Social distancing measures in the current coronavirus pandemic (the “COVID-19”) have posed some interesting questions on how to effectively execute contracts in a way that ensures their validity, whilst keeping the parties safe and in compliance with the Government’s current COVID-19 measures. As such, using electronic means to execute contracts may be a practical solution to signing contracts while staying at home.
This article summarises two different ways to execute contracts electronically which may be widely applied during COVID-19. It also points out the formalities and restrictions that apply in connection with each method, and highlights additional considerations that contracting parties will need to evaluate when signing electronically.
EMAIL EXCHANGE OF SIGNED DOCUMENTS
The most common method of virtual completions (i.e. where no exchange of hard copies is required) is through “email exchange of signed documents”, i.e. where parties print out the agreement, physically sign the signature page and circulate an electronic version via email to the other party(ies) who does(do) the same. Once all parties have followed such a procedure and returned a copy of the fully signed signature page, the electronic version of the original signed document is then considered as an original executed document or as “the hard copy”.
It is worth bearing in mind that ‘email exchange of signed documents’ may not be the most practical method of execution during current lockdown measures at it relies and depends on all parties having efficient working printers and scanners at home. That being the case, signing contracts electronically may be the preferred method of execution for many firms as it is efficient and greatly reduces the unnecessary administrative burden of having to print out signature pages each time.
SIGNING CONTRACTS ELECTRONICALLY
In September 2019, the Law Commission issued a report on the “Electronic Execution of Documents” (Law Com No 386) (the “Report”) setting out their high level conclusions as to the law (including both common law and statute) regarding the validity of electronic signatures. They recommended practical modern solutions for reform as many of the requirements are out of date. In March 2020, the Government endorsed the Report and has undertaken to establish an industry working group to consider the issues surrounding security and technology in connection with the practical issues relating to the electronic execution of documents. The aim of the Report is to adopt a more practical modern approach to executions of contracts with an electronic signature.
In summary, the Report concluded that presently under law, electronic signatures are capable of being used to execute a contract, including deeds, so long as the person intended to sign the contract and the specific formalities (i.e. statutory requirements such as that the signature be in a specific form or that the signature be witnessed) relating to signing of the contract were satisfied. As such, electronic signatures are admissible as evidence in legal proceedings, for example to prove the signatory’s intention to authenticate the document.
Under English law, the physical signatures of a contract do not have to be in a specific form in order to be valid. The Courts have recognised a range of types of valid signatures, including simply signing an agreement with an “X”, with initials only and even a clear description of the signatory, such as “Your loving father”. Because of such little formalities, the Courts have held that simply typing a name at the bottom of an email or clicking on an “I accept” tick box on a website amount to valid signatures.
As such, the Report confirms that contracts can be electronicly signed through a variety of methods such as, typing the signing parties’ name into a contract, pasting a scanned copy of your signature into a PDF or word document, using an electronic signature platform, such as the popular platform ‘DocuSign’ or using an e-pen or your finger to sign your name on the contract.
PROVIDING FOR ALTERNATE METHODS OF EXECUTION
Although both methods of execution (i.e. email exchange of signed documents and electronic signatures) are valid and legally binding, the chosen method by the parties will need to be expressly set out in their contract.
A ‘counterparts’ clause is typically added to the boilerplate section of the contract allowing for the contract to be executed in separate counterparts, which together evidence the same contract and that delivery of a signed counterpart, by PDF or email, will be as effective as delivery of a manually executed counterpart of the contract.
ADDITIONAL FACTORS TO CONSIDER WHEN EXECUTING CONTRACTS ELECTRONICALLY
Signing simple contracts
The main points to consider when signing simple contracts electronically are as follows:
- cross border considerations: although English law will normally accept electronic execution of contracts, not all jurisdictions may do so. Where counterparties are located in different jurisdictions or group companies are based overseas, the laws of each territory will need to be considered carefully to ensure that the formalities of electronic execution are being respected;
- company limitation: a company’s articles of association and other constitutional documents always need to be taken into consideration, as they may contain limitations on the ability of the company to enter into contracts where the parties will sign electronically; and
- regulators and registers: when the contract is subject to regulatory approval or needs to comply with a specific regulation, it is important to bear in mind that each regulator will have their own rules for the proper execution of specific documents such as relating to wet ink signatures, hard copies or notarisations. For example, HMRC is temporarily accepting ‘stock transfer forms and instruments’ by email (rather than post) and such documents may be electronically signed while current COVID-19 measures are in place.
In the absence of any requirements (contractual or statutory), deeds may be executed by electronic signatures. However, it is important to note that deeds submitted to the Land Registry cannot be signed electronically.
Typically, the law requires deeds to be signed in the presence of a witness. In the case that the contract is executed electronically, the witness can attest the electronic signature using an electronic signature as well. However, for a deed to be validly witnessed, the witness must be physically present with the signatory when the deed is signed and may not witness through other means such as via a video link.
Companies Act exception- deeds signed by a company
The Companies Act 2006 requires either two directors or one director and the company secretary (as long as they are authorised signatures by the company’s constitutional documents) to sign a deed on behalf of the company without the need for a witness to be physically present at the time of signing (unless otherwise stated in the company’s articles of association). However, if only one director is signing a deed, a witness will need to be physically present when such director is signing the deed. Electronic signatures cannot be used if a company seal is required.
If the need for a witness to be physically present is unavoidable, the witness will need to remain conscious of current social distancing measures whilst ensuring they can still actually see the signatory sign the deed. Whilst it is not preferable, an adult family member who is not a party to the deed can act as a witness in most cases (subject to certain exceptions such as wills).
CONCLUSION AND NEXT STEPS
In conclusion, as electronic signatures do not need to take any particular form, they represent the most practical and efficient way to validly sign documents during current COVID-19 lockdown measures. However, the challenge for firms to consider, in the context of safety and reliability, are which type of methods of electronic execution are the least risky while working from home i.e. what platform or systems can be consistently relied on and are also practical to use, particularly in light of the current economic climate.
In light of the current COVID 19 lockdown measures, the Law Society is in communication with the Ministry of Justice about the need for urgently adapting legislation in relation to oaths and deeds and expects to have an update imminently. In the meantime, the Law Society is working with the Solicitors Regulation Authority to clarify guidance for execution in the current circumstances and updating its practice note on virtual execution and e-signatures.
For more information, and any guidance or advice on executing your commercial and financial contracts correctly, Cleveland & Co External in-house counselTM, your specialist outsourced legal team, are here to help.