UK: COVID-19 UK: Corporate Contracts And Electronic Signatures - When Should These Be Used?

The precautions being put in place globally to address the spread of Coronavirus (COVID 19) include recommending or requiring many people to work from home. This has raised the question of how to execute documents in these circumstances and whether it is possible to legally execute documents by electronic signature. The appropriate method of execution will depend on the applicable fact pattern, the type of document, the form of electronic signature to be used and other relevant factors.

Under English law, in order for a binding contract to be created the key elements of offer, acceptance, consideration, intention to create legal relations and certainty of terms must be present. The application of these principles does not depend on the particular technology that is used to create the contract. Therefore, when seeking to contract by electronic means, the parties will need to consider whether the key elements for contract formation are present in the electronic communication or contracting process that is being used.

If parties wish to enter into a contract that is subject to certain statutory requirements, important questions arise as to whether the prescribed formalities can be satisfied by the particular electronic means adopted, and the extent to which a contract created electronically is capable of having the same effect as a traditional paper contract.

This note also considers the formalities for the execution of documents other than contracts by way of electronic signature, such as board minutes and shareholder resolutions.

Simple contracts

In the absence of any (usually statutory) requirement, there is no need under English law for contracts to be in any particular form; in fact they can be entered into orally, provided there is offer and acceptance, consideration, certainty of terms and an intention to be legally bound.

Therefore, a simple contract may be concluded using an electronic signature.

Deeds

A number of legal transactions require the execution of a deed in order to be effective. Strict formalities must be observed to create a valid deed which are more onerous than for a document that is required simply to be in writing or signed. In particular:

1. A deed must be in writing.
2. It must be clear from the face of the instrument that it is intended to take effect as a deed.
3. The instrument must be validly executed as a deed. The applicable execution formalities for a deed will differ according to the legal personality of the executing party.
4. A deed must be delivered.

Execution of a Deed

An instrument is validly executed as a deed by an individual if, and only if it is either signed by the individual in the presence of a witness who attests the signature or at the direction and in the presence of the individual and the presence of two witnesses who each attest the signature.

A document is validly executed by a company as a deed if (and only if) it is executed by the company and delivered as a deed (Section 46 of the Companies Act 2006). The methods by which documents (including deeds) can be executed by a company are set out in section 44 of the Companies Act 2006. These include: (i) signature on behalf of the company either by two authorised signatories; (ii) signature by one director of the company in the presence of a witness who attests the signature.

Who can act as a witness?

A party to a deed cannot be an attesting witness. There is no statutory requirement for the witness to be independent or disinterested. There is no prohibition on a signatory's spouse, co-habitee or civil partner from acting as a witness. It is also generally acceptable for an employee or director of a party to witness that party's signature. However, given that the purpose of requiring a party's signature to be witnessed is to provide, if necessary, unbiased evidence of what was signed, by whom and when, independent witnessing should always be required as a matter of best practice

Can Deeds be executed electronically?

To enable transactions to be completed without the need for a physical meeting or the circulation of hard copy documents for execution, it is common in practice for deeds to be executed in a "virtual" form.

This practice will generally involve the delivery of the executed deed by electronic means at closing (usually sending a pdf copy of the executed deed by email), the signature pages to the deed will be printed and executed by the parties using manual, "wet-ink" signatures.

Provided appropriate steps are taken to ensure that each party executes a complete version of the final deed, it is widely accepted that a binding deed can be created using a virtual closing mechanism of this type. There are two important exceptions to this general rule which are deeds registrable with the UK Land Registry and wills.

However, there has been less clarity as to whether the formalities for a valid deed are capable of being satisfied by electronic communications alone (that is, without the manual execution of a paper copy of the deed or its signature page) and, as the law currently stands, there are no legislative provisions in effect which deal with the electronic execution of deeds.

Witnessing an electronic signature

Even if it is legally acceptable for a deed to be made in electronic form and signed by an individual using an electronic signature, the question then arises as to whether it is possible to satisfy the witnessing and attestation requirements by wholly electronic means.

The Law Commission concludes that a statutory requirement for witnessing and attestation is capable of being satisfied in the case of an electronically executed deed where the witness is physically present in the same location as the signatory. The current law does not therefore allow for "remote" witnessing (for instance, by video link) where the witness is not physically present when the signatory signs the deed.

The Law Commission indicates that it may be possible for a company to execute a deed electronically by the signature of two authorised signatories under section 44 of the Companies Act 2006, as there is no requirement for the signatures to be applied to the same signature page at the same time.

Summary of deeds

In summary, wherever possible, deeds should be executed on e-signing platforms (as discussed below) and, in the case of deeds being executed by a company, by authenticating with the signatures of two authorised signatories. This removes any requirement for witnessing and attestation. The signing workflow is also much simpler. It will also forestall any (erroneous) claims made by the other party's lawyers that the deed cannot be validly witnessed using an e-signing platform.

Minutes and resolutions

A document (including minutes of a directors' meeting, directors' written resolutions and members' written resolutions) signed with an electronic signature by a person and sent or supplied to a company will have been sufficiently authenticated if it is sent or supplied in hard copy form by or on behalf of the person who signed it or it is sent or supplied in electronic form, provided that the identity of the sender is confirmed in a manner specified by the company. Where no such manner has been specified by the company the communication must contain or be accompanied by a statement of the identity of the sender and the company must have no reason to doubt the truth of that statement. In practice, an email from the relevant director containing his/her electronically attached signature(s) will suffice, but the more evidence of the identity and authenticity of the director the better (please see the "Evidential Weight" section below).

Minutes of the proceedings of a general meeting that are signed by the chairman using an electronic signature constitute evidence of the proceedings of that meeting. A record of a resolution passed otherwise than at a general meeting that is signed by a director or the company secretary using an electronic signature constitutes evidence of the passing of that resolution.

E-signing platforms

These platforms give a greater degree of control and collate more evidence of an intention to sign than a typical e-commerce website or pasting of a facsimile or JPEG image of a handwritten signature.

Where a transaction is executed using an e-signing platform such as Adobe Sign or DocuSign, a digital audit trail is generated. This records who signed the document including their email and IP address, any additional steps taken to authenticate the signatory (such as a passcode sent to the signatory's mobile phone) and it is time-stamped. The digital audit trail is admissible in evidence under section 7(1) of the Electronic Communications Act 2000.

There are two important practice points in relation to a witnessing requirement where a deed is executed via an e-signing platform:

• The digital audit trail will record the IP address of the witness when they attest the deed. This IP address should be identical to that of the signatory and will evidence that the witness was physically present when the electronic signature was affixed to the deed.
• The Law Commission confirms that where a deed is executed by a company by the signature of two authorised signatories, there is no requirement for the signatures to be applied at the same time. Therefore, a company may already validly execute a deed with electronic signatures and without needing to satisfy a requirement for witnessing and attestation.

Using a combination of execution methods

There is no reason why a document cannot be signed by using a combination of different methods (such as electronic signatures and "wet-ink" signatures), so long as each party uses a valid signature method.

Evidential weight

If the authenticity of a document signed using an electronic signature were to be challenged, an English court would apply the same principles as it would in relation to wet-ink signatures. The document bearing the electronic signature would be accepted as prima facie evidence that the document was authentic and, unless there was evidence to the contrary, that would be sufficient to deal with the challenge. Evidence that the purported signatory or witness accessed the electronic document via his or her email account or computer or that he or she used a password, PIN or encryption key to access the document may be used to prove the authenticity of a signature. We note that e-signing platforms will ordinarily include some form of encryption or other steps to further evidence authenticity of the signatory as discussed above.

Checklist

When looking to use electronic signatures, the following checklist can help:

1. Is there any reason that an electronic signature may not be valid for the document you wish to sign?
2. Do you need to use a particular form of electronic signature, such as an advanced electronic signature or qualified electronic signature, in order for the signature to be valid?
3. If signing electronically, which e-signing system will you use? If you plan to use an e-signing platform, are you using additional security features, such as two factor authentication?
4. When using an e-signing platform such as Docusign or Adobe Sign, one party coordinates signing and issues invitations to the other signatories. Who will do that? If lawyers are involved in the transaction, which firm will take the lead? Agree protocols and procedures in advance.
5. Do you need to include any information in your contract or document to state when it will take effect?
6. What information will you retain to evidence the signature? E-signing platforms usually provide a certificate with the information collected. If you are not coordinating signing, have you requested a copy of that?

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.