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Electronic Signatures: The Future of Commercial Contract Execution?

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We are often asked whether commercial contracts can be signed electronically, particularly in situations where signatories are located in different areas of the world.

Currently, where the parties to a transaction are not physically present at the same meeting, it is common for the lawyers involved to arrange for the signing to take place remotely. This involves the signatory signing a hard-copy document, scanning it and then circulating the scanned document by email. However, as technology evolves, the use of electronic signatures has increased in popularity and this is a trend which is expected to continue.

Leanne Thomas, Associate Director in Greenaway Scott’s Corporate team, takes a closer look at this trend.

An electronic signature can take a variety of forms:

  • somebody typing their name into a contract or email with contractual terms;
  • a person pasting a scan of their signature into a soft copy contract in the execution block;
  • a person using an electronic signature platform to click to insert a typed or handwritten font into the execution block and/or
  • a person using a e-pen or finger to sign their name on a tablet.

However, to achieve the same level of certainty as a handwritten signature, an electronic signature needs to be:

  • Unique to the signatory;
  • Created using means within a signatory’s sole control; and
  • Capable of being linked to the relevant document or data in such a manner that any subsequent changes to that document or data would be detectable.

Whilst electronic signatures have been around for a number of years, the lack of definitive statutory guidance on their use has meant that many firms avoid using them. In an attempt to provide some clarity on this area, the Law Society has published a practice note with guidance as to when electronic signatures can and cannot be used.

This practice note says that any form of contract can be executed electronically, subject to exceptions from HMRC and the Land Registry where wet ink signatures are still required. Here are some of the main points of guidance from the practice note:

Deeds

To be legally enforceable, a deed must be in writing. However, the courts have consistently shown a willingness to interpret this requirement as also including electronic representations (such as an exchange of emails).

Commonly, deeds are executed by a director of a company in the presence of a witness. The practice note states that if a witness “genuinely observes” the director signing the deed using an electronic signature, and the witness then signs the attestation clause, the deed will have been validly executed.

However, for the avoidance of doubt it is best practice for the witness to be physically present when the signatory signs the deed.

Board Minutes and Resolutions

Where the model articles for private limited companies have been adopted, the practice note states that directors’ resolutions can be passed electronically.

Similarly, board minutes that are signed by the chairman using an electronic signature will constitute evidence of the proceedings.

Members’ written resolutions may also be signed electronically but, to satisfy the authentication requirements of the Companies Act 2006, must be confirmed in a manner specified by the company.  If this has not been specified, the communication must include a statement of the identity of the sender.

Originals and Counterparts

Unless there is a legal requirement to the contrary, it is possible to have originals of the same document in both hard copy and electronic form. Where a document has been executed using a combination of electronic and wet ink versions, an amalgamated version may be created.

Where a document has been executed electronically with each signatory applying their signature to the same file uploaded to the relevant signature platform, this will be treated as one counterpart.

This step towards further clarity on the use of electronic signatures in relation to commercial contracts is indicative of the courts’ recent willingness to accommodate technological developments in the way that businesses engage with each other. Whilst it is expected that the courts will follow the Law Society guidance, the practice note is not binding on the courts and the issue can therefore still be left open to interpretation and potential litigation.

It is important to always check a company’s articles of association before signing any contract electronically as there may be provisions in there which specifically prohibit the use of electronic signatures. If in doubt, it is recommended to have contracts signed the old fashioned way; using a pen and paper.

The information contained in this article is for information purposes only and is not intended to constitute legal advice. If you require further information, our corporate team would be more than happy to assist you. Please contact us at [email protected] or call us on 029 2009 5500 to speak to one of our team.