Electronic Signatures Are Valid: So What's The Catch On Finance Transactions?

Electronic signatures are good news for finance transactions, as they potentially allow signatories to sign wherever they might be in the world, meaning no more unnecessary delays at completion. But, what's the catch? In this insight, first published in Butterworths Journal of International Banking and Financial Law in January 2020, Stephan Smoktunowicz and Catherine Phillips, professional support lawyers in our Banking & Finance team, examine the issues that might arise in practice when assessing the use and impact of electronic signatures on finance transactions and conclude that it might not always be plain sailing.

Key points

Even if an electronic signature is a valid means of executing a document, there may be other issues which determine whether it is appropriate for use in a particular transaction. The use of electronic signatures should be considered carefully during the maintenance of a facility, particularly as the use of email could inadvertently give rise to an unintended amendment, waiver, consent or release. Particular care should be taken when considering conditions precedent documents signed using an electronic signature, as they may conceal hidden issues. Careful consideration will be needed when assessing security, particularly over intangible assets where the contracts under which those assets arise are signed using electronic signature. Background

In September 2019, the Law Commission published its report on the electronic execution of documents.

One of its key findings was that an electronic signature (e-signature) is capable in law of being used to validly execute a document (including a deed), provided that:

the person signing the document intends to authenticate it; and any formalities relating to the execution of that document are satisfied. This clarification has been warmly welcomed, but as the world of finance moves towards adopting e-signatures as the norm, the question "is it ok to use an e-signature on this document?" is likely to come up in practice.

In examining this question, there is an important difference between an e-signature being "capable in law" of being used as a means of valid execution and it actually being valid when used. But furthermore, even if an e-signature is valid for the purposes of executing a document, could there be any hidden risks in using one?

To assess this, let's start with a bit of process.

Part one: It all starts with planning

Fail to plan, plan to fail. Any well-planned transaction will consider where the signatories will physically be for signing. Messing that up can have serious commercial ramifications (eg taking finance documents into India for signing could incur a hefty stamp duty hit).

As technology has changed over the years, the signing forum has moved from physical completion meetings to "virtual signings" and the now well-rehearsed "Mercury" signing process. E-signatures create new considerations.

What are the key considerations when processing transactions?

Type of e-signature Type of document & restrictions on use Parties and location of signatories Dating and timing the completion of documents Signing confirmations Governing law and jurisdiction Statutory and filing requirements Type of e-signature

E-signatures come in all shapes and sizes, from sophisticated signing software, to clicking on an "I accept" button, to typing a name into an email. The recent case of Neocleous v Rees [2019] EWHC 2462 (Ch) held that even an automatically generated signature block at the end of an email was sufficient to constitute a "signature" for the purposes of s 2 of the Law of Property (Miscellaneous Provisions) Act 1989.

Whilst the convenience of an e-signature in speeding up the completion process is very attractive, e-signatures are not all created equal from the perspecitve of security and reliability. Whilst a low level of security does not negate validity, it may be relevant to the question of whether the parties have the necessary levels of trust and evidence to satisfy themselves that the correct person has signed the correct document with the requisite authority and capacity (for more on which see Type of document and restrictions on use and Signing confirmations below), all of which form building blocks to the evidential weight that can be afforded to any type of signature.

Also, the absence of putting pen to paper means that it is potentially much easier to enter into an arrangement that you did not want to (just look at online shopping as a prime example).

Understanding this is equally important on finance transactions and even if care is taken with day one agreements, there are ongoing risks, particularly with the use of email. Care should be taken to avoid email correspondence unintentionally effecting an amendment, waiver, consent or release. Those involved regularly with finance transactions may wish to consider putting appropriate sagfeguards in place.

Type of document and...