (the “Paper”) – OK, it was in August, we have been a little busy closing deals! – on electronic execution of documents. The Paper’s aim is to “ensure that the law governing this area is sufficiently certain and flexible to remain in a global and digital environment.

The Commission is well disposed to e-signatures generally: they “speed up transactions”.

Simple contracts and the problem with deeds

Today, most lawyers are comfortable seeing simple contracts signed up by way of electronic signatures or scanned signature pages exchanged by email.  Platforms such as DocuSign – which we use – have added welcome layers of additional sophistication as regards the order and timing in which parties can sign.

In corporate finance, however, the problem lies with deeds and in particular the requirement for a witness to be present at signing.  The formalities linked to deeds are seen to be of a protective, cautionary and evidential nature, giving the parties pause for thought as regards the seriousness of the document before them.

Some markets, and some law firms, have got themselves comfortable using DocuSign’s technology to validly execute deeds – the process requires and evidences that an electronic signature was affixed by the witness at the same time and on the same computer as the signatory.

On high value transactions, and in particular on deals involving senior debt and finance generally, physical completions, wet ink signatures and witnesses being physically present are still the norm and probably will be saving specific legislation or case law on the point.

Helpfully, the Commission has reviewed the current law relating to the execution of documents and has provided their provisional view on the status of electronic execution.

Provisional green light

The Paper states that under current law, electronic signatures are capable of “meeting a statutory requirement for a signature if an authenticating intention can be demonstrated”. The Commission has also highlighted that the legal community would prefer a clear legislative statement in order to avoid doubt on the matter. However, it is not currently persuaded that legislation needs to be introduced in order to tackle this issue, due to the fact that the current law in England and Wales already accommodates the use of electronic signatures.

In regards to determining the effectiveness of an electronic signature, the Paper directs the legal community towards the test case procedure under the Financial List. The aforementioned procedure should be provisionally used by practitioners (in case of doubt) whilst the Commission sets up an industry working group (backed by the Government, which will provide a detailed guideline on the effectiveness and validity of electronic signatures).

The compatibility of electronic signatures and the execution of deeds

According to the Commission, “deeds are a type document with more stringent formality requirements than a document which simply requires writing or a signature”. The ‘stringent formality’ referred to by the Commission, is the fact that a deed needs to be witnessed by a third party.

Unlike for simple contracts, there are no legislative provisions in effect today which deal with the electronic signature of deeds. This can be seen as a barrier for practitioners who wish to electronically execute deeds in order to speed up the process of a transaction.

The Commission provisionally states that a deed may be electronically executed as long as the witness is physically present when the electronic signature is applied to the relevant document. This means that an individual would not be able to witness the signature being applied to the document via a third-party video program.

This has led the Commission to consider options for reform in order to allow more flexible arrangements when executing a deed electronically.

Reforming the execution of deeds

The Commission considers and provisionally proposes that the use of a video link is possible in order to witness the signature of a deed. This would allow a witness to view the initial signature and then use a signing platform in order to affix his own signature on the deed in order to attest to the fact that the relevant individual did in fact sign the deed.

Additionally, the Paper puts forward the fact that the Commission is considering moving away from the traditional witnessing and attesting process of a deed. This is a scenario where the witness would not see the signatory applying the electronic signature but be given satisfying evidence that the signatory has done so (such as a PIN number).

The concept of ‘electronic acknowledgement’ is referred to in the Paper and would potentially provide a similar evidential quality to the act of physically witnessing a document. If a signatory sends an acknowledgement that they have signed the document to the witness (via a signing platform), the witness would then be able to attest the signature and the deed would be validly executed.

Conclusion

The Commission believes that the provisional conclusions included in the Paper will “increase confidence in the legal validity of electronic execution”. The consultation closes on 23 November 2018 and the Commission has made it clear throughout the Paper that it seeks legal practitioners to voice their opinions on the matters listed throughout this article.

We are interested to see how the law in this field will evolve and whether any of the reforms proposed by the Commission will actually become part of English law.

Humphreys Law