In 1677 Parliament passed the Statute of Frauds, an Act which made it compulsory for a correctly executed contract to bear the written signatures of the parties involved. As literacy increased and personal signatures developed, it became insufficient to conclude a contract with an “X” or a generic wax seal.
However, in today’s digital age as e-commerce rises, the use of fingerprints, PINs and passwords are commonplace as a proof of identity and the traditional, wet ink signature is on the decline.
According to a recent study 15% of people under the age of 24 cannot recall the last time they signed a hard copy document and one in five adults admit that they no longer have a consistent personal signature. The study also found that 40% of all signatures are now made on digital devices using an e-pen, or even a finger.
So as the use of the pen declines, is the written signature dying out? Further, what does the e-signature’s rise to prominence mean for the conclusion of commercial contracts?
What is an e-signature?
E-signatures have been part of UK legislation since 2000, when the passing of the Electronic Communications Act 2000 (ECA 2000) provided for their admissibility as evidence in Court. Unless there is evidence to the contrary, the Courts will now apply the same standard to an e-signature as that of a traditional, wet ink signature.
The ECA 2000 provides a broad and somewhat verbose definition of an e-signature as “anything in electronic form which is incorporated into or otherwise logically associated with any electronic communication or electronic data and purports to be used by the individual creating it to sign”.
In short, an e-signature must show that the signatory intended to be bound by the terms that they have signed to. For example, the display of an automated email address at the footer of an e-mail would not be deemed as an e-signature as there is no element of intention on behalf of the signatory.
Just like handwritten signatures, e-signatures can take a wide variety of forms involving varying degrees of technological sophistication. Examples include:
- Typewritten signatures;
- Scanned signatures;
- An electronic representation of a handwritten signature;
- A unique representation of characters;
- A digital representation of characteristics, for example, fingerprint or retina scan; or
- A signature created by cryptographic means.
E-signatures can be further divided into one of three groups:
Simple e-signatures. This is data in electronic form incorporated into (or logically associated with) a particular electronic communication or data. For example scanned signatures, tick boxes or declarations.
Advanced e-signatures. These are created using trustworthy software with the ability to identify the signatory.
Qualified e-signatures. An advanced method of e-signature which is created by a certain device and comes with a certificate designed to guarantee authenticity across the EU.
It is for the parties to an agreement to determine the most suitable method of e-signature for their transaction. However, advanced or qualified signatures which are protected by codes or cryptographic keys issued by trusted service providers, should generally be used for high value transactions.
Conversely, simple e-signatures are commonplace in every day transactions. For example, when concluding a credit agreement for the purchase of household goods.
Benefits and drawbacks of the e-signature
The use of an e-signature undoubtedly speeds up paper based transactions, reducing the cost and hassle of obtaining a wet ink signature. Parties may sit at opposite ends of the globe and electronically sign their contract and the same can be circulated and executed within a matter of minutes.
Further, documents remain within the parties’ control to a far greater degree, as there is no need to send away hard copy documents for signature before awaiting their return.
In complex or high value matters advanced and qualified e-signatures enable parties to identify a signatory with a high degree of certainty, thus reducing the risk of interference or fraud by a third party. Such methods also limit the risk of parties attempting to make late amendments or revoking terms of the contract.
The e-signature has been incorporated into UK legislation and the Regulation on Electronic Identification and Trust Services for Electronic Transactions in the Internal Market (eIDAS) was introduced in 2016 in attempt to harmonise practices across the European Union. However, the absence of any globally synchronised legislation can lead to uncertainty around the validity of an e-signature where global jurisdictions are involved.
Simple e-signatures can also create challenges in terms of data security and the authenticity of the signatory.
Whilst e-signatures are deemed to be valid in most transactions, it is important for parties to consider the scenarios where it may be best practice to employ a traditional, wet ink signature. For example, where there are concerns over the security of the transmission of a document or where a document is intended for use in a jurisdiction where the position on e-signatures is unclear. Further, it should be noted that HMRC and the Land Registry currently expect certain documents to be executed using “wet ink”.
The Law Society practice note on the execution of a document using an electronic signature provides further guidance as to the validity of an e-signature in various types documents. For example, deeds, simple contracts or corporate documents.
If you require any advice concerning commercial contracts and the merits of using e-signatures in a particular transaction, please contact Farleys solicitors on 0845 287 0939 or submit your enquiry through our online contact form.