A Note on Electronic Signatures

We have seen a significant rise in requests for the use of electronic signatures over recent years. This has raised questions as to the legal status of these systems.

The law governing electronic signatures is to be found in the Electronic Communications Act 2000, which transposed into English law the provisions of the EU's Electronic Signatures Directive. The 2000 Act provides that electronic signatures are, in principle, admissible in legal proceedings. However, there is no blanket provision ensuring that all statutory references to a signature are to be construed as including an electronic signature. In deciding whether an electronic signature is valid, therefore, the courts have approached the matter from first principles. For example, it has been decided that the sender's name typed at the end of an email would be sufficient to fulfil the requirement of writing for a guarantee, but the sender's name inserted automatically at the beginning of an email would not.

The use of digital signatures has grown more slowly than expected since the 2000 Act was passed, perhaps because of their perceived lack of legal certainty and user-friendliness. Parties have often found it more straightforward to print the document, sign it, and email a scan of the signed document. Recently, however, the increased use of mobile devices has led to the development of proprietary applications for signing documents electronically, and applications such as DocuSign or Adobe's EchoSign are now widely used in commercial transactions.

In general, the use of such an application for the execution of a simple contract should not cause problems. The following points are worth noting:

• Check what kind of electronic signature will be used: will the application simply insert a scan of the signature in the document, or will the signature provided be encrypted in some way? The former would be less certain than a wet-ink signature, whereas an encrypted signature, if backed by a certificate from a qualified provider, would be more certain.
• For the avoidance of doubt, it may be worth inserting a clause in the contract providing that it may be executed by an electronic signature. 
• If foreign jurisdictions are involved, it would need to be checked that electronic signatures are valid in all locations.

More importantly, there remain some cases where a handwritten signature will always be needed. These include the following:

• if the document is to be executed as a deed;
• if a wet-ink signature needs to be filed – for example, where a stock transfer form is used, an original signed form must be sent to HMRC for stamping;
• if a provision in the document itself prevents the use of an electronic signature;
• in the case of a written resolution, if the company's articles prevent it (if the articles are silent, then electronic signatures are permitted); 
• if the document may need to be enforced in a jurisdiction where electronic signatures are not accepted; or
• if the document needs to be notarised.

As from 1 July 2016, the EU's Electronic Signatures Directive will be replaced by a new Electronic Identification and Signature Regulation, which will standardise provisions for electronic signatures across the EU. It will remain the case that only an encrypted digital signature based on a qualified certificate will automatically have the equivalent legal effect of a handwritten signature. However, qualified electronic signatures recognised in one member state will now be recognised in another member state. It remains to be seen whether this will encourage the use of digital signatures.

For more information, please contact Andrew Betteridge.