The end of ink is nigh

Following the Law Commission’s report on Electronic Execution of Documents in September 2019, the government has now issued its response. In a ministerial statement made on 3 March 2020, the Lord Chancellor Robert Buckland welcomed the Law Commission’s report into an “important topic” and provided a welcome endorsement of its conclusions on the validity of electronic signatures generally. Although many practitioners are reluctant to advise clients to enter into commercial transactions on the basis of e-signatures, it seems inevitable that the disruption caused by the Covid-19 outbreak will result in a considerable increase in their use. Do stakeholders in the property industry have anything to fear or should they be embracing the use of e-signatures wherever possible? Current regulatory framework The Electronic Communications Act 2000 and the eIDAS (the EU regulation on electronic identification and trust services for electronic transactions) provide the statutory framework for e-signatures, which is supported by English common law authority in the form of Golden Ocean Group Ltd v Salgaocar Mining Industries PVT Ltd [2012] EWCA Civ 265 and Neocleous v Rees [2019] EWHC 2462 (Ch); [2019] EGLR 49. The Law Commission’s view, as endorsed by the Lord Chancellor, is that: “An electronic signature is capable in law of being used to execute a document (including a deed) provided that: the person signing the document intends to authenticate the document;  and any formalities relating to execution of that document are satisfied.” To be accepted as an e-signature, the “signature” itself can come in a number of different forms. This might include a scanned copy of a handwritten signature, the typing/printing of a name, or something as simple as ticking an “I accept” box in a web browser.  The government and the Law Commission agree that no further primary legislation is required. With that background, why are practitioners frequently reluctant to recommend the use of e-signatures in practice?  The answer can lie in concerns about how e-signatures may be used to execute different documents and particularly documents that must be executed as deeds in order to be valid. There are various legal and practical challenges that must be navigated to ensure compliance with the additional requirements that are relevant to the execution of documents using e-signatures. What are the concerns? Deeds Strict formalities must be observed to create a valid deed, which are broadly more onerous than for a document that is required simply to be in writing or signed. Under English law the statutory formalities for the execution of deeds by UK companies (sections 43-48 of the Companies Act 2006), overseas companies (section 4 of the Overseas Companies (Execution of Documents and Registration of Charges) Regulations 2009) and individuals (the Law of Property (Miscellaneous Provisions) Act 1989) all require a signature in the presence of a witness, if signed by a sole director or an individual.  Furthermore, there is a statutory and common law requirement that a deed is delivered. Both of these requirements present complications in the context of the application of an electronic signature to a document. How will an e-signature be witnessed (see video witnessing below)? When will an electronically signed deed be delivered? The latter of these questions will be particularly significant in the context of the statutory deadlines that flow from the “effective date” of a land transaction for stamp duty land tax purposes and the registration requirement following creation of a charge by a UK company. Formalities There may be other statutory formalities to comply with, for example, the formality rules under the Wills Act 1837 preclude the electronic execution of wills. Perhaps the most significant for property practitioners are those set out in the Land Registration Rules 2003, which govern the prescribed form of certain deeds affecting registered land (Rule 206) and the Land Registry’s right to decide what form of deed and execution clause they will accept, in the absence of a prescribed form (Rule 212). The Land Registry is developing its own system for digital conveyancing, which incorporates an authentication service for e-signatures that are applied using the Land Registry’s dedicated platform. For the time being at least, there is no apparent intention for that system to facilitate a wider concept of electronic signatures.  Jurisdiction  Documents entered into by overseas legal entities generally need to be executed in accordance with the laws of the jurisdiction in which that entity is based. Where e-signatures are being proposed to conclude negotiations with an overseas entity, great care must be taken to ensure that their use will not impact on the validity of those documents. Constitution Although the statutory formalities for the execution of deeds have general application, it is frequently open to legal entities to alter that position, so that their constitution prohibits the use of e-signatures or prescribes additional formalities to be followed to achieve validity. Authority Consideration must be given to the authority of a person that applies a signature on behalf of a party – has a company director asked their assistant to apply the signature on their behalf, for example? If so, was the director able to delegate that authority individually or was the formal authority of the company required? Security  n Hacking: an electronic database storing images (or code) for e-signatures would represent an attractive target for hackers.  n Fraud: making electronic signatures available to third parties carries an inherent risk. Although many would point out that wet ink signatures are susceptible to forgery, the large scale reproduction or use of fraudulent e-signatures may result in greater harm.  Video witnessing The Lord Chancellor’s response to the Law Commission report specifically refers to the issue of video witnessing of e-signatures. Both agree that the requirement under the current law that a deed must be signed “in the presence of a witness” requires the physical presence of a witness. That means, for the time being at least, the witness must be in the same room as the signatory at the time the document is signed electronically.  The future A practical case-by-case analysis will be required to ascertain whether electronic signatures are a viable option for a particular document/transaction; however, the time and cost savings engendered by e-signatures and their limited carbon footprint have now been supplemented by the Covid-19 outbreak, which has put a sharp focus on alternative methods for executing documents, particularly those that can be actioned remotely. Many practitioners will justifiably point to the significant hurdles that still need to be overcome to facilitate the execution of deeds using e-signatures and we may need to wait for the promised wider review of the law of deeds before we see the emergence of a digital revolution that fully supports the widespread acceptance of electronic execution of deeds.  For the time being, practitioners may find it useful to first consider whether a document needs to be executed as a deed at all. The parties in Signature Living Hotel Ltd v Sulyok Signature Living Hotel Ltd v Sulyok [2020] EWHC 257 (Ch) executed corporate guarantees that were prepared as deeds; however, the formalities for execution of the deeds were not complied with. The High Court determined that the guarantee could nevertheless be enforced as a simple contract because all the other elements of a contract were present.  If a document does not need to be executed as a deed, the existing framework will, subject to due consideration of the concerns set out above, allow an electronically signed document to create valid and binding commercial obligations.  Key points The government’s response to the Law Commission report on the electronic execution of documents endorses the Law Commission’s view that electronic signatures may be used to validly execute documents The outbreak of Covid-19 has highlighted how restrictive traditional execution practices are A review of the draconian formalities for the execution of deeds cannot come soon enough for those wishing to roll out the use of e-signatures more widely It remains to be seen how video witnessing technology might be used to facilitate the execution of deeds in future, but the present position is still that a witness be ‘physically present’ Practitioners should consider whether a document must be executed as a deed in order to be valid; if not, the use of an e-signature to create a simple contract may be sufficient Pieter Boodt is a senior associate and Jack Rogers is a trainee in the real estate team at Russell-Cooke LLP