E-signature reform – contractual issues in the digital economy era
Companies are increasingly questioning why their contracts and customer and supplier interactions cannot be entirely paperless. Whilst legislation and case law would suggest that it is possible, uncertainty remains around the legal status of electronic signatures (e-signatures), especially where legislation requires a document to be ‘signed’ or executed as a deed.
The EU-wide regulation on electronic identification and trust services for electronic transactions in the internal market (eIDAS), came into effect on 1 July 2016. It confirms that e-signatures cannot be denied legal validity simply because they are electronic, and that they are admissible as evidence in legal proceedings.
The UK's Electronic Communications Act 2000 (the Act) mirrors the admissibility provision in eIDAS, although does not expressly provide for the validity of electronic signatures. Recent judgments from the Court of Appeal and the High Court have also decided that electronic methods of signing, such as a typed name in an email and ticking on an ‘I accept’ button do satisfy a statutory requirement for a signature.
However, whilst a person is capable of witnessing an e-signature, currently the witness to the signing must be physically present.
Law Commission consultation
All of this uncertainty is inhibiting the use of new technology and led to a Law Commission investigation to consider whether legislative reform was needed as they recognised that:
E-signatures could boost Global Britain and help enhance the UK’s competitiveness as we leave the EU.
Following the investigation on 21 August 2018, the Law Commission launched a consultation, which Kennedys responded to, inviting views on:
- The use of e-signatures to execute documents where there is a statutory requirement that a document must be ‘signed’
- The electronic execution of deeds, including the requirements of witnessing and attestation and delivery.
The Law Commission believe that e-signatures are legally binding and so are suggesting legislative reform is unnecessary. Instead, they suggest that a test case would provide an authoritative ruling.
In addition they recommend a government-backed industry working group, to produce guidance on practical and technical issues in relation to e-signatures. In particular, the Law Commission suggest the group would be able to tackle issues on security, reliability and identity.
Electronic execution of deeds
The Law Commission is not convinced that, under current law, the witnessing of an e-signature could be achieved by a person witnessing and attesting a signatory’s signature remotely via video link. As such, they have put forward several options to overcome this lack of flexibility, which includes witnessing via video link, a signing platform without a video link and the use of complex ‘digital signatures’, all of which will require an overhaul of the existing legislation.
There are many jurisdictions which have a statement of validity in legislation that e-signatures are deemed ‘signed’, including Scotland, Hong Kong and New York. We, however, prefer the Law Commission’s recommendation, to effectively leave things as they are, as the current rules sufficiently confirm e-signatures legality but also provide flexibility. Clarification can then be sought from an appropriate test case to provide definitive judicial comment.
A limitation to the current position, however, is that the witnessing of an e-signature still needs to be done in person. This therefore undermines the potential of e-signatures, and we agree with the Law Commission, that reform is needed to allow full electronic execution of documents.
Whilst we are supportive of the electronic execution of documents, we do however have concerns over the security and reliability of online solutions and so this need for progress must be balanced with caution, over the risks of data breaches and fraudulent activities.
The outcome of the consultation remains to be seen, but with the deadline to respond by 23 November, we are unlikely to see any response before 2019. It is however positive to see our legal system join the 21st century, which will no doubt be pleasing to businesses to ensure transactions can be dealt with efficiently. Indeed, next on the Law Commissions agenda, and linked to the e-signatures consultation, is an ongoing study into smart contracts.