Lockdowns in 2020 and 2021 meant that remote working changed from being one of many competing tech and business process initiatives, to become an urgent necessity. In many cases this set of business needs in a locked down society included electronic signatures, rather than wet-ink signatures. This article looks at some of the social, and the legal, changes brought about by covid, and examines which are here to last. The legal commentary in this article is of English law.
Pre-covid, wet-ink signatures were already in decline. This was in part due to the length of time they can take to organise and set-up, the international nature of many business contracts, environmental concerns regarding travel and the use of paper, and general concerns over speed and cost. The infrastructure that was supporting wet-ink signatures through this time was all based in the office environment: large printers, binders, post rooms, and physical proximity between team members.
When most business operations moved to people’s houses, the clumsiness of printing at home, and mailing documents (with associated delay and inconvenience and risk of loss) caused a further rapid decline in the use of physical signing. Necessity is the mother of invention, and corporate policies, along with government processes, were adjusted to reflect “the new normal” – accepting electronic signatures as valid.
In some cases, these policies skeuomorphed the paper based process: retaining pagination, or requiring typed names in places, or clicking to insert initials at key locations. In other cases, however, modern electronic signature platforms have allowed systems and processes to be re-imagined, allowing vestigial parts of the paper based process to be left behind.
The cost of ink
Most practising lawyers have these sort of stories: the “hitch-hiking up-hill both ways tale of overcoming adversity to obtain the final wet-ink signature to close the deal and save the day”. We’ll share just one of these.
Our story begins, like many of these sort do, at Christmas time. The final issues were closed at the negotiating table, the risks signed off, and the paperwork was prepared for signature. The key signatory was skiing in a remote part of the Alps however, in a place without a printer. The solution was to print the signature page (the remainder of the document was too confidential), and have a courier travel four hours by train to the remote area, find the signatory at their lunch stop, answer questions about counterpart documents and the enforceability of separating the signature page from the document, get the signature, and take a mobile phone photo of it to send back to the office.
The heroism and “victory from the jaws of defeat” nature of this is entertaining, but should not mask that this was not a good operating model, and was not good standard business practice. While going the extra mile to close the deal is laudable, processes which involve such delay, pollution, risk of document loss, lack of transparency, anxiety, physical risk and unpolished end product are not. The 200 emails “just checking in” that took place during the train ride were at least digital, but they signal the extent of the stress and digital / physical disconnect.
Slowly then quickly
Following the eIDAS Regulation 2014 and the Electronic Communications Act 2000 (and a number of judicial decisions and subordinate legislation), the acceptance of electronic signatures under English law has been the default position, but with some particular and important exceptions. Covid brought a range of English law updates in some of these more stubborn areas, with several changes to approved execution methods to facilitate business life despite social distancing and lockdowns.
Under English law, most contracts can be made with a simple signature by each party, but for some transactions additional formalities are needed, typically “execution as a deed” which requires that the party’s signature is witnessed. The landmark 2008 case of Mercury v HMRC reiterated the requirement that a deed is executed as a single physical entity, and cannot be created by adding a pre-signed signature page to the agreed document. This decision led to the creation of a joint working party (The Joint Working Party of the Law Society Company Law Committee and the City of London Law Society Company Law and Financial Law Sub-Committees) to review signature processes. The result of that review (the “JWP note”) was a guidance setting out a range of options for virtual signings, including circulation of agreed documents by email, wet-ink signature of a hard copy signature page, and email return of a scan of the signed signature page, sometimes with the soft copy agreement as a second attachment to the same email as the scanned signature page. This process of course still requires a wet ink signature, although a representation of it can be sent electronically. It was not until September 2019 that this approach, which had been generally but not universally adopted by the market, was endorsed by the Law Commission – and it was still not accepted by the Land Registry. Before covid, the Land Registry also did not accept simple electronic signatures, and accepted “qualified electronic signatures” (electronic signatures where the signature is certified) only in relation to digital mortgages.
But all this started to change as the implications of lockdown restrictions on business transactions became apparent. In May 2020, the Land Registry formally approved one of the options in the JWP note, agreeing to accept wet ink signatures sent electronically so long as the signature page and complete agreement were returned attached to the same email; witnessing was still required in the usual way. In July 2020, the Land Registry went further, announcing that it would “until further notice” accept documents with simple electronic signatures if these were witnessed and certain procedural requirements (such as two factor authentication) were met, and that it would do this for a much wider range of documents. The witness can also sign electronically, but must still be physically present. Although described as a temporary measure, the associated blog post and consultation on the planned future addition of qualified electronic signatures suggest future change will be in the direction of requiring more secure qualified electronic signatures, rather than a return to wet ink.
No single approach
Changes have not always been in one direction. In May 2020 the Law Society updated the JWP note, reiterating that it is best practice for a witness to be physically present but recognising that covid restrictions might sometimes make this impossible. However by June 2020 the Law Society had backtracked, and a further update of the JWP note made it clear that the witness must always be physically present and considered that whilst covid restrictions might sometimes make this challenging, it was not impossible.
Different approaches have also been taken in relation to different types of document. The changes to the formalities of executing wills have been both more and less dramatic. In September 2020, retrospective legislation was passed which maintained the need for a wet ink signature by both the will-signatory and two witnesses but added the ability to witness a signature via video link (“video witnessing”). This enables the will-signatory and the witnesses validly to execute a will without being physically together (or needing a “clear line of sight” as the traditional law requires). This has been a large digital leap forward in one of the most traditional areas of law. This change is however only temporary – however the period for this was extended (in January 2022) to expire 31 January 2024.
One of the chief concerns when discussing the execution of documents by electronic signature is the evidential preference for the witness to be physically present with the signatory (and therefore some organisations having a policy of requiring this). The reduction in evidential weight of having a “video witness” has been a real concern and discussion point for many years. Concerns include the increased risk of fraud or duress, a reduced ability to detect incapacity, and the witness’s access to confidential documents. In its September 2019 report, the Law Commission thought a court might decide that remote or virtual witnessing could satisfy legal requirements, but did not think parties could be confident of this – and this was demonstrated just two months later.
Back in 2010 a property transfer was signed in Hong Kong with the signatory observed via Skype by a London solicitor. The signatory and witness had never met but the witness had seen photos of the signatory and was shown, via the video link, photo ID matching the signatory and a bank card whose signature matched those on the document. Despite all these precautions, in November 2019 a tribunal considered there was still a reasonable chance that the video-witnessing meant the document was not properly executed.
Covid has brought some changes on this too and not just, as noted above, in relation to wills. The person making a statutory declaration usually does so in the physical presence of the solicitor administering the declaration. However in April 2020 the rules were temporarily relaxed in the case of statutory declarations required for insolvency proceedings by a Temporary Insolvency Practice Direction which permitted a declaration to be made by video conference, and Companies House also confirmed that it would accept declarations of solvency made by video conference. This temporary relaxation expired at the end of September 2021, however an indefinite “temporary” practice direction was issued in October, which remains in place. As with a will, though, wet ink signature was still required.
The Law Commission recommended that the law be reformed to permit video witnessing. If the experience of video witnessing of wills and certain statutory declarations during “the covid years” shows that the concerns can be appropriately mitigated, the formal though temporary framework for video-witnessing of wills and some statutory declarations may be a catalyst for continued or wider acceptance of the process. However if the risks prove to be real when the events of the last two years are reviewed, the reverse is likely to be true. Sensible legislation to permit video witnessing, supported by best practice guidance, could bring certainty, mitigate any associated risks and, without endorsing any particular technology, effectively set the standards the technology would need to meet and facilitate further take-up of electronic signatures.
Companies House has for years offered WebFiling and software filing options which allow for the large majority of filings to be performed using bespoke software, with Company House logins, codes, two factor authentication, and processes to prevent any paper based filings from being recognised (PROOF). It is not surprising therefore that this area has seen the fewest changes from Covid - it seems that the principal covid specific changes were just to expand the range of documents available on WebFiling (e.g. adding shareholder resolutions and articles of association). Guidance at the start of the outbreak was that other documents which cannot be filed online (such as capital reductions) still needed to be submitted in the normal paper-based way. There are now however alpha services to upload these documents online. In all these cases, electronic signature can be used in the normal way – and the requirement to print and submit has been relieved, meaning a proper digital record can be maintained (rather than be ‘flattened’ by printing an electronic signature onto paper).
Other registries have similarly moved with the times. The UK Intellectual Property Office will accept e-signatures on any documents lodged with it. Although the Directions for filing patent applications electronically say that a non-wet-ink signature must be a facsimile, a text string or an electronic signature created using a recognised PKI-based certificate, in practice simple as well as qualified or advanced electronic signatures (meaning uniquely linked to the signatory, capable of identifying the signatory, created using data the signatory can be very confident is under its sole control, and linked to the signed data in a way which makes subsequent changes detectable) are accepted.
Some parts of the High Court are currently (until April 2022) conducting an electronic pilot scheme which requires all legally-represented parties to use electronic filing, and parts of the High Court accept simple e-signatures on claim forms, application notices and other documents whether filed electronically or (by litigants in person) physically.
The payment and submission of Stamp Duty to HM Revenue was traditionally seen as another stubborn area which mandated wet-ink signature. Since 25 March 2020 however, HM Revenue has allowed the use of electronic signatures in respect of stock transfer documents, and the electronic submission of them – indeed HM Revenue asks for electronic, rather than paper-based, submission.
Still a few trip wires
Great care must be taken in using electronic signature platforms if the place of signing or location of the signed document may impact the tax due or have regulatory significance. An electronic signature platform whose digital audit trail includes the signatory’s geo-location details may be useful here, but it is important to remember that where a document is treated as being signed may depend not only on the physical location of the signatory but also on the location of the server on which the document is stored.
Other circumstances when e-signature is currently not appropriate include negotiable instruments - that is, undertakings to pay money which are capable of being transferred by delivery or endorsement plus delivery, such as promissory notes. The difficulty arises from the requirement that transfer is effected by delivery of a physical document rather than with e-signature itself. However here too change may be coming. Between April and July 2021 the Law Commission published a consultation paper on reform of electronic documents of trade including promissory notes, proposing that express provision should be made for electronic endorsement and that transfer of exclusive control of the document should amount to delivery.
If a document needs to be notarised or legalised (certifying the notary’s signature and seal as genuine), it is usually still prudent to use a wet-ink signature as many (UK and other) notaries are not yet comfortable issuing a notarial certificate to an electronic document and the UK Foreign & Commonwealth Development Office does not yet e-legalise documents.
A lasting power of attorney can be completed online but the form must then be printed off and signed and witnessed with wet ink signatures as the Office of the Public Guardian does not currently accept electronic signatures.
These legal changes brought about by necessity look likely to be here to stay. Various changes (to guidance, to law, to government software platforms) enabled or provided workarounds allowing electronic signatures and paperless processes in several of the last few traditional stubborn areas of ‘signature law’. It is hard to conceive of a retreat from this now, particularly with these measures likely to continue through 2022, meaning they will have been in place for several years before their repeal would be considered. While not the context anyone would wish, covid-driven remote working looks likely to have driven permanent advances in the adoption of electronic signatures.