*** Update: on 18 June 2020, the Law Society updated its Guidance Note on virtual execution and e-signatures to include tips on how to complete virtual transactions in practice in light of the lockdown restrictions imposed as a response to the COVID-19 pandemic.
The legal position has not changed and it remains best practice, when signing deeds, for a witness to be physically present. However, the Law Society has recognised that with COVID-19 public health restrictions in place, it will not necessarily be possible to follow best practice. Whilst a witness can be physically present and maintain mandated social distancing, the Law Society recommends collecting clear evidence of presence, such as video recording (if video witnessing). Update ends. ***
As home working becomes the new normal for many of us, we're all having to deal with a whole host of logistical challenges. When face-to-face interactions become impossible, even formerly straightforward corporate processes like signing deal documents can become tricky.
In order not to fall at the final hurdle, a company that is contemplating a corporate transaction should make sure its signatories are aware of what is required for each of the deal documents and ensure a process is in place to allow for a successful remote completion.
Electronic signatures or scanned copies
These days, most corporate transactions are conducted remotely in some way. Gone are the days that a deal ends with a formal signing meeting, where all signatories gather round a set of documents presented neatly on a boardroom table; more likely, at least one (if not all) of those required to sign will do so from a distant location.
Virtual signings are nothing new and since the Mercury case more than a decade ago, lawyers have established a settled market practice. This enables remote signatories to print out documents sent to them by email, sign them, scan them and email them back without the need for the lawyers to exchange "wet ink" documents with their counterparts on the other side of the deal.
In most cases, provided that a signatory has access to a printer and a scanner (or can access a scanner app, such as the one built into Apple's Notes app for iPhone or iPad) this will still be the easiest - and most familiar - solution for most remote workers.
Platforms such as DocuSign, however, allow signatories to execute documents electronically without the rigmarole of printing, signing, and scanning. Electronic signatures - whether ticking a box on a website, confirming by email, or using a secure electronic authentication - are capable of being valid and enforceable, provided that the usual contractual requirements are met: that the signatory intended to authenticate the document, and that she has the necessary authority to sign. Simply adding a JPEG image of a signature to a document may open up challenges to the validity of the agreement (as there may not be the required intention). Online signing platforms get round this by collecting metadata around the signing (for example, the time and date of the signature and the IP address of the device upon which the signature is made) and using two-factor authentication to eliminate questions around whether the signatory actually intended to execute the agreement.
Yet whether a signatory opts for the print/sign/scan/return method or uses an online platform, she will still find signing certain documents problematic if she is self-isolating.
The trouble with deeds
For a deed to be valid, it needs to be in writing and state on the face of the document that it is intended to be a deed. It also needs to be signed by an authorised person in the presence of a witness and then delivered.
Depending on the type of deed, it may also be a condition (and would be recommended in any event) that the witness is independent - ie not a family member. Witnesses also need to be over 18 years of age. If the signatory lives with friends, signing a deed may not be an issue: a housemate can be corralled into witnessing the signature. However, a signatory who lives alone or with family could need a third party to act as a witness.
Signing a deed remotely and then forwarding it to a witness to sign - whether by way of email or through an online signing platform - will not satisfy the legal requirements. One workaround would be to sign the relevant document (whether electronically or by using a pen) whilst on a video call with the witness, so the witness can actually see the signatory execute the document and then countersign later. This is supported by the case of Wood v Commercial First Business Ltd: whilst there is a requirement for a person executing a deed to sign in the presence of a witness, the witness is not required to sign in the presence of the person executing the deed (or anybody else). To meet the delivery criteria, it could be expressly stated within the document that the deed is delivered once the witness countersigns.
However, the position is not 100% certain. Commentary in other case law (such as Yuen v Wong) suggests that the courts may require the physical presence of a witness, but this has never been directly tested. Whilst this seems archaic in the 21st-century world of doing business (especially given the current situation in which we find ourselves), we are currently waiting for the Government-appointed Industry Working Group to draw its conclusion.
Those of us working with technology and digital transformation businesses have been seeking clarity in this area for years. Any joy to be had in the realisation that we may be close to a sensible method of remote electronic execution of documents is tempered to the extreme by the fact that it may have taken a global pandemic to get us to this point.
Appointing an attorney
If many signatories are required to sign a large number of documents, having them each appoint a single attorney to sign on their behalf can make the execution process much more efficient. They will only need to sign one document each, whilst the attorney (typically someone at the heart of the deal process) can then sign all the deal paperwork for them.
However, the document appointing the attorney must be signed as a deed (and so the issues described above will apply). Unless a power of attorney has been granted before signatories found themselves having to work from home, this may only be an effective solution if eligible witnesses are on hand.
Documents still requiring "wet ink"
Under English law, there are also a number of documents which still have to be physically signed using pen and ink - mainly ones which relate to tax or the transfer of land. Whilst HMRC has recently confirmed that it will accept electronic signatures on certain documents (such as EMI option agreements) it also still remains unclear as to whether documents requiring stamping, such as stock transfer forms evidencing the transfer of shares in a company, will still need to be physically signed.
Is a signature necessary at all?
It would be extremely rare for any corporate transaction not to be fully documented in some form or another. However, just as contracts may be entered into orally (as long as there is the required intention to create a binding agreement which is supplemented by an offer which is accepted and some form of consideration) they may also be entered into by email, without any formal document. Businesses should ensure that the relevant checks and balances are in place to prevent any authorised signatory inadvertently striking a binding agreement whilst negotiating commercial terms remotely.
In previous case law, the courts have been content to hold that whilst someone can show the requisite intention to create a contract by typing their name into the body of the relevant email, an automatically generated name does not amount to a signature. However, in the recent case of Neocleous v Rees, the court held that a chain of emails amounted to a binding contract even though the relevant signature took the form of an automatically inserted signature block at the foot of each email.
The court's logic was that if the signatory knew that the email client would add the signature, having taken active steps to set it up that way, reaching agreement across an email chain would provide sufficient authenticating intent. As a recipient of the email would have no way of knowing whether or not the footer was generated automatically or actually typed, the court's decision in Neocleous v Rees suggests that the mere presence of a signature footer in an email indicates an intention to sign the email chain.
Following this decision, authorised signatories should be careful not to reach agreement of commercial terms by email, in the belief that nothing is binding until final form documents are put in place. Consider including the words "subject to contract" in the subject field or making it clear that nothing is finally agreed until written contracts have been negotiated and executed.
Alternatively, and perhaps especially in the current circumstances, consider dropping email for these types of discussions. After all, it's extremely hard to inadvertently agree a binding contract via phone or a videocall.