(e-)signing On The Dotted Line: The Use Of Electronic Signatures

Introduction

E-signatures the authentication of documents by electronic or digital means are not new. However, their uptake in corporate transactions has been surprisingly slow. The issues preventing the widespread adoption of e-signatures relate principally to people s uncertainty of the contract s enforceability. This blog post aims to demystify e-signatures and considers the various technologies, their risks and their advantages.

The law

Under the Electronic Communications Act 2000 (which implemented the EU Directive on Electronic Signatures), e-signatures can, in principle, satisfy the requirements for signing most contracts. All forms of e-signatures are admissible as court evidence. However, certain types may be more reliable and may have more evidential weight than others.

Forms of e-signatures

The law recognises three types of e-signatures ranging from simple tick box declarations to complex-encrypted technologies backed by a certificate. They provide different levels of legal certainty. As a general rule, the more definitively a signature can be linked to an individual, the more comfort can be taken as to the authenticity and integrity of the signed document. The diagram below gives examples of the range of manual and electronic signatures that exist and the level of certainty that can be derived from each.

Esig

1) Simple electronic signatures these utilise basic technology and include typewritten and scanned signatures and tick boxes.

2) Advanced electronic signatures these use more secure and complex technologies that are:

• unique to the signatory
• capable of identifying the signatory
• created using means within a signatory s sole control and
• capable of being linked to the contract in such way that any changes to that contract would be detectable.

An example of an advanced electronic signature is a digital signature, which uses two encryption keys to authenticate messages. The first key is a private key, which only the signatory knows and is used to create the digital signature and convert the message into encrypted form. The second key is a public key, which is used by the recipient to verify the digital signature and decrypt the message.

3) Qualified electronic signatures these are a form of advanced electronic signature (see above) but also include a qualified certificate (issued by a certification service provider) and are created using a secure-signature-creation device. A certification service provider will verify the identity of the signatory and will issue a digital certificate, which can be appended to a digital signature or a message to verify the signatory s identity.

Admissibility, validity and certainty

As mentioned, the law recognises a range of e-signatures. Those which use more advanced technologies are seen as more secure and therefore provide more certainty and are likely to be given greater evidential weight if relied on in court.

In summary, simple electronic signatures are not automatically admissible as evidence nor are they automatically inadmissible. They are likely to have a lower evidential value in comparison to other forms of signature, including wet-ink signatures and advanced electronic signatures.

On the other hand, advanced electronic signatures are capable of achieving a level of certainty equivalent to that of a handwritten signature and are therefore likely to be given equal evidential weight to handwritten signatures. However, a clear disadvantage is that encryption technology may be compromised and an encryption key may be lost or stolen. However, the risk of this is no greater than the risk of someone forging a signature.

Finally, qualified electronic signatures have a level of certainty equivalent to (and potentially exceeding) that of a handwritten signature. They are automatically admissible as evidence in court (in the same way that handwritten signatures are), and will be treated as more reliable and certain than other forms of e-signatures.

Advantages

Recently, due to the increased use of mobile devices, new applications have been developed to sign documents electronically. Applications such as DocuSign and Adobe`s EchoSign are now becoming more widely used in commercial transactions. In fact, providers such as these actually guarantee that documents signed using their technology will be recognised by a UK court.

The advantages of using such applications are clear: they provide a more efficient way of signing documents, allow for paperless contracts and avoid the need for physical delivery and signing of documents.

Risk assessment

Companies should carry out a risk assessment and choose a method of authentication of e-signatures that is proportionate to the risk profile of the transaction. Whilst e-signatures will not always be appropriate, they can be used effectively for the majority of contracts. Companies can reduce the risk of uncertainty by considering some of the following:

The form of e-signature Given the variety of options, an encrypted signature backed by a certificate from a qualified provider gives more certainty than a simple electronic signature.

Including a provision for e-signatures Although courts have been more willing to reflect how transactions are conducted nowadays, by looking at the function, rather than the form, of the e-signature, there is still a risk that one party could try to bring into question the admissibility of an e-signature. Companies can mitigate this risk by including a provision in their contract stating that it may be executed by an e-signature.

Potential pitfalls

Companies should also be aware that an e-signature may not be valid if:

• the document needs to be signed as a deed
• the document needs to be notarised
• a provision in the document prevents e-signatures from being used
• a wet-ink signature is required for filing (for example, when using a stock transfer form)
• in the case of a written resolution, if the company s articles prevent it or
• the document is to be enforced in a jurisdiction where e-signatures are not accepted.

The future of e-signatures

E-signatures are here to stay. From 1 July 2016, the EU Directive on Electronic Signatures will be replaced by the new Electronic Identification and Signature Regulation. The new regulation will ensure uniformity of treatment of e-signatures across the EU. It remains to be seen whether this will increase their uptake and use.