The following case reported on 3 March 2020 in relation to the enforceability of guarantees also provokes a question of very contemporary resonance in the current lockdown restrictions due to Covid-19 – can a deed be signed and witnessed entirely electronically?
In Signature Living Hotel Ltd v Sulyok [2020] EWHC 257 (Ch), the High Court considered whether two deeds of guarantee were enforceable against the applicant company in circumstances where they had been signed on the applicant’s behalf by its sole director, but the signature had not been witnessed in accordance with the requirements of section 44(2)(b) of the Companies Act 2006.
The applicant submitted that as the guarantees were not properly executed, they were invalid as deeds and therefore incapable of enforcement by the respondents.
The respondents contended that whilst the lack of witnessing prevented the guarantees taking effect as deeds, they were nonetheless enforceable as a matter of contract. Under section 43(1)(b) of the Companies Act 2006, all that was required for the validity of a contract entered into by a company was for it to be made by a person acting under its authority (express or implied), and it was clear on the facts that the executing director was so authorised. The respondents submitted that the two guarantees could therefore stand as simple contracts, and they were sufficiently supported by consideration to be enforceable as such.
The court ruled in the respondents’ favour, holding that the guarantees were properly enforceable against the applicant as contracts. The court was satisfied that the applicable law was that if an otherwise complete contract of guarantee is intended to be embodied in a deed but the formalities have not been complied with, the creditor can still enforce the agreement. The court was also satisfied that on the facts, the guarantees were sufficiently supported by consideration.
On 4 September 2019 the Law Commission published a report on electronic execution of documents (Law Com No 386, 2019). The report incorporates a statement of law setting out the Law Commission’s high-level conclusions regarding the validity of electronic signatures, based upon current EU and domestic legislation, as well as case law in this area (together with reasonable inferences that can be properly drawn from such case law). This statement includes the key propositions that:
- An electronic signature is capable in law of being used to execute a document (including a deed) provided that the person signing the document intends to authenticate the document and any relevant formalities relating to the execution of that document (whether required by statute or laid down in contract or other private law instrument) are satisfied. Examples of such formalities that might be required include that the signature be witnessed or that the signature be in a specified form (such as being handwritten).
- The requirement under current law that a deed must be signed “in the presence of a witness” requires the physical presence of that witness. This is the case even where both the person executing the deed and the witness are executing or attesting the document using an electronic signature.
The report also makes several recommendations to government aimed at addressing some of the practicalities of electronic execution, including:
- establishing an industry working group including, amongst others, lawyers, technology experts, insurers and businesses) to consider practical and technical issues associated with the electronic execution of documents.
- requiring the industry working group to consider potential solutions to the practical and technical obstacles to video witnessing of electronic signatures on deeds and attestation, and how these solutions can protect against fraud. The Law Commission also recommends that the government should consider using section 8 of the Electronic Communications Act 2000 to allow for video witnessing, after consideration of the practical, technical issues by the industry working group.
On 3 March 2020, the Lord Chancellor issued a written statement endorsing the conclusions in the Law Commission’s 2019 report and confirming the government’s view that electronic signatures are permissible under current law. The statement also indicates that the government accepts the Law Commission’s recommendations to:
- Convene an industry working group to consider practical and technical issues associated with the electronic execution of documents, and confirms that the group’s remit will include considering the question of video witnessing of electronic signatures.
- Undertake a wider review of the law of deeds, although the timing of the review will be subject to overall government and Law Commission priorities given the current volume of law reform work.
It remains to be seen whether the question of video witnessing of electronic signatures can attract sufficient attention in the current situation.
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