In the commercial world, where parties to a transaction are not physically at the same meeting to sign documents, it is common practice for lawyers to arrange a virtual signing via email. However, nowadays, technology allows us to use more sophisticated electronic signature platforms bringing a range of advantages (agility, efficiency and cost savings, enhancing confidence of authenticity, and convenience). However, concern over being challenged in court on the validity of their use is why lawyers and/or clients are cautious and hesitant on the uptake.
Following a consultation in 2018, the Law Commission in England and Wales has issued its report in September 2019 (the "Commission's Report") clarifying the legal validity of the use of an electronic signature to execute a valid contract and providing recommendations to the Government to improve the landscape. But what is the current legal position?
This note will focus on the validity of contracts signed electronically in a business context considering the Scots law and English law perspectives.
What's an Electronic Signature?
As the name suggests, this is a signature in electronic form, the equivalent of a written signature. There are different forms of electronic signature, the most common form of electronic signatures we have seen in the past being a scanned electronic representation of a handwritten signature. However, there are other forms, including a signature created by cryptographic means
The different forms of electronic signature can be divided into three groups:
- simple electronic signatures - these are scanned signatures or a tick-box plus declaration;
- advanced electronic signatures - these can identify the user, are unique to them, are under the sole control of the user and are attached to a document in a way that it becomes invalidated if the contents are changed; and
- qualified electronic signatures - these are advanced electronic signatures with a digital certificate encrypted by way of a secure signature creation device e.g. smart card
Considering the legislative provisions on electronic documents and signatures, Scots and English law have their basis in European law. Regulation (EU) No 910/2014 (the "eIDAS Regulation"), which replaces EU Directive 1999/93/EC, has direct effect in EU Member States from 1 July 2016. It establishes an EU-wide legal framework for electronic signatures.
The eIDAS Regulation defines:
- (a) an “electronic signature” as “data in electronic form which is attached to or logically associated with other data in electronic form and which is used by the signatory to sign”;
- (b) an “advanced electronic signature” as one which meets the following requirements: (i) it is uniquely linked to the signatory; (ii) it is capable of identifying the signatory; (iii) it is created using electronic signature creation data that the signatory can, with a high level of confidence, use under his sole control; and (iv) it is linked to the data signed therewith in such a way that any subsequent change in the data is detectable; and
- (c) a “qualified electronic signature” as “an advanced electronic signature that is created by a qualified electronic signature creation device, and which is based on a qualified certificate for electronic signatures”.
So what's changed?
Going beyond the notion of admissibility in court of electronic signatures derived from the original EU Directive 1999/93/EC, Articles 25(2) and (3) of the eIDAS Regulation provide that a qualified electronic signature shall have the equivalent legal effect of a handwritten signature. Article 25(1) of the eIDAS Regulation also provides that an electronic signature shall not be denied legal effect and admissibility as evidence in legal proceedings solely on the grounds that it is in an electronic form or that it does not meet the requirements for qualified electronic signatures.
The Electronic Communications Act 2000 (the "ECA 2000") that implemented the now repealed original Directive provides a statutory framework for the admissibility of electronic signatures in the UK. However, although the ECA 2000 deals with the admissibility of electronic signatures, it does not deal with the legal validity of electronic signatures. In determining the validity of electronic signatures, other relevant pieces of legislation and wider principles of English and Scots common law must be considered.
Legal Basis - Execution of Contracts Electronically
In general, the formation of contracts under both Scots law and English law can be done informally. As such, in the absence of any statutory requirements, neither writing nor any particular form is necessary for the contract to be legally binding. In fact, it can also be entered into orally, provided the essential requirements for the creation of a binding contract are present: an offer, acceptance, consideration, certainty of terms and the intention to create legal relations. Thus, a simple contract may be concluded using an electronic signature.
A key issue is to be clear in the signature process that the parties can be in no doubt that by signing electronically - for example by ticking a box - they intend to be legally bound. In online processes, this is commonly dealt with by prominent notices or an "are you sure" navigation page.
Both in Scots and English law, there a number of types of document that are subject to specific formalities imposed by statute, including a requirement for the document to be in writing and/or signed under hand.
There is a range of statutes with provisions requiring contracts to be in writing and have a signature to be validly executed.
In reviewing other relevant legal provisions, a Joint Working Party comprising The Law Society, Company Law Committee and The City of London Law Society Company Law and Financial Law Committees ("the JWP") formed the opinion that a contract executed using an electronic signature (and which may be signed solely in electronic form) satisfies a statutory requirement to be in writing and/or signed and/or under hand for the following reasons:
(i) Writing: The Interpretation Act 1978 defines “writing” to include “typing, printing, lithography, photography and other modes of representing or reproducing words in a visible form”. As such, where the contract is represented on a computer screen (all personal computers, including desktops, laptops and smartphones) in a way that a person can read its terms properly, it will be “in writing”.
(ii) Signature: The test used to determine whether something is a signature or not is whether it was inserted in a document with the intention of giving authenticity to it. Where the signatory inserts an electronic signature into the appropriate place in a document with the intention of authenticating the document, a statutory requirement for that document to be signed will be satisfied. It does not matter how the signatory inserted the electronic signature into the document nor in what form that signature was inserted.