It is almost a year since new regulations[1] were introduced with the intention of clarifying the rules on the use of electronic signatures. However, one year on and many business (including law firms) still baulk at the idea of using e-signatures despite appreciating the importance of moving with the times and embracing technological change.

There are now a range of e-signature service providers available as this method of signing grows in popularity. These providers promise secure, efficient and effective e-signing platforms. Despite that, many businesses appear unwilling to use the method, particularly on high risk or high value transactions where the consequences of any mistakes can be serious.

Forms of e-signature

The regulations define three forms of signature, the first being simple electronic signatures. These are an electronic form of signature that a signatory can apply to a document as evidence of their acceptance or approval. This could be a scanned image of a signature or even the click of an “I accept” button. They do not require any form of special identification of the individual.

Many everyday transactions are already completed electronically and informal acceptance, with often limited confidence in the identity of the signatory, is good enough to form a valid agreement. This is understandable when you consider how much assurance a wet-ink signature can give. Common law states that a simple ‘X’ can amount to a signature but how does this represent a clear and identifiable individual?

An advanced electronic signature is uniquely linked to the individual and is capable of identifying them clearly. They are also linked to the data in a way that makes any subsequent changes to the content obvious.

A qualified electronic signature must meet the advanced electronic signature requirements and be backed by a trusted provider. This provider must verify the identity of the signatory and confirm the authenticity of the signature. More stringent requirements make qualified electronic signatures impractical for many everyday business transactions.

The regulations give qualified electronic signatures the same legal effect as handwritten signatures. However, they also provide that electronic signatures should not be denied legal effect just because they are not qualified signatures. Both the EU regulations and the UK’s Electronic Communications Act deal with the admissibility of electronic signatures but not their validity.

Validity

This is the biggest concern for parties being asked to accept e-signatures on formal legal documents. Providers of e-signature platforms promote the ability to achieve an advanced and/or qualified electronic signature with extra security to prevent fraud and ensure that the identity of individuals is established beyond doubt.

Some documents require specific statutory formalities to be satisfied before they are legally binding but can these be met using an electronic signature? For example:

  • the document must be in writing: the legal definition of ‘writing’ includes ‘typing, printing, lithography, photography and other modes of representing or reproducing words in a visible form’. Where a document is onscreen it will be in ‘writing’;
  • the document requires a signature: for something to be a signature the mark that is included in a document must have been inserted for the purposes of giving authenticity to it. So if an electronic signature is inserted in the relevant place in the document with an intention to authenticate the document, this condition will be satisfied. It is irrelevant what form the signature took; and
  • the document must be executed under hand: a document is generally taken to have been executed under hand if it is executed in any way other than by deed. So, satisfaction of the above requirements would be sufficient.

What about deeds?

The formalities for a validly executed deed are more stringent and there is a general reluctance to use electronic signatures on these documents. You can read about ‘Dastardly deeds’ in this Talking Finance blog.

Concerns have been expressed that deeds should not be signed electronically due to the potential for issues to arise in demonstrating validity, in particular the witness requirement. Although there have been concerns that the requirement for an e-signature to be witnessed is difficult to satisfy, there is no real difference between witnessing an electronic signature rather than a wet-ink signature. The witness must observe the electronic signing, which suggests that the witness should be physically present in the same room, as with witnessing a wet-ink signature.

It is best practice for the witness to be physically present at any electronic signing rather than viewing the process over video link or some other form of technology. However, every case would be considered on its own merits and there is no strict rule in place.

Evidence

UK legislation confirms that any electronic signature is admissible in evidence if there is any doubt as to its authenticity and/or integrity. The party challenging the signature would be required to produce some evidence to the contrary. This is also the case when it comes to wet-ink signatures.

It remains to be seen if there will be an increase in the use of e-signatures for formal legal transactions. However, as the rise of technology marches on this seems inevitable, particularly as the guidance suggests that using them is permitted in most circumstances, so long as care is taken and an agreement as to their use is reached between the parties.

This blog post was written by Elliot Gibson. For further information, please contact:

Sophie Brookes, partner, Corporate

T: 01618367823

E: Sophie.Brookes@gateleyplc.com

[1] The EU Regulation on Electronic Identification and Trust Services for Electronic Transactions


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This blog is intended only as a synopsis of certain recent developments. If any matter referred to in this blog is sought to be relied upon, further advice should be obtained.