Following a consultation in 2018, the Law Commission in England and Wales has issued its report in September 2019 (the "Commission's Report") clarifying the legal validity of the use of an electronic signature to execute a valid contract and providing recommendations to the Government to improve the landscape. But what is the current legal position?
This note will focus on the validity of contracts signed electronically in a business context considering the Scots law and English law perspectives.
What's an Electronic Signature?
As the name suggests, this is a signature in electronic form, the equivalent of a written signature. There are different forms of electronic signature, the most common form of electronic signatures we have seen in the past being a scanned electronic representation of a handwritten signature. However, there are other forms, including a signature created by cryptographic means
The different forms of electronic signature can be divided into three groups:
- simple electronic signatures - these are scanned signatures or a tick-box plus declaration;
- advanced electronic signatures - these can identify the user, are unique to them, are under the sole control of the user and are attached to a document in a way that it becomes invalidated if the contents are changed; and
- qualified electronic signatures - these are advanced electronic signatures with a digital certificate encrypted by way of a secure signature creation device e.g. smart card
Considering the legislative provisions on electronic documents and signatures, Scots and English law have their basis in European law. Regulation (EU) No 910/2014 (the "eIDAS Regulation"), which replaces EU Directive 1999/93/EC, has direct effect in EU Member States from 1 July 2016. It establishes an EU-wide legal framework for electronic signatures.
The eIDAS Regulation defines:
- (a) an “electronic signature” as “data in electronic form which is attached to or logically associated with other data in electronic form and which is used by the signatory to sign”;
- (b) an “advanced electronic signature” as one which meets the following requirements: (i) it is uniquely linked to the signatory; (ii) it is capable of identifying the signatory; (iii) it is created using electronic signature creation data that the signatory can, with a high level of confidence, use under his sole control; and (iv) it is linked to the data signed therewith in such a way that any subsequent change in the data is detectable; and
- (c) a “qualified electronic signature” as “an advanced electronic signature that is created by a qualified electronic signature creation device, and which is based on a qualified certificate for electronic signatures”.
So what's changed?
Going beyond the notion of admissibility in court of electronic signatures derived from the original EU Directive 1999/93/EC, Articles 25(2) and (3) of the eIDAS Regulation provide that a qualified electronic signature shall have the equivalent legal effect of a handwritten signature. Article 25(1) of the eIDAS Regulation also provides that an electronic signature shall not be denied legal effect and admissibility as evidence in legal proceedings solely on the grounds that it is in an electronic form or that it does not meet the requirements for qualified electronic signatures.
The Electronic Communications Act 2000 (the "ECA 2000") that implemented the now repealed original Directive provides a statutory framework for the admissibility of electronic signatures in the UK. However, although the ECA 2000 deals with the admissibility of electronic signatures, it does not deal with the legal validity of electronic signatures. In determining the validity of electronic signatures, other relevant pieces of legislation and wider principles of English and Scots common law must be considered.
Legal Basis - Execution of Contracts Electronically
Simple Contracts
In general, the formation of contracts under both Scots law and English law can be done informally. As such, in the absence of any statutory requirements, neither writing nor any particular form is necessary for the contract to be legally binding. In fact, it can also be entered into orally, provided the essential requirements for the creation of a binding contract are present: an offer, acceptance, consideration, certainty of terms and the intention to create legal relations. Thus, a simple contract may be concluded using an electronic signature.
A key issue is to be clear in the signature process that the parties can be in no doubt that by signing electronically - for example by ticking a box - they intend to be legally bound. In online processes, this is commonly dealt with by prominent notices or an "are you sure" navigation page.
Both in Scots and English law, there a number of types of document that are subject to specific formalities imposed by statute, including a requirement for the document to be in writing and/or signed under hand.
English law
There is a range of statutes with provisions requiring contracts to be in writing and have a signature to be validly executed.
In reviewing other relevant legal provisions, a Joint Working Party comprising The Law Society, Company Law Committee and The City of London Law Society Company Law and Financial Law Committees ("the JWP") formed the opinion that a contract executed using an electronic signature (and which may be signed solely in electronic form) satisfies a statutory requirement to be in writing and/or signed and/or under hand for the following reasons:
(i) Writing: The Interpretation Act 1978 defines “writing” to include “typing, printing, lithography, photography and other modes of representing or reproducing words in a visible form”. As such, where the contract is represented on a computer screen (all personal computers, including desktops, laptops and smartphones) in a way that a person can read its terms properly, it will be “in writing”.
(ii) Signature: The test used to determine whether something is a signature or not is whether it was inserted in a document with the intention of giving authenticity to it. Where the signatory inserts an electronic signature into the appropriate place in a document with the intention of authenticating the document, a statutory requirement for that document to be signed will be satisfied. It does not matter how the signatory inserted the electronic signature into the document nor in what form that signature was inserted.
(iii) Under hand: A document is generally understood to have been executed under hand if it has been executed otherwise than by deed. The use of an electronic signature with authenticating intention would be sufficient for a document to have been executed under hand.
The Commission's Report mirrors this position clarifying that an electronic signature is capable in law of executing a document provided that the signatory signing intends to do so and that any other requirements, such as signing in the presence of a witness, are fulfilled.
At common law, a deed (a purely English concept) must be in writing. Despite the Commission's Report, there remains some doubt whether a deed being signed using an electronic signature would be validly executed, particularly because of difficulties in satisfying any requirement for witnesses using electronic means.
There is little evidence of electronic execution being used for deeds in practice in contrast with simple contracts. English lawyers still exercise caution in this regard, some continuing to use wet signatures distributed by PDF. We consider this is unlikely to change, lawyers naturally erring on the side of caution, especially since, in the Commission's Report, consultees (various law firms) indicated that the primary hindrance to electronic execution of deeds are: technical and practical issues including the operation of the signing platform; issues of commercial confidentiality where the parties do not want a witness unrelated to the deal to have the full document sent to them; and that upon the witness receiving the document, they must satisfy themselves that this was the same document that they had observed being signed earlier. The Commission has recommended an industry working group in Government to consider potential solutions to the practical and technical obstacles to video witnessing of electronic signatures on deeds and attestation.
Scots law
Scots law has advanced further than English law in relation to the valid execution of electronic signatures albeit in large part less usefully so for much of our day-to-day business. As a starting point, the Requirements of Writing (Scotland) Act 1995 provides that formal writing is required in four instances (for example when creating a guarantee, a will, or a trust where the trustor is also a trustee, or an offer to buy property).
Bearing these instances in mind, documents falling outside the scope of the legislation do not attract writing requirements, so any form of electronic signature (as defined in the ECA 2000) is competent, although use of an advanced electronic signature will carry greater evidential weight than simple (but still competent) electronic forms such as scans of the original handwritten signature or tick boxes.
The main problem for Scots law is that documents which require formal writing under the Act, if executed electronically, require an advanced electronic signature.
The Land Registration etc. (Scotland) Act 2012 and the Electronic Documents (Scotland) Regulations 2014 now confer the same status and standards of validity on documents created in electronic form to those given to hard-copy paper documents (with the exception of wills and testamentary writings which must be created and signed in traditional form for the meantime).
This also includes documents relating to interests in land and trusts. While the law permits them to be signed by electronic means, Scotland is at the more prescriptive end of the spectrum, requiring advanced electronic signatures for these categories of documents. For documents to be accepted in certain registries, Scots law requires qualified electronic signatures. This will provide self-proving (probative) execution and the qualified electronic signature will attract the same statutory presumptions of authenticity as a wet-ink executed and witnessed paper document.
Recently, the Scottish Ministers made the Registers of Scotland (Digital Registration, etc.) Regulations 2018 (SI 2018/72) (the "2018 Regulations"), which came into force on 12 March 2018. The 2018 Regulations facilitate the introduction of new digital registration services that may be provided by Registers of Scotland. In addition, they include a presumption in favour of the use of digital registration services. However, in practice for the moment, while the law permitting electronic documents of the type to be registered in the Land Register, the Register of Sasines or the Books of Council and Session (e.g. dispositions transferring title to land) is in place and has been brought into force, the regulations have not yet been issued that would allow registration of such electronic documents.
There have also been doubts in Scots law surrounding the competence of scanning a wet-ink signature on paper (the traditional document) and delivering by email rather than physically delivering a hard-copy. This doubt also extended to execution in counterpart. Since the implementation of the Legal Writings (Counterparts and Delivery) Scotland Act 2015 these doubts have been removed. Electronic delivery is competent for documents created and signed on paper as well as for electronic documents. Although delivery by electronic means constitutes effective delivery in relation to the traditional document, what is received by that means is not to be treated as being the traditional document itself. As such the Act states that the traditional document is to be held by the sender in accordance with whatever arrangements have been agreed by the sender and recipient(s).
Conclusions
There remain few, if any, legal restrictions to the use of electronic documents, signatures and delivery in Scotland and England. However, in practice, the use of electronic signatures to execute documents is only common for documents where witnesses are not desired - on-line contracts, hire purchase agreements, credit card applications, simple loan agreements, etc. It will mainly be practical points that will remain as factors that discourage the adoption of electronic contracting, such as managing the risk associated with the use of technology.
On the whole, Scots law in theory provides a clearer framework in terms of the validity of electronic signatures, but in practice that framework is less user-friendly in many practical situations because of the widespread need for an advanced electronic signature. However, the law review carried out by the JWP of the current provisions including EU law and case law indicate its acceptance in English law. This stance is reiterated in the Commission's Report. The Law Commission has also outlined key recommendations which include: a multi-disciplinary industry working group to consider the practical issues generally in this area and specific issues such as the practicalities of video witnessing for deeds as well as provide best practice guidance; a future review of the law of deeds to consider whether the concept remains fit for purpose; and the recommendation of codifying all sources of law pertaining to the execution of contracts by electronic signature into a single piece of legislation improving the accessibility of the law. It will be interesting to keep an eye on the progress of these recommendations in the hope that it provides some further reassurances to businesses and individuals alike and encourages the wider use of electronic signatures.
On a final note, irrespective of the use of electronic signatures or wet-ink signatures, the enforceability of the contract depends on the wider considerations - whether the signatory has the authority to sign; whether the parties signed documents in identical terms and whether the document could not be altered after the signatures. These are factors which must always be borne in mind to ensure competent execution of documents.
