Law Society provides further clarity on the use of electronic signatures in commercial contracts

Consensus on e-signatures validity

A recent practice note published by the Law Society endorses the use of electronic signatures (‘e-signatures’) in commercial contracts under English law. The practice note was prepared by a joint working party of the City of London Law Society, The Law Society Company Law and Financial Law Committees and approved by leading counsel Mark Hapgood QC. The practice note has been developed to give parties and their legal advisors greater confidence to adopt e-signatures over cumbersome manual, paper-based processes.

Use of simple e-signatures to validly conclude a contract has become commonplace. The vast majority of us will find ourselves regularly clicking ‘I accept’ on a website or signing for a delivery on a touchscreen with a stylus pen. Other forms of e-signature include:

• typing a name into a contract/email containing the terms of a contract;
• electronically pasting an image of a signature into the relevant signature block of a contract or into an email; or
• using a web-based e-signature platform to insert a signature into a contract.

Importantly, the working party confirmed that the use of e-signatures as a valid form of execution is not just limited to simple contracts but also documentation required by English statute to be ‘in writing’ or ‘signed’ including conveyancing documentation, assignment of copyright and stock transfer forms. The working party also found that minutes and resolutions of company meetings may also be signed using e-signatures and a combination of execution methods could be used within the same document (e.g. a mixture of wet ink signature/e-signatures).

Practical Considerations

When considering whether to execute a contract using an e-signature, a number of factors should be taken into account:

• Is the document governed by a law other than English law?

If so, consideration should be given as to whether other legal systems recognise e-signatures as a valid form of execution.

• Is there anything in the organisations constitutional documents or board resolutions restrict it from using e-signatures?

If so, this will prevent execution of the contract by e-signature unless the constitutional document is amended/board resolution passed to authorise the use of e-signatures.

• Is the electronic data sufficiently secure?

Consideration as to how the document will be distributed, signed and held electronically in a manner that is sufficiently secure must be considered on a case by case basis.

• Is it certain that the e-signature actually comes from the person purporting to sign?

Whether the person has accessed the document through a specific email address or used an e-signature platform with a unique login might be relevant. The practice note also provides that witnesses should be physically present, rather than using video-conferencing, so there can be no room for doubt.

• Does the place for signature have legal consequences (e.g. in relation to the payment of stamp duty land tax)?

It may be difficult to determine when and where a document has been signed when using e-signature. In such circumstances, it may be better to undertake physical signature of the document.

• Where will the document be filed?

Specific organisations, such as the Land Registry and HMRC, require certain documents to be filed in hard-copy form with a wet-ink signature.

Comment

E-signatures offer a modern alternative to the historical method of executing legal documents. The convenience with which they can be signed makes them far more efficient when compared to the formalities for signing contracts in “wet ink”. As a consequence, their use is likely to become increasingly common in commercial transactions.

It is important to note that the practice note relates to commercial and not consumer contracts and legal advice should always be sought where there is any uncertainty regarding the application of e-signatures. In particular, although the practice note indicates that it would be possible for a deed to be validly executed electronically, there have not been any cases on this point. Execution of deeds by e-signature is therefore not recommended until further clarity/guidance is provided in this area.

Please click here to read the practice note in full.