14 October, 2019
Both the Electronic Communication Act 2000, which defines electronic signatures and its authentication, and the EU Regulation elDAS (Electronic Identification, Authentication and Trust Services), which seeks to standardise the use of electronic signatures, appreciate the rapid development of the digital age and specifically the shift to using electronic means as an alternative to wet ink signatures for commercial efficiency and convenience.
Despite the existence of law in this area, in August 2018 last year, the Law Commission of England and Wales (a statutory independent body created by Parliament to review existing laws and recommend reforms) released a consultation paper containing its initial conclusions and proposals from its investigations into the statutory formalities surrounding the electronic execution of documents and deeds.
On 4 September 2019, the Law Commission published its report, the purpose of which was to 'address any uncertainty as to the formalities around the electronic execution of documents'. The report firmly sets out its position on the validity of electronic signatures. In short, the conclusion reached was that agreements executed via electronic signatures will be deemed validly executed under current law.
So, how does this impact you, as a business?
The Law Commission's assessment that electronic signatures are valid means that there is an option of using pen or paper or virtual means for signing board minutes and passing resolutions. Therefore, so long as a company's articles of association do not prohibit the use of electronic signatures and can be properly authenticated, board minutes and directors and shareholders resolutions can be passed electronically.
In order for a deed to be valid and enforceable, parties must ensure that the required formalities are satisfied i.e. it must be in writing and validly executed. Valid execution means that the deed must be signed in the presence of a witness who attests the signature and is delivered as a deed.
The report is of the view that if a witness is physically present when a document is being signed electronically, he/she will be a witness for these purposes. If that witness subsequently signs the attestation clause (using an electronic signature or otherwise), that deed will have been validly executed.
However, if the witnessing is done via electronic means (such as a video call) this will not be deemed satisfactory under current law. As such, the Law Commission has called for a review of video-witnessing for deeds as part of its recommendations to assess whether this remains fit for purpose.
In its report, the Law Commission makes recommendations to the Government for the creation of an industry working group to consider practical issues relating to the electronic execution of documents, provide best practice guidance for its use and, as potential reform, codify the law for the purposes of transparency and accessibility on this matter.
While the Law Commission views the use of electronic signatures valid in light of the law surrounding it, the report does not constitute a legally binding document but does provide useful guidance on the issue. Therefore, careful consideration should be given on the appropriate form of execution in each transaction rather than simply using electronic signatures as default moving forward. That said, the report does provide clarity and information on when/when not to use electronic means of execution and so it is likely to prompt further discussion on the use of electronic signatures.