Signing deeds during COVID-19 - Virtual execution and e-signatures

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Article

02 July, 2020

Since working from home has become "the new norm", we've been asked to consider whether the use of digital transaction platforms and e-signatures is appropriate for executing deeds. In addition, whilst social distancing continues, can witnessing of signatures be done remotely?

On 18 June 2020, the Law Society published a further amended version of its position on the use of virtual execution and e-signatures during the COVID-19 pandemic. The note includes tips on how to operate in practice, including the need for discussions between legal representatives to clearly agree how to manage a transaction and clearly recording evidence of signatures on file.

Execution

Section 46 of the Companies Act 20016 provides that a document is validly executed by a company as a deed only if it is executed by the company and delivered as a deed. The methods of execution of documents (including deeds) by a company are set out in section 44 of the CA 2006, including:

  • Signature on behalf of the company either by two authorised signatories (s44(2)(a)); or
  • Signature by one director of the company in the presence of a witness who attests the signature (s44(2)(b)).

The Act does not specify the criteria for a signature for the purposes of section 44. However, in 2019, the Law Commission published a report on electronic execution which includes the following statements of law:

  • 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.
  • Save where the contrary is provided for in relevant legislation or contractual arrangements, or where case law specific to the document in question leads to contrary conclusion, the common law adopts a pragmatic approach and does not prescribe any particular form or type of signature.
  • The courts have held various non-electronic forms as amounting to a valid signature, including signing with an 'X', signing with initials only and a description of the signatory if the signature is sufficiently unambiguous. Electronic equivalents of these non-electronic forms of signature are likely to be recognised by a court as legally valid. There is no reason in principle to think otherwise.

If the parties to a deed agree to adopt electronic signatures and there is no legal or contractual requirement to the contrary, consideration must still be had as to potential for fraud. The Law Society noted that the use of electronic signatures does not change specific regulatory requirements or common practice in relation to verification of identity, authenticity of signature and whether a document has been properly approved. If authenticity cannot be assumed, the Law Society recommends the use of additional and objective sources of verification such as video or photographic evidence.

Witnessing

An individual's signature and attestation by the witness must form part of the same physical document (R (on the application of Mercury Tax Group Ltd) v HMRC [2008] EWHC 2721 (Admin)). Although it has previously been considered by the Law Society, we cannot be confident that the current law allows for "remote" witnessing (for instance, by video link) where the witness is not physically present when the signatory signs the deed.

This may limit the practical advantage of using an electronic signature to execute a deed in accordance with section 44(2)(b) of the CA 2006. However, the Law Commission has indicated that it may be possible for a company to execute a deed electronically by the signature of two authorised signatories under section 44(2)(a), as there is no requirement for the signatures to be applied at the same time.

In its 2019 report, the Law Commission recommended that an industry working group be established to consider potential solutions to the practical and technical obstacles to video witnessing of electronic signatures to deeds, and how these solutions can protect against fraud. On 3 March 2020, the Lord Chancellor endorsed the Law Commission's conclusions and accepted its recommendation to convene an industry working group to consider the question of video witnessing of electronic signatures.

In the meantime, whilst electronic signatures may be acceptable to execute a deed, witnessing must continue to be in person. The Law Society considers that physical presence is possible while also maintaining social distancing. Furthermore, clear evidence of physical presence should be obtained, such as a video recording (subject to getting appropriate data protection rights consents).

For more information contact Lachlan McLean in our Construction & Infrastructure department via email or phone on 01772 220219. Alternatively send any question through to Forbes Solicitors via our online Contact Form.

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