World IP Day 2021: Biotech investors must open their mind to different IP strategies
Out-Law Guide | 29 Jul 2020 | 10:11 am | 8 min. read
Many electronic signature platforms can establish enough evidence to prove intention, should someone later dispute the validity of the contract. This includes, we believe, for creating a deed under English law.
Electronic signatures should not be relied upon in all circumstances, however. Some statutory bodies, for example HM Revenue & Customs and the Land Registry, do not yet accept all documents signed electronically and there are complications around witnessing electronic signatures. You should take advice on your particular circumstances to understand whether an electronic signature will suffice.
In this guide we focus on using simple electronic signature platforms to sign contracts and deeds. These platforms typically let you upload a document for signing to a secure cloud-based environment and from there set up a document for signing.
The process involves the signatories accessing the document via a link. Access to it may be PIN-protected. When they sign the document, the platform captures core information such as the signatory's email address, IP address, date and time of access and any PIN entered. When the document is complete it is circulated as a read-only PDF and will highlight if the document has been altered since the signatures were added.
These platforms give a greater degree of control and collate more evidence of an intention to sign than a typical e-commerce website or pasting of a facsimile or JPEG image of a handwritten signature.
In general, there is no prescribed method of entering into contract, although there are some statutory exceptions. A contract need not be in writing as long as the essential elements for a contract can be established.
The contract essentials for standard contracts are that there is an offer, acceptance, agreed terms, consideration and an intention to be bound.
For deeds, the position is slightly different. There must be an offer, acceptance, agreed terms, an intention to be bound, and other particular formalities are needed.
The requirements of offer, acceptance and agreed terms are a question of substance, rather than form. If a contract when printed out meets those requirements, its electronic equivalent would similarly meet them. Consideration in contract law refers to the specific thing of value that is being exchanged through the agreement of the contract. Consideration is a question of fact. The method of execution is irrelevant.
The requirements of intention to be bound and the particular formalities for deeds are explained further below.
Common law does not prescribe a type of signature. Whether a contract or other form of agreement is said to have been signed is very much a question of intention. Did the person apply their mark – by virtue of signature, completing a check box, applying an electronic signature, or clicking an "I accept" button, for example – to evidence their intention to enter into the contract?
Electronic signature platforms typically use language that indicates to the signatory that they must apply their 'signature' to sign the contract. We think these platforms, when considered alongside email traffic that would usually surround legal completion of documents, can produce sufficient evidence to demonstrate an intention on the part of the signatory to enter into the contract.
There are four core requirements needed to constitute a deed. It must be:
Expressed to be a deed – this requirement can be achieved through the wording of the contract or document.
Delivered as a deed – delivery need not be physical. It is a question of intention – delivery occurs when the parties intend it to. The arrangements for delivery of electronic deeds need not be any different than for wet ink deeds.
Executed as a deed – this requirement is governed by statute and differs depending on the parties involved. For example, section 1(3) of the Law of Property (Miscellaneous Provisions) Act 1989 applies for individuals; section 44(2) of Companies Act 2006 for companies and LLPs; the Overseas Companies (Execution of Documents and Registration of Charges) Regulations 2009 for foreign companies; and section 74 of Law of Property Act 1925 for local authorities.
The most significant hurdle for simple electronic signature platforms is meeting requirements for deeds to be witnessed, for example when an individual executes a deed or a corporate director executes in the presence of a witness. The creation of an electronic signature - connecting two pieces of data - is not something that can be witnessed, but the signatory's actions in making that connection can. Whilst the law is not certain, we think an electronic signature can be witnessed.
There is no statutory or case law authority confirming that simple electronic signatures can be used to execute deeds. So we cannot be certain that simple electronic signature platforms can validly create deeds.
The EU's eIDAS regulation, on electronic identification and trust services for electronic transactions in the internal market, and the UK's Electronic Communications Act 2000 allow electronic signatures to be admissible in evidence, but neither piece of legislation confirms they are legally valid. They confirm that qualified electronic signatures satisfy any legal requirements in the same way as handwritten signatures. However, simple electronic signature platforms cannot create qualified electronic signatures.
A Law Commission report into electronic signatures, issued in September 2019, gives a great deal of comfort. The report found:
Whilst the Law Commission findings do not create or state the law, we think they will be influential should any test case come before the courts. It makes it more likely that a court would find an electronic signature to be a valid method of executing a deed.
There are three principal risks in using a simple electronic signature platform to enter into deeds and contracts:
We look at these three risks.
There are several cases establishing the principle that a contract can be entered into by exchange of email. On the basis that a typewritten signature in an electronic document has been found sufficient to satisfy a statutory requirement that a contract must be in writing and signed, we think the risk that a court finds a simple electronic signature platform to be incapable of creating a contract is minimal. It is the intention of the parties that is important. The typical process for electronic signing and the narrative that will precede it: negotiation of terms and correspondence indicating that a contract will be sent out for signing electronically, can all help evidence an intention to create a contract.
There is the risk that whilst a contract can be created using a simple electronic signature platform, a deed cannot. The Law Commission report dismisses this. Additionally, companies and LLPs can create a deed without the need for a witness: if two authorised signatories sign, such as two directors, or two members. This sidesteps the concerns around witnessing electronic signatures. We think it very likely that a court would find a contract executed by two directors of a company using simple electronic signatures, with the appropriate audit trail to evidence the offer, acceptance, agreed terms, intention and delivery, to be a valid method of creating a deed.
If a signatory's email account were compromised, the contract could appear to have been signed by the correct person, when in fact it was not. The same risk applies to ‘virtual completions’ under current practice, though with hard copy deeds there is the theoretical safeguard that the signature can be checked against a verified signature of the signatory.
The question of authority to enter into a contract is the same for electronic signatures as it is for wet ink signatures. Appropriate investigation should be made to ensure that the person signing actually has the authority, deemed or explicit, to bind the organisation. These sorts of checks will also likely root out any likelihood of the contract being entered into by mistake.
There are some circumstances which demand a little more attention before using simple electronic signatures, either for practical or legal reasons. These include:
We recognise that there is some uncertainty in the law but are confident that should a test case come to court, courts would find that simple electronic signatures, under English law, can be witnessed if the witness is physically present, and so can be used to create deeds.
The fundamental formalities for deeds are still necessary and there are certain documents for which simple electronic signature platforms are not appropriate, but for many transactions we think simple electronic signature platforms can be a cost effective, quick and environmentally friendly way to enter into deeds and contracts.
13 Apr 2006
World IP Day 2021: Biotech investors must open their mind to different IP strategies