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Law Commission publishes consultation paper on electronic signatures

Law Commission publishes consultation paper on electronic signatures

  • United Kingdom
  • Intellectual property
  • Technology
  • Technology, Media and Telecoms

03-09-2018

Introduction

In December 2017, the Law Commission of England and Wales (the “Law Commission”) published their Thirteenth Programme of Law Reform1 which highlighted electronic signatures (“e-signatures”) as an area that requires significant reform. At the time, the Law Commission stated that e-signatures could “boost Global Britain and help enhance the UK’s competitiveness as we leave the EU2 The UK Government also recognised the importance of a clear digital strategy as the UK leaves the EU in its recent white paper on the future relationship between the UK and the EU. In the white paper the UK government highlights, amongst other things, the need for proposals recognising “equivalent forms of electronic ID and authentication, ensuring that these are secure, trustworthy and easy to use across borders”.3

Since December 2017, the Law Commission has been investigating whether there are limitations with the existing law on the electronic execution of documents and deeds which are inhibiting the use of e-signatures by commercial parties and consumers. The overarching goal of the project is to determine whether the law in this area is sufficiently certain and flexible to remain fit for purpose in a global, digital environment, particularly given the rise in interest in the use of blockchain and automated "smart" contracts to execute legal contracts.

On 21 August 2018 the Law Commission released a consultation paper containing its preliminary conclusions and proposals from its investigation and an invitation to stakeholders to give their views on by 23 November 2018.

Preliminary conclusions and proposals

Current law regarding the electronic execution of documents

As a result of a combination of the “eIDAS” Regulation4, domestic legislation5 and case law6, all types of e-signature are capable of meeting a statutory requirement for signature if an authenticating intention can be demonstrated (i.e. an intention to be bound by the application of the e-signature).

In view of this and having examined the laws of other jurisdictions that have specific legislation on e-signatures, the Law Commission believes that the current law is flexible and already accommodates e-signatures and that therefore it is not persuaded that a statement in statute that an e-signature is as valid as a handwritten signature is necessary for clarity and certainty.

Rather than a legislative amendment the Law Commission suggests that a claim could be brought using the test case procedure under the Financial List to get an authoritative ruling whilst a government-backed industry working group could be set up to produce guidance on practical and technical issues in relation to e-signatures.

Electronic execution of deeds and witnessing and attestation of electronic signatures

Witnessing and attestation (which stakeholders have highlighted as key barriers to the electronic execution of deeds) should be retained for deeds executed electronically as they serve an important evidentiary, preventative and cautionary function.

A person is capable of witnessing a signatory signing a document or instrument using an e-signature as long as the witness is physically present in the room and observes the signatory signing on-screen with the witness providing their attestation (i.e. their signature) immediately or shortly thereafter. However, the Law Commission is not convinced that, under current law, the same result could be achieved by a person witnessing and attesting a signatory’s signature remotely via video link.

A number of options for overcoming the lack of flexibility in respect of the witnessing and attestation of a person’s signature to a deed are put forward in the consultation paper. These include: legislative reform to permit witnessing via video link; a weaker option of permitting witnessing via a signing platform without a video link; and the use of more complex “digital signatures” produced by asymmetric or public key cryptography (although this would favour a particular technology). All of these options would require an overhaul of the existing legislation.

An interesting new concept of "electronic acknowledgment" is explored which would involve the signatory acknowledging to the witness by showing or sending them the document that they have e-signed. Shortly thereafter, the witness signs and adds a statement that they have acknowledged the signature. The process would be done via a platform which, due to the security credentials required to access it, would give each party comfort that they are dealing with the correct counterparty.

Delivery of deeds

Although this concept is quite dated and the Law Commission would like to see it modernised, it has not received sufficient input or feedback from stakeholders to suggest that the formal requirement for delivery hinders lawyers and businesses from executing deeds electronically.

Proposal for a wider review of deeds

The Law Commission is seeking views from stakeholders on whether there should be a separate project focussed on deeds and whether they are fit for purpose in the twenty-first century or if they should be abolished either for certain transactions or altogether.

Analysis

The Law Commission’s consultation paper represents a positive step forward in consolidating the legal industry’s interpretation of the law surrounding the electronic execution of deeds and other documents.

The consultation paper expressly agrees with and endorses the views set out in the practice note issued by the Law Society of England and Wales (the “Law Society”) in July 20167 (the “Law Society Note”) which recognised the validity of electronic signatures for commercial contracts and provided guidance on the extent to which e-signatures satisfy the requirement for documents to be “in writing” and “signed”. The practice note also provided some guidance on documents which still require a wet-ink signature, as well deeds, originals, counterparts and conflict of laws issues.

As the Law Commission suggests, the next logical step could be the bringing of an appropriate test case in order to obtain definitive judicial comment on the electronic execution of documents (including deeds). It is worth noting that a combination of the decision in the “Mercury”8 case in 2009 and the Law Society Note in 2010 (which set out practical guidance in relation to the method of remote execution suggested in that case) sparked wide-spread adoption of the “Mercury method” by parties looking to execute documents in wet-ink remotely. One would expect that positive judicial commentary endorsing the views set out by the Law Society, and now, the Law Commission, would have a similar effect and go a long way to removing the uncertainty which is holding back wider-spread adoption of e-signatures, particularly in high-value transactions where the proper execution of documents is critical (e.g. in M&A transactions or corporate restructurings). Click here for our views on the potential for e-signatures in M&A transactions.

It is also worth noting that whilst the consultation paper considers and opines on the legal validity of e-signatures and the electronic execution of deeds and documents, it does not address the practical or technical issues around the creation and evidence of an e-signature. It is therefore important for parties looking to use e-signatures (particularly via an online signing platform) to carry out appropriate technical due diligence on the proposed platform/solution so that they can be comfortable that a valid e-signature is created with a robust audit trail evidencing the signatory’s authenticating intention. For more information on this topic, see our previous article on e-signatures here.

The consultation paper does not explore whether certain registries that currently do not accept registration of documents executed electronically will (or should) continue to do so although it has contacted some of them (in particular, Companies House, the UK Ship Register, the Small Ship Register and the Civil Aviation Authority) for their views. It is expected that these will appear in the final paper. The Law Commission does acknowledge the fact that HM Land Registry is currently working on a system for the registration of electronically executed documents effecting the transfer of an interest in land and its conclusions are not intended to affect that separate project.

Invitation to participate in the consultation

The Law Commission is seeking views on all of the preliminary conclusions and proposals noted above by 23 November 2018.

We are planning on making a submission to the consultation and would welcome the opportunity to contribute your views to the consultation. If of interest, please feel free to contact us at [e-signatures@eversheds-sutherland.com] with your views.

Eversheds Sutherland is currently collating the views of our clients from a number of different sectors and industries. If you would like to contribute your views to the consultation please contact us at e-signatures@eversheds-sutherland.com with your views.

 


 

  1. Law Commission Thirteenth Programme of Law Reform 13 December 2017
  2. Project status and objectives of the 13th Programme of Law Reform
  3. “The future relationship between the United Kingdom and the European Union” white paper presented to Parliament by the Prime Minister by Command of Her Majesty on July 2018, page 36, paragraph 96.(c.)
  4. Regulation (EU) No 910/2014 of 23 July 2014 on electronic identification and trust services for electronic transactions in the internal market, repealing Directive 1999/93/EC.
  5. The applicable UK legislation is the Electronic Communications Act 2000 and the Electronic Signatures Regulations 2002.
  6. Specific cases mentioned include Bassano v Toft [2014] EWHC 377 (QB), Golden Ocean Group Ltd v Salgaocar Mining Industries Pvt Ltd and another [2012] EWCA Civ 265, Golden Ocean Group Ltd v Salgaocar Mining Industries Pvt Ltd and another [2012] EWCA Civ 265, Golden Ocean Group Ltd v Salgaocar Mining Industries Pvt Ltd and another [2012] EWCA Civ 265.
  7. Practice note on execution of a document using electronic signature by the Law Society Company Law Committee and The City of London Law Society Company Law and Financial Law Committees, July 2016.
  8. R (Mercury Tax Group Ltd) v Her Majesty's Commissioners of Revenue and Customs [2008] EWHC 2721

 

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