The Covid-19 pandemic has resulted in a seismic shift in working practices to accommodate flexible and remote working arrangements. The limitations of the traditional process of wet ink signatures being applied to legal documentation, which pre-Covid-19 was already viewed in some quarters as being an out-dated approach, have been clearly highlighted by the rapid evolution of how transactions have needed to be approached this year. In this article we discuss how the law surrounding the validity of electronic signatures operates and has (in part) needed to respond to demand in 2020.
For ‘simple’ contracts an electronic signature has been a valid method of execution under English law since the introduction of the Electronic Communications Act in 2000. Simple contracts cover the majority of day-to-day commercial arrangements which are not required to be executed as a deed. An electronic signature could be typewritten, an electronic representation of a handwritten signature or even a digital representation of characteristics. In our own deal experience we’re finding that parties are now typically investing in e-signature software which can authenticate the validity of the signature and ensure satisfaction (in a legal sense) about where the electronic signature has come from.
Pre-Covid-19, electronic signatures did not meet the statutory or policy requirements for documents to be registered with HMRC. This includes certain Companies House filings, stock transfer forms and also statutory declarations. However, whilst the position under statute has not yet changed, the UK government has temporarily waivered this requirement and is accepting electronic signatures whilst the Covid-19 pandemic continues in order to alleviate the current issues surrounding its agencies receiving hard copy documents.
Where a formal deed is required to be entered into, it will only be validly executed if it is signed on behalf of an individual in the presence of an independent witness who attests the signature, or in the case of a company by either:
(a) two directors;
(b) one director and a company secretary; or
(c) a director in the presence of an independent witness.
The view of the Law Commission (and of the Law Society in a June 2020 update) is that where there is a legal requirement for a signature on a document to be witnessed, the witness must be in the physical presence of the signatory and directly observe the signatory signing. It is not permissible for the witness to observe the signing over a remote link, such as by video or by screen sharing. Where possible, we would therefore recommend companies arrange for two directors or, if applicable, a director and company secretary to sign any deeds so that the potential logistical challenges around the witnessing arrangements can be avoided.
Although there are no legal specifications for an independent witness, it is widely accepted that a witness should be:
over 18 years old;
of sufficient maturity for their evidence to be relied on;
'of sound mind'; and
not have any commercial or financial interest in the deed (typically precluding any signatory to the deed being a suitable witness).
On this basis, the standard pre-Covid approach was to reject out of hand the notion of spouses or other family members or, in the case of a director executing a document on behalf of a company, one of their fellow directors from acting as a witness. However, and continuing the theme of needing to react to the unprecedented circumstances of this year, parties are currently taking a more commercial approach with regards to fulfilling witnessing requirements and are being prepared to accommodate the current practical limitations on people’s movements when considering who can act as a witness in order to get deals done.
Consistent with our policy when giving comment and advice on a non-specific basis, we cannot assume legal responsibility for the accuracy of any particular statement. In the case of specific problems we recommend that professional advice be sought.