Contracting Electronically: Getting it Right

Share on FacebookTweet about this on TwitterShare on Google+Share on LinkedInEmail this to someone

With electronic communications fast surpassing the use of traditional, paper-based forms, there are key issues of which to be aware surrounding the electronic creation of legally binding relationships, particularly by email.

Can electronic communications satisfy the statutory requirement for entering into a contract ‘in writing’?

It is a general principle of English law is that contracts do not always need to be in writing to be valid with the more common exceptions being contracts for the sale of land, assignments of intellectual property rights and share transfers.

So will an email or other electronic communication constitute writing for the purpose of these types of transactions? Unfortunately (and unsurprisingly) there is not a ‘one size fits all’ response! However, the Interpretation Act (‘the Act’) states that writing includes:

‘…typing, printing, lithography, photography, and other modes of representing or reproducing words in a visible form’

and therefore provided the Act applies, it is likely that the requirement for writing will be satisfied by email and even website trading.

Can the statutory requirement for a signature be satisfied by electronic means?

A further issue with regards to electronic contracts is how to effect each party’s signature. By signing an agreement, the parties are indicating their acceptance of its terms and that they intend to be bound by them – a vital component of any written contract. The relevant piece of legislation to consider in this case is the Electronic Communications Act (‘the ECA’), which gives a definition of electronic signature as anything which: 

a)       is incorporated into or otherwise logically associated with any electronic communication or electronic data; and

b)       purports to be so incorporated or associated for the purpose of being used in establishing the authenticity of the communication or data, the integrity of the communication or data, or both.

This means that the use of a person’s name at the end of an email could constitute an electronic signature although be aware that case law has shown that the automatic insertion of a person’s email address as the sender of an email does not amount to a signature for the purposes of entering into a contract.

Can a deed be entered into electronically?

In addition to the law imposing a requirement for some transactions to be subject to a written contract, there is a further requirement for certain transactions to be effected more formally by deed. Such categories include land transfers, leases and powers of attorney.

There are strict formalities in relation to executing a deed. In particular, that it must be:

  • in writing;
  • clear on the face of it that it is intended to take effect as a deed;
  • validly executed as a deed; and
  • delivered.

The signature of a deed often needs to be witnessed to be valid, or in the case of a company, signed by two authorised signatories. Unfortunately there is very little authority as to whether the above formalities can all be achieved electronically. A process has been established which enables part of the process to be completed electronically, with the signature page of the deed printed in hard copy and executed by the parties using ‘wet ink’ signatures.

Practical limitations of electronic execution

Even in circumstances where it is possible to successfully execute a contract electronically, there are other practical considerations which should be considered when deciding whether to enter into a contract in this way.

  • Certainty

With the availability of sophisticated computer software, an agreement entered into purely by electronic means is arguably open to a greater risk of manipulation post signature. It could also be lost or destroyed if stored electronically and without a hard copy. The use of a hard copy version of a document and a traditional form of signature also provides a greater degree of authenticity as having been accepted by all parties to the agreement.

  • Filing Requirements

In some cases, documents bearing a manual signature are required to be lodged with particular governmental bodies for registration purposes. This applies to contracts such as leases, purchases of land and some share transfers.

 

Whilst entering into some contracts can be achieved successfully through electronic mediums this is not always clear cut and dependant on the nature of the transaction. Given the potential complications, it would advisable to adopt a belt and braces approach by executing contracts (and in particular, deeds) in paper form using traditional ‘wet-ink’ signature wherever possible.

Forbes Solicitors regularly assists businesses and individuals with the creation of and entering into a variety of contracts and deeds. For advice and assistance with commercial contracts or electronic terms and conditions please contact John Pickervance in the Business Law Department by telephone on 0800 037 4628 or via our Contact Form.

This entry was posted in Corporate & Restructuring and tagged , , , , , , , .

Leave a Reply

Your email address will not be published. Required fields are marked *