Electronic signing of contracts in corporate transactions – the ‘new normal’?

Over the past 18 months there has been a significant rise in the number of contracts in corporate transactions being signed electronically. Although this is largely attributable to the COVID-19 pandemic, this method of signing contracts is fast becoming the ‘new normal’.

With many organisations still having a substantial proportion of employees working from home, signatories are not so readily available and often have limited access to printing and postage. As a result, many of our clients are opting to have contracts signed electronically (where appropriate).

In the past, many of these contracts were signed in ‘wet ink’. However, over the last year and a half, the advantages of signing documents electronically have come to light. Electronic signing platforms not only expedite the signing process, but also avoid the potential for documents to be lost or misplaced, as well as providing an audit trail of who has signed each document. In corporate transactions, documents often must be signed urgently or may not be agreed until just hours before a deadline. Electronic signing platforms, such as DocuSign, can be more efficient and convenient than the traditional method of passing boxes of hard copy documents around various signatories, particularly if some parties are located overseas or self-isolating.

A share purchase agreement or investment agreement may comprise of hundreds of pages, but most platforms can cope with these, even if some annexations need to form separate electronic 'envelopes'. This is preferable to documents being stored on discs or USB sticks, the contents of which can be difficult to check (given IT security concerns) and may get broken or wiped. The e-signature process also makes it clear if a document has not been signed in all the required places and can be easily rectified. Contrast this with hard copy paper documents, where many hours can be spent re-issuing a document that has not been fully signed, and electronic signing is the clear winner.

To assist solicitors and organisations looking to sign Scots law documents electronically, the Law Society of Scotland has published a useful guide. It provides Scottish solicitors with a detailed guide to Scots law together with suggestions on good practice.

You can access the guide on the Law Society of Scotland website. [Link to:  https://www.lawscot.org.uk/members/business-suppor...]

Similarly, the Law Society published the following Q&A style guide in relation to the electronic signing of English law documents [Link to: https://www.lawsociety.org.uk/en/topics/business-m...]

But what about the requirement of self-proving status?

In our experience, electronic signing is more often used for those documents governed by English law than by Scots law. This may be because in England, the Law Commission has confirmed that deeds can be signed electronically, meaning that there is essentially no downside and only benefits to using this process in England.

Remote working has accelerated the use of electronic signing platforms for day-to-day practice in Scotland, however one of the main concerns around electronic signatures remains - the lack of self-proving status. If a document is self-proving, it means there is an evidential presumption that the document was signed by the signatory and, in the event that it was ever challenged in court, the burden of proof lies with the party who is disputing that a signatory signed the document.

Although corporate contracts do not normally need to be self-proving, a market practice has developed whereby documents are generally signed to be self-proving. However, with an increase in the use of electronic signing, we are beginning to see a shift whereby documents in transactions governed by Scots law tend to be signed in the absence of a witness (meaning they are not self-proving).

We have not seen the same shift in relation to transactions governed by English law, since (as mentioned above) the Law Commission confirmed that deeds can be signed electronically.

Qualified electronic signatures and self-proving status

The only way for a signature on an electronic document to be self-proving under Scots law, is for the signatory to use what is known as a qualified electronic signature (QES). QES are regulated under EU law (now part of UK domestic law under the EU withdrawal legislation). As the QES needs to be stored in a secure way (for example, on a smartcard) and the issuer of a QES needs to validate the identity of the signatory in advance, QES have historically been used only in limited, 'closed loop', situations.

However, some platforms do now have the option to use cloud-hosted QES, where the signatory's identity is verified via a video call or mobile app.

Electronic signing of corporate contracts is far more popular than it once was, however, it remains to be seen whether this method will indeed become the 'new normal' or if, once organisations fully return to offices, the traditional paper method will gain favour once again. Although, with the wealth of advantages electronic signing brings, we think this method of signing is here to stay.