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Law Commission backs validity of e-signatures for business transactions

Electronic signatures (e-signatures) can validate business transactions, the Law Commission for England and Wales has said.21 Aug 2018

The body, which advises the UK government on law reforms, said it believes existing legislation and case law is "sufficiently flexible to accommodate electronic signatures".

In voicing its opinion on the issue, the Law Commission said it seeks to "sweep away the current uncertainty in the law" and enable businesses to "speed up transactions by going fully digital".

"Our provisional view is that the combination of EU law, statute and case law means that, under the current law, an electronic signature is capable of meeting a statutory requirement for a signature if an authenticating intention can be demonstrated," the Law Commission said. "This is not limited to a particular type of electronic signature."

"Furthermore, it is our view that an electronic signature inserted with the intention of authenticating a document would be sufficient to satisfy a statutory requirement that the document must be executed 'under hand'. Our conclusion does not extend to the few situations where the law expressly provides that a signature must be in ink or handwritten. Nor does it apply to the signing of wills under the Wills Act 1837," it said.

In some specific areas of law, including laws that require Land Registry documents to be in wet ink, parties to transactions face barriers to using e-signatures. The Law Commission has said, though, that it does not believe general legislative reforms in England and Wales are necessary to clarify the position on the validity of electronic signatures, but has opened a consultation on the topic. Scots law is clearer that e-signatures are valid and sets out the requirements that have to be met in order to rely on them.

The body has, however, recommended that an industry working group, containing lawyers, technology experts, insurers, and businesses, and coordinated by government, should be established and tasked with producing best practice guidance on "practical issues around electronic execution of documents".

Graeme Standen of Pinsent Masons, the law firm behind Out-Law.com, said the view expressed by the Law Commission affirms the view held by many within the legal profession for some time.”

"In the absence of definitive judicial authority, this latest contribution from the Law Commission may provide useful reassurance to parties who have so far proved hesitant to adopt and rely upon electronic execution and so encourage them to do so," Standen said.

He said the Law Commission had also made other policy proposals that could help provide legal certainty and facilitate the increased use of electronic execution.

The Law Commission, among other things, provisionally proposed that it should be possible to witness an electronic signature via video link and then attest the document, and backed the use of signing platforms that signatories and witnesses can both log into for completing the attestation.

It is also consulting on whether it should be possible to 'witness' an electronic signature through an online signing platform in real time, without a video link or any direct communication between the signatory and the witness.

The Law Commission further said that it was its view that the electronic execution of deeds is possible in practice despite there being a requirement that deeds are "delivered".

Standen said e-signatures, especially of deeds, could be useful for online platform management of a number of business functions, include HR activities and employee share and benefit schemes, as well as for management of corporate transactions with a large number of employee shareholders or employee equity award holders.

In this context, they could help with the execution of contingent option exercise notices and directions to sell shares that include powers of attorney, and also for the execution of stand-alone transaction-related powers of attorney, he said.

Standen said the Law Commission's opinion provides for increased legal clarity and could help persuade businesses to move towards electronic execution.