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Digital signatures: are they considered legally binding?

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Signing a document is the universally understood method of demonstrating one’s intent to be bound and parties can rightly draw much comfort that a signed document is highly likely to be legally binding. 

With the growth in electronic communications, documents can now be signed in a great many ways including by using a digital signature and by typing one’s name into the document.

Legally binding

The key legal question to be addressed before a document can be definitively legally binding is: was the party signing in order to evidence his intention to be bound by the document in question and its terms? 

The method used to sign a document is simply instrumental to this question and with the exception of certain specific types of document, such as deeds or guarantees, documents do not necessarily have to be signed. 

The courts draw a distinction between the writing, typing or otherwise inserting of a name in a document and signature of a document. To constitute signature, a person must add his name intending that in so doing he is giving authenticity to the document and its terms and agreeing to be bound by the terms set out in the signed document.

Additionally, the courts will enquire into whether the person executing the document had the requisite authority to do so and was competent to do so. Exceptions include minors and those acting under duress.

Practical considerations

A number of practical issues are raised in relation to documents being executed remotely by digital means, including:

  • whether the person signing the document was who they purported to be; and
  • whether the signed document being presented was the same document that was signed or whether it could later have been modified.

Therefore the courts look at the facts of the matter before them and in particular for evidence that the signature applied to the document belongs to the party intended to be bound by the document and whether there is any room for argument that the insertion of a name did not amount to signing a document.

For example, in the case of Metha v J Pereira Fernandes SA relates to a guarantee which was given by email and it carried the name of the person sending the email. 

By law all guarantees must be in writing and signed. The recipient of that email thought that the insertion of the name was sufficient to be treated as a signature and relied on the guarantee. In evidence, it became clear that the name was not intended as a signature, but was inserted automatically by email software. As a result there was no legally-binding guarantee.

Advanced signatures

There are a number of methods of electronically signing documents. Almost all of these require active steps to be taken by the signatory, to remove any doubt that there is adequate intention for the signature to be legally binding. Some of these also deliver the signed document in such a way that it cannot be altered once signed.

An “advanced signature” is a signature applied in accordance with a signature certificate. In essence, a person wishing to have a digital signature may register with one of a number of regulated providers of advanced signature services. The registration process requires passport and driving licence details to be inserted and an annual fee to be paid (in the region of £50). This generates a certificate, which is recognised by software such as Adobe and Outlook, that a signatory can insert into a document digitally in preference to physically signing it. 

The digitally signed document bears a unique signature watermark and embedded in the signed document are the details of the signatory and the provider of the signature certificate who identified the signatory initially. Importantly this scheme is government regulated and only The Royal Bank of Scotland plc, Trustis Limited, BT Ignite and Equifax Secure Limited are licensed to provide these certificates. 

Each certificate is backed by an insurance policy (subject to certain limitations), under which any person relying on a certificate can claim for their loss where a certificate had been negligently or incorrectly issued.

Conclusion

For most documents a signature is not required, but having a signature is highly advisable as a presumption that the document has been validly executed. In reality electronic signatures offer great speed and flexibility and should be used. However, there may be evidential difficulties which mean they cannot be relied on. 

The use of an advanced signature does address this issue, but it is impractical and not cost effective to set up an advanced signature for anyone who is not regularly signing documents digitally. Therefore, use of a reputable e-signature service that locks the document on signature and ensures the signer can be in no doubt that signing the document evidences intent to be bound by its terms is advisable.   

As the Department for Business concludes “signatures are as good as the business process and technology used to create them. High value transactions need better quality signatures”. Accordingly, using a digital signature would be most appropriate for low value transactions, transactions with trusted parties and as a stop-gap measure in urgent cases where a hard copy signature is en route.

William Robins is a solicitor in Keystone Law‘s corporate team.

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