14 January, 2021
Since the key case of R on the application of Mercury Tax Group and another v HMRC  EWHC 2721 was heard over a decade ago, there have been significant developments in respect of the understanding of electronic signatures of legal documents, when they can be used, and their enforceability.
Recently, the Law Society's Company Law Committee (CLC) published a Q&A on how to complete virtual executions in commercial and corporate matters. Some key insights are repeated below:
• Where a witness is required, they must physically witness the act of signature (whether that signature is applied electronically or otherwise). Although an amendment has been made to the Wills Act 1837 to specify that 'presence' for the purposes of witnessing a will does include virtual presence, for example by a video call, no such equivalent change has occurred in the commercial contracts sphere which would provide any certainty that anything other than physical presence is required to witness a signature.
In order to comply with the requirement for a witness to be physically present whilst also observing social distancing in the ongoing Covid pandemic, options include witnessing through a window, at a distance or in an outside public space.
• A child, spouse or other family member of a signatory may act as witness, unless they are also a party to the contract or the document specifically requires the witness to be independent. In any event, the witness should be someone whose evidence may be relied on should the document be challenged.
• The CLC considers that a document executed by an individual may be validly executed by another person adding the signatory's electronic signature to the document, but this will depend on whether the person inserting the signature had the signatory's authority to do so. A valid delegation of authority to sign a deed on behalf of an individual must be given by deed.
In the case of a document executed by a company in accordance with section 44 of the Companies Act 2006, the CLC considers that there is a strong argument that this approach does not constitute valid execution, because section 44 requires signature "by" a director (or company secretary).
• It is possible for a document to be validly executed using a combination of different signature methods, provided that each signature method is valid. Signing in counterpart may facilitate this.
• Companies House now accept electronic signatures on shareholder written resolutions, forms and documents, and electronic signatures acceptable to Companies House include digital signatures provided by e-signing platforms and images of signatures pasted into documents.
• Minutes from a general meeting that are signed by the chair using an electronic signature constitute evidence of the proceedings of that meeting in accordance with section 356(4) CA 2006.
• It is not necessary for a company's articles to specifically provide that it can enter into documents or transactions using an electronic signature.
• As electronic signatures are valid under English law and admissible in evidence, the CLC does not consider it necessary for a document to include a statement confirming their validity. In fact, including such wording risks creating an unhelpful, and unnecessary, precedent.
• Whilst there are numerous legally effective methods of electronically signing a document, parties may consider the evidential weight of a particular method of electronic signature or of obtaining confirmations that the signatory did intend to execute the document. There is generally no legal requirement to do so, apart from in particular areas. For example, the Land Registry specifies requirements that must be satisfied to make a change to the land register and banks may insist on obtaining additional evidence in finance transactions.
It is likely that electronic signatures are only going to continue to be used more widely, so it is important that parties to contracts are aware of the laws, enforceability, and best practice guidance surrounding the same. For more information on commercial contracts, in respect of their drafting, negotiation and execution, contact John Pickervance, Head of Commercial. For more information on ensuring compliance with the requirements of Companies House, associated legislation and your companies' articles amid the pandemic, contact Pauline Rigby, Head of Corporate.