Virtual Executions and Electronic Signatures

Virtual executions as the norm?

The lockdown measures imposed due to the Coronavirus pandemic has forced a re-think of document execution practices. Social distancing measures meant that virtual executions (where signatories are not all present in the same place) became the norm.

Pre-lockdown, virtual signings followed what became known as the Mercury signing protocols. These protocols emerged following the 2008 Mercury Tax Group court case and are well established. But they rely on the emailing of documents to signatories followed by the printing, wet ink signing and re-scanning back of signature pages. Not everyone has the necessary printing and scanning equipment in their homes. Some institutions prohibit employees from printing out business related documents for security and confidentiality reasons.

Digital signatures and digital signing platforms are fast becoming part of the solution in organising virtual signings; But do they work? Are they legally robust? And how do they fit with existing practices?

Execution: Five steps to safety

Below we set out five key steps to be followed for a legally robust virtual signing.

Step 1: Ensuring a valid signature

English law accepts a wide notion of what constitutes a "signature". The focus is on function (whether the mark in question was added by its maker to authenticate the document) rather than on form. Statute makes clear electronic signatures are admissible in evidence in legal proceedings.

In the table below we categorise various different types of signature according to our current assessment of their reliability and strength.

Step 2: Intention to authenticate

So the type of digital signature is not really a problem. Of greater importance is establishing the signatory's intention to sign and be bound by the relevant document.

The emails and messages we build into virtual signing protocols are critical here. Their function is to explicitly record and evidence the intention of each signatory to authenticate the document they are signing and be bound by it.

Step 3: Did the correct person sign?

How can we establish that the person authorised to sign the document (i.e. the authorised signatory) was the person who actually signed it? This has its challenges on a virtual signing.

Once again our virtual signing protocols seek to link the signatory to the e-signature on the relevant document. By instigating the execution process and using a known email address associated with the individual, we take steps to ensure we are dealing with the correct individual and that the correct individual signs. Adopting two factor authentication (i.e. the signing individual also providing a mobile phone text message acknowledgement before being able to access the document on an e-signature platform) provides additional assurance of identity. 

Step 4: Formalities

Formalities are statutory or similar requirements for the particular type of document being executed. Some documents (guarantees, contracts for the sale of land etc) must be in writing to be valid. Others (including unilateral promises, legal mortgages and powers or attorney) must take the form of a deed. Yet others (say stock transfer forms and consumer credit agreements) must be in a particular prescribed form.

An electronic document viewed on a screen is considered to meet the definition of 'writing'. There is also no reason why a deed cannot be executed electronically if it meets all the requirements for being a deed.

Board minutes and constitutional documents should still be checked to ensure they impose no restrictions on digital execution (though this would be unlikely).

Other formalities for specialised instruments may restrict the availability of electronic signatures. Where there is a requirement that a document exists in unique physical form (e.g. a negotiable instrument) there is doubt whether electronic methods of execution which do not produce such a unique executed form can be used.

Step 5: Registries

The final step to safety is to ensure that you have the relevant type of signature on the document if the particular document needs to be filed at a registry or other body.

Certain specialist registries including the CAA's aircraft registry and the Intellectual Property Office only accept certain types of e-signature. The Land Registry recently adopted a specific procedure for the electronic execution of a deed which includes two factor authentication for all signatories and any witness. 

For transfers of shares, HMRC usually does not normally accept electronic versions of stock transfer forms for stamping. However, during the Coronavirus pandemic it has altered its practices and is only accepting electronic versions of stock transfer forms. 

Wet-ink signatures are required for Lasting Powers of Attorney.

Take-aways

The flow chart which follows summarises the five steps to safety described above.

The colour coding seeks to convey the degree of legal risk in each step.