In the haze of the Brexit referendum, you can be forgiven if the new EU Regulation on Electronic Identification and Trust Services in the Internal Market (EU No 910/2014) (eIDAS Regulation) passed you by. This important new law came into force on 1 July and establishes a new regulatory framework for “trust services” including electronic signatures throughout the EU.
On 13 July, a joint working party of the Law Society and the City of London Law Society (JWP) published a practice note endorsing the use of electronic signatures in commercial transactions under English law. This is a welcome development. The practice note (and the eIDAS Regulation) will spur law firms to use electronic signature platforms and boost the digital transformation of business.
The aim of the practice note
The practice note aims to help lawyers and clients gain a better understanding of the applicable law, and foster confidence in electronic signatures for commercial transactions; its terms of reference did not include consumer contracts, but the rules on authentication are broadly the same as for commercial transactions.
What is an electronic signature?
Article 3 of the eIDAS Regulation defines an electronic signature as: “data in electronic form which is attached to or logically associated with other data in electronic form and which is used by the signatory to sign”. It has many guises:
- Typing a name into a contract or into an email containing the contract’s terms;
- Clicking an “I accept” button on a website;
- Pasting a signature into an electronic contract;
- Using a web-based electronic signature platform to generate:
– an electronic representation of a handwritten signature; or
– a digital signature using public key cryptography.
Validity of electronic signatures under English law
The practice note confirms that an electronic signature may be used to execute simple contracts as well as those documents (such as a guarantee) which are required by English law to be “in writing” or “signed”. The practice note also clarifies that a deed may be validly executed using an electronic signature. If the deed needs to be witnessed, the JWP recommends that the witness “physically” observes the signature of the deed; however, there does not appear to be any legal impediment to the witness attesting the signature using video technology.
Section 7 of the Electronic Communications Act 2000 states that electronic signatures are admissible in legal proceedings to establish the authenticity or integrity of an electronic document. But the evidential weight of the electronic signature will depend on the circumstances in which it is created and on what steps are taken to verify the identity of a signatory. And this is why the leading law firms such as Linklaters and A&O are turning to electronic signature platforms. The best platforms generate a signature that offers a higher level of authenticity and security, and a better alternative to a “virtual signing” where signature pages are exchanged by email.
The benefits of using an electronic signature platform
Agility. A platform speeds up workflow and execution of documents, especially where clients are in different hemispheres and time zones. An authorised signatory just needs an email address and an internet connection to sign from any location.
Efficiency and cost savings. Printing, faxing, scanning, and sending documents by post or courier is inefficient and expensive. Law firms routinely pass on these costs with a margin to their clients. But it is worth sacrificing this margin for the higher goal of improving client service.
Digital audit trail. In a dispute over the authenticity or integrity of an electronic document, a platform provider can verify the identity of the signatory (often using two-factor authentication). The audit trail will record who signed the document, including their email and IP address, when the document was signed and sometimes where. This can help law firms and their clients strengthen their regulatory compliance, particularly in the realm of data protection, security and retention.
Superior client experience. Advances in cloud and mobile technology mean clients can sign and retrieve their documents anytime, anywhere and from any device (desktop, tablet or smartphone) using an email address and an internet connection.
Law firms must use technology to innovate and improve their standard of service; no firm can afford to look like a digital laggard in the fierce battle to win and retain clients.
Secure cloud storage. Documents will be encrypted and stored securely at the provider’s data centre(s). Providers are acutely aware that their credibility depends on keeping data secure and confidential, both in transit and at rest. Law firms should conduct due diligence focussed on the provider’s information security and risk management practices. In particular, they should verify whether the provider is certified to the ISO 27001 standard for “information security management systems”.
Employee productivity increases. This message will resonate strongly with Managing Partners who preach the mantra of “smart working”. A platform ensures lawyers spend less time chasing signatures and drafting powers of attorney to close out transactions, and shift their focus to other clients’ business.
Legal effect of electronic signatures. An electronic signature will facilitate valid execution of most commercial, consumer, corporate, financial and HR contracts under UK law.
Some providers also offer digital signatures, which – boffins take note – are defined in the eIDAS Regulation as “advanced electronic signatures” and “qualified electronic signatures”. A digital signature is a subcategory of electronic signature. It is produced using public key cryptography and inserted into the code of the electronic document. The signature is supported by a digital certificate from a “trust service provider” that verifies the identity of the signatory. The JWP practice note affirms that the law and market practice in England and Wales overwhelmingly favours electronic signatures.
Nevertheless, lawyers should be aware that there is demand in some UK industry sectors, such as banking and pharmaceuticals, for the extra security and more advanced identity-proofing afforded by a digital signature/certificate. Moreover, there are some transactions under foreign laws (including Scottish law) that must be authenticated with a digital signature.