Is DocuSign the new Zoom? Do we trust e-signatures yet?
05 January 2021
The law on e-signatures has not changed during the COVID-19 lockdown.**However, because exceptional physical distancing requirements have made conventional wet ink signatures difficult to obtain, legal practice has started to embrace e-signatures and e-signing platforms as necessary tools.
Savvy investors are banking that this COVID-sparked trend is here to stay. DocuSign, the leading e-signature platform, has seen its stock double in value so far in 2020. Like Zoom, it has been the beneficiary of an explosion of take-up during the COVID-19 pandemic. DocuSign and its competitors, such as Adobe, are now betting that businesses that were already on a digital transformation path pre-COVID-19 will escalate that investment and embed digital contract generation and e-signatures as part of their processes beyond-COVID.
In this article, we look at why e-signatures have been so slow to infiltrate legal and business practice to date and troubleshoot three common e-signature pitfalls and practical workarounds. We also look at three practical issues that need to be factored into any e-signing process.
E-signatures have had full legal effect in Ireland since the Electronic Commerce Act 2000 (ECA) and the subsequent eIDAS Regulation (910/2014) for most types of transactions. There lies the rub – most.
The difficulty is that the law does not currently allow e-signatures to be used for all types of legal documents and there are practical roadblocks to using them for some documents even where their use is permitted. This affects many types of documents used in typical legal transactions including documents required to be witnessed and documents requiring a corporate seal.** This has led to a general distrust and relatively slow take-up of e-signatures for document executions and transaction completions in the legal sector. This is the case not only in Ireland, but also in the UK legal market.
All this meant that, pre-COVID-19, remote virtual completions using emailed scanned copies of wet ink signatures were more common practice than closings effected wholly by e-signatures. Provided these completions complied with the UK Mercury case principles, as reflected in guidance by the Law Society of Ireland here, most lawyers were comfortable with completing a transaction based on a scanned pdf copy of a wet ink signature, with the original signature to follow by post/delivery.
Enter COVID-19 and a population working from home with a scarcity of home printers. Lawyers and businesses soon had to look again at the lost cousin of e-signatures.
In principle, provided both parties to a transaction have consented, most types of e-signatures are recognised as legally binding for most types of documents. This includes basic e-signatures in the form of typed signatures in a document, scanned jpeg copies of a wet ink signature affixed to a document and a signature generated by an electronic stylus applied to the screen of a tablet or smartphone (such as used by couriers and taxis). It also includes more sophisticated forms of e-signatures generated using e-signature platforms such as DocuSign or Adobe. In addition to basic signatures which use encrypted two factor authentication security measures and verifiable electronic audit trails, many e-signature platforms can facilitate more electronically secure forms of digital signatures such as advanced or qualified electronic signatures.
Three common difficulties currently arise with e-signatures:
1. They cannot be used for all types of documents (currently)
Certain types of documents cannot validly be signed electronically. This includes wills and testamentary instruments, trusts, certain property documents such as leases, affidavits, sworn statutory declarations and enduring powers of attorney (though not other powers of attorney).
There is some speculation in Irish legal circles whether this is the correct legal interpretation. A Ministerial order under the ECA could lift these prohibitions with certainty and we understand that representations have been made to the relevant Minister to make such an order during COVID-19. Until then, the better approach is that wet ink original signatures are required for these types of documents and no easy workaround is available if these documents must be used. In any event, certain public registries will not currently accept documents signed electronically, most notably the Property Registration Authority.
2. There are roadblocks to using e-signatures for documents required to be sealed by corporates
Not all documents are required by law to be sealed. A key example of a document that must be sealed is a deed executed by a body corporate (see section 64 of the Land and Conveyancing Law Reform Act 2009).
Section 43 of the Companies Act 2014 requires that all companies must have a common seal that states the company’s name in legible characters engraved on the seal. This means that it is not currently possible for Irish companies to electronically affix a common seal on a document. Even if a company’s seal is readily available, the Law Society of Ireland does not currently recommend that the affixing of a seal be witnessed by e-signature.**
This means that workarounds are necessary which include:
The company granting a power of attorney (POA) to execute the document by one or more individuals on its behalf. The POA does not need to be a deed and does not need to be witnessed. Note, however, that the underlying deed executed by individual attorney(s) must be witnessed (for which, see point 3 below)
Assessing a company’s constitution regarding how a seal is to be applied. It is possible in certain cases to change a company’s constitution to provide that the seal must be countersigned by only one authorised person/director so that the seal may be affixed and witnessed by the same person, and
Assessing whether execution under seal is in fact necessary. While many contracts are executed as deeds for the additional legal protection they provide (e.g. legal financial consideration is not necessary and a longer 12 year statute of limitations period applies), this is often not a legal requirement and execution by simple contract may be an option
3. There are roadblocks to using e-signatures for documents required to be witnessed (when physical distancing is an issue)
By law, a signatory’s execution of certain documents must be witnessed. This includes deeds executed by an individual (see section 64 of the Land and Conveyancing Law Reform Act 2009).
While both the signatory and the witness can sign the document by way of basic e-signature (relying on a permissive interpretation of section 14 of the ECA, endorsed by the Law Society of Ireland), difficulties arise with the physical act of witnessing. In its Guidance Note on “E-signatures and Electronic Contracts” (March 2020) (see here), the Law Society of Ireland indicated that the signatory and the witness must be physically present – remote witnessing via video-apps is not recommended.
With physical distancing requirements during COVID-19, this has led to exceptional workaround measures such as:
Documents being witnessed through windows, from front doors and on separate car bonnets, and
Witnessing by family members. While it is best practice that witnesses should be independent of a signatory, this is not a legal requirement. Provided that a witness is over 18 years, has legal capacity to sign, is not the beneficiary of or otherwise involved with or a party to the document and there is no evidence of undue influence or duress, having a family member witness a document may be considered in certain cases
Not all signatures are required by law to be witnessed. Often, witnessing is used as an evidentiary tool with a view to preventing a signatory from later disclaiming his signature on the grounds of fraud. For those documents that are not required by law to be witnessed, such as a simple contract executed by an authorised signatory, dispensing with the requirement for a witness and relying on the authenticity of the signature process is a realistic workaround e.g. by using an agreed e-signature exchange process with password protections and ID verification or using a reputable e-signature platform with advanced digital security protections.
Practical issues to consider
Many of us have had unexpected speed-dating lessons with e-signatures and e-signing platforms over the past 12 weeks. Here are three common practical issues to consider:
Agree in advance with the counterparty that e-signatures will be used and record this consent in the transaction documents. Where a mix of wet ink-signatures and e-signatures are to be used for execution of the same document (which is permissible in law), parties should agree this in advance and agree what composite of signatures will be the “original” e.g. is the physical print out of the composite or the emailed pdf of the composite the original?
Get your dates right
In many instances, documents are signed by signatories on different dates and in different time zones in advance of a document’s intended legal effect. If it is intended that a document should take effect at a certain time, and not on the date of last signature, the e-signing process should be adjusted for this. Many e-signing platforms will automatically generate a date next to a signatory’s e-signature. If this is not the intended date of legal effect for the signatory, or for the document he has signed, the e-signing process needs to be adapted.
When dealing with parties signing in multiple jurisdictions and documents governed by non-Irish law, care needs to be taken to ensure the validity of the e-signing process in relevant jurisdictions. Associated issues such as whether legal opinions will cover the e-signing process and whether tax issues may be triggered by e-signing (e.g. in respect of Irish stamp duty for a document signed in Ireland) should also be considered.
Is DocuSign the new Zoom? In other words, a platform that had some use before COVID-19 but is now likely to stay with us as a permanent business feature beyond COVID-19? Probably.
Whether it is DocuSign, Adobe or the myriad of competitors that exist or are likely to spring up this year and next, it is likely that systemic take up of e-signing platforms and e-signatures is with us to stay post-COVID. We believe that this is a good benefit for legal and business practice and have firmly embraced it for our clients.
Do we trust e-signatures yet? As a collective, probably not.
We have some road to go to shift the latent distrust of e-signatures brought about by the inability to use them for all types of documents and by the need to overcome practical pitfalls in using them in areas such as witnessing and sealing. However, embracing e-signatures will undoubtedly be worth it. Businesses should plan now to incorporate e-signatures as part of their digital transformation processes and seek advice on how best to do so.
For more information, contact our Technology team.
**Update January 2021
In August 2020, new provisions to facilitate the use of a physical company seal in counterparts were introduced by the Companies (Miscellaneous Provisions) (COVID-19) Act 2020.
A combined electronic/hard copy execution method is now available to companies under a new Section 43A of the Companies Act 2014. This section allows for the use of counterparts during an interim period (currently to 9 June 2021), so that the seal can be affixed to a hard copy counterpart and the director(s) and/or secretary can sign physically or electronically on another counterpart(s).