E-signatures – are they legal?

Posted: 22/08/2013

Katy Barker considers whether an electronic signature satisfies the requirement for a property document to be 'in writing' and 'signed'.

We now live in the age of the mobile. You only have to look around on public transport to see just how much smartphones, tablets and other handheld devices have become a normal part of our lives. E–commerce is growing and there are more mobile devices on the planet than there are toothbrushes. It should be no surprise, therefore, that lawyers are being asked whether property documents can be executed electronically. Technology allowing this to happen is readily available. The question is, does an electronically signed document satisfy the requirement for a property document to be 'in writing' and 'signed'?

Background

Valid execution of a document will depend on the type of document and the legal personality of the executing party. Property transactions will typically involve either a contract or a deed and this distinction is important in relation to electronic signatures.

The transfer or creation of an interest in land must be made by deed. Such transactions include the transfer, sale, lease or mortgage of land. However, a contract is created where there is offer, acceptance and an intention to create legal relations by the parties. In addition, in order to comply with section 2 of the Law of Property (Miscellaneous Provisions) Act 1989 (LP(MP)A), a contract for the sale or disposition of an interest in land must be:

• in writing;
• signed by or on behalf of each party; and
• incorporate all the terms that have been expressly agreed in one document (or, where contracts are exchanged, in each).

A failure to satisfy these requirements will mean that there is no valid contract between the parties.

What is a signature?

In basic terms, a signature is the manuscript addition of the party’s name to a document to indicate agreement and willingness to be bound by its terms. An electronic signature is the electronic equivalent of a written signature. It is defined as 'data in electronic form which are attached to or logically associated with other electronic data and which serve as a method of authentication' (section 2 of the Electronic Signatures Regulations 2002).

Electronic signatures come in many forms, including:

• scanned signature – a manuscript signature is scanned and transformed into digital format, which can then be attached to an electronic document; 
• biodynamic version of a manuscript signature – a special pen and pad is used to measure and record the actions of the person as they sign. A digital version of the manuscript signature is created and can then be attached to electronic documents;
• a digital signature using cryptography. The signing party uses a key pair (private and public key). The sender affixes the signature using their private key, and the recipient checks the signature with the public key;
• the clicking of a button, such as 'I accept', when buying goods or services online.

To achieve a comparable level of certainty to a pen–and–ink signature, an electronic signature needs to be: unique to the signatory; capable of identifying the signatory; created under the signatory’s sole control; and capable of being linked to the document or data so that any subsequent changes to that document or data is detectable. Clearly it is important that a reputable form of electronic signature is used.

Contracts and electronic signatures

The Electronic Communications Act 2000 came into force in the UK in July 2000, and allows contracts to be concluded by electronic means. It provides for the admissibility of electronic signatures in legal proceedings where the authenticity or integrity of that electronic communication is in question (Section 7(1)). This means that a person can validly 'sign' a document without the need for a 'wet ink' signature.

In 2001 the Law Commission published a paper advising the government on the legal issues relating to e–commerce. It covered the extent to which statutory requirements for 'writing' and 'signature' are satisfied by electronic means and concluded that where a contract is required to be in writing and/or signed, these requirements can be fulfilled via electronic means. The test for signature requirements is whether the conduct of the signatory indicates an authenticating intention to a reasonable person (ie is there clear evidence that the party signing the contract intended to agree to the terms of the contract?).

The courts’ approach

Recent case law demonstrates a willingness by the courts to adopt practical, modern interpretations to old laws to reflect the way transactions are now conducted. They will look at whether the method of signature used demonstrates an authenticating intention, rather than whether it was a commonly recognised form.

Golden Ocean Group Ltd v Salgaocar Mining Industries PVT Ltd [2012] EWCA Civ 265 suggests that the courts will uphold the use of electronic signatures to satisfy the requirement for a document to be 'in writing' or 'signed'. It was held that, on the facts, the parties intended to be bound by the terms agreed in e–mails, it being noted that the parties did not mark their communications as 'subject to contract' (which would have potentially indicated that the parties did not intend to be bound until a formal document was executed).

So, provided that the other elements of section 2 of the LP(MP)A are satisfied – in particular, the need for all the terms of the contract to be incorporated in the document – it would appear that property contracts can be signed electronically.

Deeds and the Land Registry

The above purely relates to contracts as opposed to deeds. At present it is unclear whether a deed can be validly executed using an electronic signature. Accordingly, it is wise to assume that an electronic signature will not be valid in relation to deeds.

Caution also needs to be exercised where a document (whether contract or deed) requires registration at the Land Registry. Currently, the Land Registry does not accept electronically signed documents for registration. The best practice is therefore to have a hard copy of the document 'wet ink' signed by both parties.

Increased uptake in the future?

While to date there has been a relatively low uptake and use of electronic signatures in property transactions, it seems likely to increase in the future in relation to contracts that do not require registration at the Land Registry. Time and cost benefits exist for the parties involved. For additional reassurance, parties may wish to include a provision in such documents stating that the use of an electronic signature is deemed to be a signature. Although such a clause may not be sufficient to refute any statutory requirements, it may at least provide sufficient evidence to a court that the parties intended to contract with each other.

This article was published in Estates Gazettte in August 2013.

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