The events of the past 18 months have accelerated the desire and need for businesses to be able to conclude contracts electronically but what are the legal implications?
Satisfying a statutory requirement for writing and signature
It is a statutory legal requirement that certain contracts (those dealing with assets such as intellectual property rights, shares and land or providing a guarantee) are in writing and signed by or on behalf of the parties to them. The current view of the legal world is that:-
- where a contract is represented on a screen in a manner which enables a person to read its terms properly, it will be “in writing” at that point; and
- contracts can be validly signed by electronic means provided that the person signing the document intends to authenticate the document and any relevant formalities relating to the execution of that document are satisfied (for example, where the document is a deed that the signature is witnessed – see below).
Should a contract concluded by electronic means be subject to legal proceedings then section 7(1) of the Electronic Communications Act 2000 provides that in any legal proceedings (a) an electronic signature incorporated into or logically associated with a particular electronic communication or particular electronic data, and (b) the certification by any person of such a signature, shall each be admissible in evidence in relation to any question as to the authenticity or integrity of the communication or data.
Execution of Deeds
In order for a deed to be validly executed by an individual the instrument must be signed “in the presence of a witness who attests the signature and delivered as a deed”. Witnessing involves observing the signature of a document. Attestation involves the additional step of recording, on the document itself, that the witness has observed the document being signed.
The witness does not need to vouch for the identity of the signatory, read the document or do anything other than observe the signatory signing it but, at present, the position remains that the witness must be physically present in the same location as the person signing at the time the person signs, even where both the person executing the deed and the witness executing or attesting the deed are using an electronic signature.
Contracts relating to land
Traditionally, where documents have to be registered at HM Land Registry (HMLR), a paper document bearing a handwritten “wet-ink” signature will be required for registration purposes in order to take effect, or to have legal protection. Whilst, HMLR has relaxed some of these requirements in response to the Covid-19 pandemic, our recommendation would be that any security involving land (including legal or equitable charges and debentures where property is or may in future be charged) should continue to be executed as a handwritten “wet ink” document.
For those businesses which wish to move to electronic contracts we would recommend:-
- ensuring there are no legislative barriers (such as where land is involved) and that all documents which are to be signed electronically are reviewed and include appropriate wording to confirm the parties intent;
- using recognised e-signing platforms offering two factor authentication requiring the signatory to enter a password or access code sent via SMS. Such platforms provide a valuable digital audit trail which is admissible in legal proceedings and will carry substantial evidential weight in proving the authenticity or integrity of a document.