Law Society and CLLS update 2016 practice note on electronic execution of documents

• 2009 - The Law Society Company Law Committee and The City of London Law Society Company Law and Financial Law Committees published its Note on execution of documents at a virtual signing or closing (the “2009 Note”, link below). This was approved by Mark Hapgood QC, Leading Counsel in the landmark case that highlighted the need for this guidance (R (on the Application of Mercury Tax Group Limited and another v HMRC [2008] EWHC 2721 (Admin)). The 2009 Note sets out certain “Mercury Procedures” (named after the case) that tackle practical issues around getting documents signed physically at a meeting or posting documents for signature.

• 2010 - Minor updates made to the 2009 Note.

• 2016 - The Law Society published a Note on the execution of a document using an electronic signature (the “2016 Note”, link below). This was also approved by Mark Hapgood QC (electronic signature royalty).

• 2019 – The Law Commission published a report on the Electronic Execution of Documents (the “2019 Report”).

• 2022 - The 2016 Note was updated in October by the Company and Financial Law Committees with input from The Law Society Company Law Committee. The changes reflect developments such as more widespread use of e-signing platforms and the publication of the 2019 Report.

Yes, they all sound kind of the same (i.e. like something you wouldn’t necessarily be downloading onto your Kindle as your holiday read), but given the world we live in and the looming spectre of future lockdowns, they introduce some essential guidance around virtual and electronic execution of documents. For the purposes of this article, we are focussing on the 2022 updates to the 2016 Note (the “2022 Update”), but if you’re looking for more general do’s and don’ts for signing documents in the virtual world, we will be publishing a handy guide on this shortly.

Summary of the key 2022 Update:

Remote signings

• The 2022 Update explicitly states that Mercury Procedures must still be strictly observed when using e-signing platforms like DocuSign.

• The Mercury Procedures say, in relation to deeds, that:

• any signature and any attestation by a witness “must form part of the same physical document when the deed is signed”;

• the signed document should exist as a discrete physical entity; and

• a party should sign an actual existing authoritative version of the contractual document.

• Interestingly, the updated 2016 Note acknowledges that it can actually be more straightforward to satisfy the Mercury Procedure requirements using DocuSign as the entire final version of a document is uploaded for signature and all the signatories sign that same version.

• Finally, the 2022 Update reiterates that those organising the signing process should still take appropriate authorisations from the signatories to implement the dating and delivery of the relevant documents (and as relevant, the affixing of signature pages to the final agreed form of document).

Witnessing

The 2022 Update specifies that a witness must be physically present when a signatory signs. It is not acceptable for a witness to watch the signatory sign through some form of video conferencing.

Common seal

• In practice, this is unlikely to affect you as very few companies use a common seal nowadays. But for completeness, the safest approach is not to use an e-seal on electronic documents and not to substitute a corporate seal with an “e-seal”. The Companies Act provides that a company seal should have the name of the company “engraved” in legible characters and also only allows for a single seal, which means you can’t have a physical seal as well as an e-seal.

• The Law Commission considered the requirement of an engraved seal in the 2019 Report and concluded this still performed a useful function. It therefore decided against any change to the form of seal required and allowing additional official seals but recognised that the use of electronic seals could be part of a future review of the law of deeds, so watch this space.

Implications of Brexit

The 2022 Update covers the implications of the EU’s E-commerce Directive 2000/31, and the Brexit related Trade and Co-operation Agreement Treaty Series No. 8 (2021) CP 426 (“TCA”). Both the E-commerce Directive and the TCA identify types of contract which may not benefit from protective provisions supporting the validity of electronic signatures. Parties entering into such contracts may therefore wish to take advice as to whether local law supports the signature of such contracts by electronic means. Examples of these types of contracts are:

• contracts that create or transfer rights in real estate, except for rental rights;

• contracts requiring by law the involvement of courts, public authorities or professions exercising public authority; and

• contracts governed by family law or by the law of succession.

Land Registry and HMRC requirements

• Another change captured by the 2022 Update is that the Land Registry now accepts certain documents that have been signed electronically provided certain requirements are met. Those requirements may include dual factor authentication via the texting of one-time passwords.

• The 2022 Update notes that where stamp duty is payable on a document, since July 2021, HMRC has permanently adopted one of its COVID measures and so the requirement to physically stamp documents has been removed. This gives the option of electronic notification over email under which HMRC issues a confirmation letter (also over email) rather than physically stamping the document.