On 4 September 2019, the Law Commission of England and Wales issued its final Report on the electronic execution of documents (i.e. e-signatures) and the uncertainties in the law in relation to this. The Report follows the Consultation which concluded on 23 November 2018 (see our previous post here).
Broadly, the Report (i) confirms its view on the validity of e-signatures but recommends that codification in law may encourage wider use; (ii) recommends that an industry working group is set up to consider the technical and practical issues relating to electronic execution, and solutions to perceived obstacles associated with video witnessing (following which the Government should consider legislative reform); and (iii) a review of the law of deeds and whether the concept of the deed remains fit for purpose.
Confirming the validity of e-signatures
In the Report, the Commission confirmed its view that an e-signature is legally valid for the execution of documents (including for deeds) provided that (i) the person signing the document intends to authenticate the document and (ii) any formalities relating to execution of that document are satisfied (for example: requirements that the signature be witnessed or in a specified form). That said, whilst the majority of consultees agreed with the Commission's initial Consultation position that the law is sufficiently understood by practitioners such that legislative reform is unnecessary, the Commission was convinced by certain compelling arguments from the minority that a legislative statement may offer greater clarity on the validity, status and use of e-signatures. The Commission notes that any statement should be broad in nature, technology neutral and not overly prescriptive, and offers a possible formulation of what such a statement may look like. (see page 58 of the Report)
The Commission consulted on whether the requirement to sign a deed "in the presence of a witness", could be satisfied remotely, for example through a video-link followed by the witness attesting the document. Whilst the majority of consultees agreed with this proposal, the Commission was not convinced that a "current need for legislation allowing video witnessing had been demonstrated". In particular, legislative reform will need to be carefully considered and balance the recognition of technology that presently exists (i.e. video links/signing platforms) against remaining sufficiently technology neutral so as not to become quickly outdated. That said, the Commission highlighted certain obstacles, identified by consultees, in the way of electronically executing deeds, such as maintaining confidentiality, potential increased risk for vulnerable people, and a perceived increased risk of fraud. Therefore, whilst the Commission fell short of reaching a concrete solution on this area, it recommended that the practical and technical issues identified be considered by the working group. Only after such consideration is it recommended that the Government consider proposing legislative reform to allow video witnessing.
In its Consultation, the Commission asked whether a review of the law of deeds is necessary. The Report states that a majority of consultees did not think so; however, it is noteworthy that most of them did not provide reasons for this position. On the other hand, the Commission received compelling arguments from several professional membership organisations and law firms supporting a review of the law of deeds broadly on the following points: (i) the current law is outdated; (ii) deeds should be abolished either entirely or for certain transactions; (iii) certain formalities (i.e. witnessing and attestation) should be removed; and (iv) the implications of the Mercury decision should be codified. Accordingly, the Commission recommended that the law of deeds should be reviewed in the context of deeds executed on paper and electronically. Such review should consider whether special methods of execution for certain types of transactions irrespective of value are still necessary.
Electronic execution is still in its legal infancy and a lack of precedent and divergences in approach across jurisdictions have, in part, compounded legal uncertainty. If established, it will remain to be seen how effective the Working Group will be with tackling this area. In particular, it is important that the Working Group operates to facilitate reform where necessary and does not become an echo chamber that delays progress, or create uncertainty where none in truth exists. Further, with the rate of technological advancements it is clear that any approach to reform will need to be technology neutral so as to be sufficiently future proof.
Blockchain and automated smart contracts have also renewed interest around electronic execution. The Commission does not touch on this area as this is being considered generally as part of a consultation launched by the UK Jurisdiction Taskforce (UKJT) in May 2019 on the status of cryptoassets and smart contracts (see our post on this on the Baker McKenzie blockchain blog). Specifically, the UKJT will issue an authoritative legal statement on the position of cryptoassets and smart contracts under English private law and, as noted in the Report, is considering the "circumstances in which a statutory signature or "in writing" requirement may be met in the context of smart legal contracts". The legal statement is due to be published soon and should be considered in the context of the Commission's recommendations.