Finding a landing place for electronic signatures

Published on
4 min read

The courts are becoming increasingly relaxed about how people sign their contracts. We’ve seen a variety of examples in recent years – a name typed into the bottom of an email, clicking an “I accept” box on a website and identifying information in the header of a SWIFT message. These reflect the realities of modern business, where most communications take place by telephone or electronically, and the people involved are often under time pressure to get things done.

The Neocleous decision

The latest example, Neocleous v Rees, involved the use of an automatic email footer. That was enough for the court, not only for execution of the contract (here a settlement agreement) but also to satisfy the additional statutory requirements for a contract to sell land.

The case involved a right of way to access a small mooring plot on Lake Windermere.  To settle a dispute over whether the right of way in fact existed, Mr and Mrs Neocleous agreed to buy the plot from Ms Rees for £175,000. Because an interest in land was involved, the agreement had to comply with section 2 of the Law of Property (Miscellaneous Provisions) Act 1989. That meant it had to be in writing, incorporate all express terms, and be signed by or for each of the parties. As the dispute headed for a hearing, the solicitors tried to achieve a resolution through email exchanges. These culminated in a message from Ms Rees’s solicitor ending with “Many Thanks” and an automatic email sign-off.

Ms Rees later challenged the validity of the settlement agreement, and Mr and Mrs Neocleous applied for an order of specific performance.

The court was clearly unimpressed by the challenge to validity – the Defendant's position appears to involve using a serendipitous technical defect in formality to renege upon a deal reached during the course of litigation” - but the case had to be decided on the basis of principle. The defendant accepted that a handwritten signature that had been scanned and incorporated into a document could be enough, but disputed the validity of an automatic email sign-off.

Older cases on what was recognised to be a signature satisfying section 2 suggested that a handwritten signature was needed. But the judge’s view was that this should not stop evolution of business practice. Automatic email signatures are now widely accepted by the necessary “ordinary person”. More important is whether the name was applied with “authenticating intent”.

The email sender (here the defendant’s solicitor) was aware that his automatic signature would be included at the bottom of the message, and along with the words “Many Thanks”, this was enough to satisfy the section 2 requirement.

Law Commission guidance

The Neocleous decision relies not only on the trends in case law, but also the wider context around the development of electronic signatures. The judgment drew on the following:

  • Legislation in the form of the E-Signatures Directive 1999/93/EC (implemented through the Electronic Communications Act 2000), and the eIDAS Regulation 910/2014. Both of these recognise the effectiveness of electronic signatures.
  • The Law Commission’s Consultation Paper No 237 on the electronic execution of documents.

Following the Law Commission’s 2018 consultation on electronic execution methods, a full report has now been published. This provides a clear statement of the law, and notes that for most purposes electronic forms of signature are effective, provided that the intent to authenticate the document is there. For that reason new legislation was not recommended – and indeed, it would be difficult to draft legislation that would be sufficiently broad and general to be helpful in all situations.

The Law Commission does acknowledge that, in spite of developments in the case law, there is ongoing uncertainty for businesses - especially SMEs and start-ups. Rather than attempting legislative reform, it proposes an alternative approach based on an industry working group. This would look at developing practice and provide guidance for users. Guidance would identify the risks and benefits of the different approaches, analyse the security and reliability of different technology platforms and look at issues that arise in cross-border transactions.

Execution of deeds

It is worth noting that deeds are more difficult. The Law Commission report sees no reason in principle why electronic approaches to execution should not be used. However, the requirements for signature in the presence of a witness, and for delivery, introduce separate issues. Witnessing is recognised as important for two reasons. It helps to underline the importance of the execution process for the signatory and can also provide a safeguard against forgery or duress. While the physical presence of witness is the default position, the Law Commission was willing to contemplate the possibility of remote or virtual witnessing, supported by legislation. Practical analysis by the proposed industry working group was recommended as the next step.

A single comprehensive system for electronic execution of deeds, involving use of Public Key Infrastructure, would provide clarity. However, the consultation threw up disagreement over whether this would “straightjacket” the system into using one particular technology and prevent further innovation.

Comment

The Law Commission’s report is clearly not the last word on the subject. If the proposed industry working group is set up we can expect to see more consistent, practical guidance. This kind of user-focused approach would be welcome. Failing that, we are left with a piecemeal, case by case approach towards a fully electronic future.

On a practical level, users of most well-known electronic signature platforms can feel fairly confident that their contracts will be valid. More care will be needed for cross-border transactions and deeds.

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