Law Commission Consultation on the Electronic Execution of Documents
31 / 01 / 2019
As technological advances have an increasing impact on every aspect of our business and personal interactions, it is important that the law remains relevant as technology and practice evolves. The Law Commission’s Consultation Paper ‘Electronic Execution of Documents’ is therefore relevant and timely. The Consultation Paper sought responses to various issues concerning the current legal requirements for electronically signing, witnessing and delivering documents, both for commercial parties and individuals. The deadline for responses was 23 November 2018, and it remains to be seen whether the views of those who responded (including Wedlake Bell) will have any impact on the Law Commission’s proposals.
As the law currently stands, electronic signatures cannot be denied legal effectiveness solely because of their electronic nature, and qualified electronic signatures satisfy any legal requirements in the same way as wet ink signatures. The Law Commission considers that the law is sufficiently flexible to allow an electronic signature to be valid, as long as an authenticating intention can be demonstrated, without the need for further legislation. However, there are a significant number of legal documents which are expressly excluded from the scope of the Law Commission’s Consultation Paper, making it clear that, regardless of the outcome of the consultation, this will not signal the end of wet ink signatures as a requirement in many cases, although it could impact some of our key practice areas in slightly different ways.
Corporate and Commercial
According to the Consultation Paper, as the current law stands, most commercial contracts and corporate documents are capable of being signed electronically (as long as the authenticating intention can be proven). Where documents need to be witnessed, the Law Commission has asked for views on a range of suggested options, including the ability for witnesses to use a video link to view the signature and then attest the document by affixing their own electronic signature to it.
The Consultation Paper is unlikely to change the mind of any professional who is currently wary of electronic signatures, notwithstanding the comfort provided by The Law Society’s 2016 practice note. Whilst some commercial parties are happy to rely on these signatures without question, many others will not be satisfied until there is a clear decision of the Supreme Court or an Act of Parliament to place the validity of electronic signatures on all types of contract beyond any doubt. There remains a powerful case for a confirmatory (and very brief) Act to provide the necessary comfort to commercial parties and their advisors to embrace new, efficient and secure technological solutions to the making of contracts. It would also demonstrate that English law is looking forward to a digital future.
Wills are being dealt with separately by the Law Commission’s project on ‘Making a Will’, but the Consultation Paper does consider whether the current execution requirements for Lasting Powers of Attorney (“LPAs”) could be digitised. The conclusion they reached is that this is a matter for the Office of the Public Guardian (“OPG“) and Wedlake Bell agrees with this in our response (which you can read here. The OPG consulted on the digitisation of LPAs in 2014. The responses to the OPG’s paper emphasised that wet signatures are still viewed as a very important safeguard, and in fact, the only conclusive way of evidencing the donor’s identity and true intention to execute the LPA. In addition, concerns about signatures can be proven or allayed by analysing the donor’s handwriting, which is not possible with an electronic signature.
The Law Commission also accepts that an LPA can have ‘devastating consequences’ if it is executed fraudulently or under duress. Many older people rely on the help of family members or friends to use the internet, and it is very often those close family members assisting elderly relatives to access the internet who may be responsible for financial abuse. If it were possible to execute an LPA online without the need to travel to a solicitor’s or other professional’s office to have the document witnessed, the scope for abuse would surely increase. The OPG needs to give very careful thought to these issues in light of their continuing drive towards full digitisation of the LPA process.
The Consultation Paper concludes that, where a statute requires a contract to be ‘signed’, as with a land contract, this requirement can be satisfied by an electronic signature, as long as an authenticating intention can be demonstrated. However, unhelpfully, this conclusion is stated as provisional. The consultation paper is not binding, and it would provide much greater certainty to have this point enshrined in law. No case has yet been brought in the English courts on the validity of an electronic signature in a contract for the sale of land. If this point is tested, who can say whether the Supreme Court would agree with the analysis of the Law Commission?
In addition, the Law Commission has excluded a large number of property documents from its findings, including transfers of land, mortgages and leases for more than seven years which are registrable at HM Land Registry. These are being dealt with separately by HM Land Registry’s project on electronic conveyancing and registration, which is still quite far off completion.
Dispute Resolution and Insolvency
The use of electronic signatures may be a double edged sword in the context of litigation and insolvency. On the one hand the digitisation of documents should make documents increasingly trackable and available. For example, increased use should help to decrease the number of delinquent directors / debtors from claiming that documents have been destroyed through fire or flood (or in one, instance both at the same time!). The audit trail could prove invaluable. However, particularly in cases of fraud, there are often arguments about whether a document was signed by a person or signed on a particular date (often documents such as deeds of trust). Whilst not infallible, and much like the concerns in relation to the financial abuse of the elderly / vulnerable addressed above, in losing the chance to prove – through scientific testing – that a document was or wasn’t signed may be a valuable weapon lost in the fight against fraud.
Whilst the impact of the Law Commission’s findings is different for each practice area, one overarching theme becomes very apparent: in order to deliver certainty for commercial parties and to allow for the costs and time efficiencies and anti-fraud protections afforded by electronic signatures and definitive electronic documentation, further legislation is highly desirable. It will be interesting to see if the Law Commission takes the pragmatic call for further legislation on this subject on board.