Trust is the cornerstone of commercial activity and can be enhanced in the online world by the use of e-signatures and trust services. In this blog we review the different types of e-signature and consider their legal validity and security for executing contracts and deeds.
What are e-signatures?
E-signatures take many forms including typewritten, scanned, digital representations of characteristics such as a fingerprints or retina scans, as well as electronic representations of handwritten signatures, such as those used when accepting the delivery of a parcel by signing with a stylus and a handheld touch screen device.
Regulation EU/910/2014 on electronic identification and trust services governs the use of e-signatures and trust services in commercial arrangements and categorises e-signatures according to their level of sophistication for authentication and integrity. Namely these are as follows:
(i) “simple”, meaning data in electronic form such as scanned signatures or tick boxes with declarations;
(ii) “advanced”, meaning signatures that are uniquely linked to an identifiable signatory with sole control of the data used to create it (such as through private encryption); and
(iii) “qualified”, meaning those signatures that meet the “advanced” criteria and are supported by a formal certificate issued by a trust service provider.
What are trust services?
Trust services are provided by the qualified service providers listed on the EC’s website. Trust services are used to verify the authenticity of an e-signature and include measures such as:
(i) electronic time stamping, whereby data in electronic form binds other electronic data to a particular time which proves that the data existed at a particular time;
(ii) electronic seals, which are incorporated into a document to guarantee its origin and integrity; and
(iii) website authentication, a certificate allowing users to verify the authenticity of a website and its link to the website owner.
The UK’s draft withdrawal agreement from the European Union anticipates that a reciprocal arrangement for accepting information in electronic format will continue after Brexit at least for the duration of a transition period.
Contracts for commercial arrangements can be made orally or in writing (including through a variety of electronic communications including by email, acceptance procedures and text message). Signature of the parties is a strong indication of their intention to create legal relations. English law allows for e-signatures of all complexities to be used as the basis for entry into a contract with equal treatment to execution by wet-ink signature, so long as the signatory intends for the e-signature to authenticate the document.
E-signatures can be quickly generated and are likely to be more efficient from a cost and time standpoint in high-volume transactions on standard terms (where there is limited scope for negotiation). That said, the need for security may prevail over convenience in high value transactions where sophisticated e-signatures with a secure link to the owner would more usually be used for authentication purposes.
The main difference between a deed and a contract is that deeds must be in writing and there is no need for consideration (i.e. payment in some form) for a deed to be legally binding. There is a statutory requirement in certain types of transaction for the parties to use a deed, for example land conveyances or the release of a debt. The execution requirements are also more complex for deeds. For example, the Companies Act 2006 provides that one director may sign on behalf of the company in the presence of a witness, or two authorised signatories may sign on behalf of the company.
The statutory requirements for signing an agreement must also be considered in line with any requirements prescribed by the company’s articles of association. If the articles do not include provisions governing the use of electronic or wet-ink signatures then the company may execute a deed by e-signature. In the case of a deed, the witness who attests the signature must have actual sight of the live signing. It is considered best practice for the witness to be in the same location as the signatory but the requirement can also be fulfilled by using a live videolink. The witness may either attest the signature by affixing their own e-signature or use a wet-ink signature, subject to any provisions of the company’s articles.
- Suitability: legal advice should be sought when contemplating whether to sign documentation by e-signature.
- Trust services: can be used to ensure the security and legal validity of electronic activity and may be helpful where e-signatures are being used.
- Public bodies: a wet ink signature is required for filing documents with certain public bodies such as HMRC, the Land Registry and Companies House (for example stock transfer forms for the payment of stamp duty).
- International arrangements: it is best practice to discuss the use of an e-signature to execute an agreement with the counterparty in advance, particularly if they are based outside the EU where e-signatures may not be common place or enforceable.
- Legislation and constitution: ensure the manner of the execution satisfies the necessary statutory requirements and the company’s articles of association;
- Witnesses: when executing a deed, make sure the witness genuinely observes the act of signing.
If you require such assistance, or you would like to enquire about how else the team could help with your company’s affairs, please contact a member of our technology law team.