Everything is going online, or at least it certainly seems that way. Unfortunately, as is often the case, the law has been lagging behind the technology. Putting a spanner in the works of online transactions with the umms and aahs of enforceability concerns. In finance transactions, this has been of particular concern when it comes to taking security using e-signatures.
Under English law, there are two types of written contract – a simple contract and a deed. As a rule of thumb, and for various good reasons, security documents are usually deeds. Most lawyers have been fairly comfortable with the use of e-signatures for simple contracts for a while now (after all, a contract can be made on a handshake and the law is in place to recognise electronic forms of writing) but deeds bring their own additional requirements. The method of signing is different and the deed must be ‘delivered’ to be effective. Up to now, this has been a sticking point for the common use of online secured finance transactions.
However, this seems set to change, thanks to the latest guidance on e-signatures developed by a joint working party of the Law Society and the City of London Law Society.
Whilst the guidance isn’t legal advice, it has been put together by expert minds and is likely to become accepted as the market position.
- A deed signed using an e-signature satisfies the statutory requirement for a deed to be in writing. E-signatures can take many forms including typing a name into a document, copying and pasting an image of your signature into the document or signing using a touchscreen to write a name electronically.
- A deed can be validly executed by a company by two directors or one director and a company secretary signing the deed using an e-signature. It won’t matter if they sign separate counterpart copies if the deed or if the e-signature is added to the same (electronic or hard copy) version.
With hard copy deeds, companies can also execute by having the deed signed by one director before a witness. This raises the question of whether or not an e-signature can be witnessed. The guidance states that, where an individual genuinely sees the deed being signed, is aware the signature they are confirming (or ‘attesting’ to use legalese) is the one they saw being written, they can be a witness. If that witness then signs the document (using an e-signature or ‘wet ink’) this will be valid.
The main reason for the existence of witnesses to deeds is that, if it came to it, they can give evidence as to who signed the deed. To avoid the risk of later dispute as to whether or not the witness saw the actual signing, it is recommended they be in the room with the signatory rather than using video conferencing or similar.
Delivery of a deed
One of the other main concerns about e-signing deeds has been whether or not a deed can be ‘delivered’ electronically. Legal delivery is one of the statutory requirements for a valid deed. The guidance thinks this is possible through e-signing, but the parties will need to take steps to ensure the signing arrangements are clear on when delivery takes place. Usually this is dealt with in the deed (for example, the signing block might say that the deed is deemed to be delivered on the date written on the first page). But sometimes deeds are signed and passed to the lawyers to be held as undelivered until a later date (such as signing in advance of completion). Care will need to be taken on transactions to ensure deeds are not accidentally delivered before they should be and that it is clear when they are to be deemed delivered.
One other consideration when taking security signed electronically is whether or not it is capable of being registered with the relevant authorities.
- Companies House accepts a certified copy of a charge being registered if it is filed using its online Webfiling service but if filed by post still requires a wet-ink certification of the copy.
- The Land Registry and the Land Charges Registry require a wet-ink signature on a paper version of any document submitted to them for registration and do not accept e-signatures (although this may change under future plans for an electronic mortgage service).
The guidance should be referred to in any transaction where one or more of the parties wishes to sign using e-signatures. As well as advice on deeds and contracts, it covers board minutes and shareholder resolutions and goes into a number of alternative scenarios. With the additional comfort this guidance provides, it is likely that e-signatures will become increasingly common.
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