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Automated email signatures and formation of a contract

Sou Babaei, Commercial Property, considers the issues

Although, at the click of a button, email provides a fast and cheap process for a worldwide exchange of correspondence, it is not without its disadvantages and, on occasions, can overcomplicate a simple matter. Given the prevalence of emails in business and legal communications, the issue of acceptance of electronic signatures in land contracts has been frequently raised and debated in courts over the past two decades.

Under s.2 of the Law of Property (Miscellaneous Provisions) Act 1989 (“LP (MP) A 1989”) the contract for the sale or other disposal of an interest in land must satisfy the following requirements:

  • Be in writing;
  • Incorporate all the terms that the parties have expressly agreed in one document or, where contracts are to be exchanged, in each document; and
  • Be signed by, or on behalf of, each party to the contract.

Historically, the Court of Appeal’s decision in Firstpost Homes Ltd v Johnson [1995] 1 WLR 1567 has given rise to uncertainty as to whether an electronic signature will be acceptable in this context. The court considered that the s.2 requirement for a “signature” should be given its ordinary linguistic meaning, with the result that it required the parties to write their names with their own hands upon the document.

However, more recent case law indicates a willingness by the courts to accept electronic signatures. In Green (Liquidator of Stealth Construction Ltd) v Ireland [2011] EWHC 1305 (Ch), the High Court considered whether a binding contract to charge a property had been made by reason of a string of emails. While the court held that no contract arose in this case, it nevertheless accepted that, in principle, a string of emails containing the typed signatures of the parties was capable of creating a contract under s.2 of the LP (MP) A 1989.*

The above decision was further supported in Golden Ocean Group Ltd v Salgaocar Mining Industries PVT Ltd and another [2012] EWCA Civ 265. In this case, the court took a more pragmatic approach and held that, despite the absence of a signed agreement, the sequence of email negotiations could form a complete agreement.**

It was accepted that if a person puts their name on an email to indicate that it comes with their authority and they take responsibility for its contents, then it will be a signature for the purposes of the statute.

Electronic Signatures and the recent developments

Following consultation, the Law Commission published a report in September 2019, the purpose of which was to ensure that the law governing this area is sufficiently certain and flexible to remain fit for purpose and competitive in a post-Brexit, digital environment.

Among other things, the report confirmed that the law as it currently stands allows documents, including land contracts and deeds, to be executed with an electronic signature.*** The report further concluded that an electronic signature is capable of meeting the statutory requirements for signature (including the requirement in s.2 of the LP (MP) A 1989) provided that:

  • The person signing the document intends to authenticate the document; and
  • Any formalities relating to execution of that document are satisfied (for example, that the signature be witnessed or in a specified form).

Shortly after publication of the Law Commission’s report, the judgment in the case of Neocleous v Rees [2019] EWHC 2462 (Ch) was published. This is the first reported judgement where the court found that an automatically generated email footer containing the name and contact details of the sender constituted a signature. The decision also reflects the statement of law set out in the Law Commission’s 2019 report on electronic execution.****

The parties to the case were involved in a dispute concerning a right of way over land owned by Rees, the defendant. Before the hearing, the claimant sought to settle the dispute by offering to buy part of Rees’s Land. Rees’s solicitor sent an email to the claimant’s solicitor setting out the agreed terms of settlement, which was accepted. However, Rees subsequently claimed that the terms had not been finalised because no paperwork had been officially signed by both parties. The claimant argued that those two emails were a binding agreement and sought specific performance of the property contract.

The court found that the relevant email had been signed on the defendant’s behalf and it satisfied the requirements of a signature under s.2 of the LP (MP) A 1989.The claimant was therefore entitled to specific performance of the contract.

The Judge’s decision was based on:

  • The ordinary use of words had a tendency to develop, therefore the word signature” is no longer limited to a handwritten name and it is capable of encompassing the signature in the footer of an email
  • The recipient of the email could not have been expected to be aware as to whether the signature was generated automatically or manually
  • An automatic email footer was held to be a sufficient act of signing because:
  1. A footer can only be present because of a conscious decision to insert the contents at some point when the footer was designed;
  2. The sender of the email was aware that their name was being applied as a footer; and
  3. The signature was positioned at the end of the document which is the conventional style of a signature

Parties negotiating agreements by email should make sure that their correspondence is in line with their intention at all stages throughout the negotiations. The recent decision highlights the risks associated with an automated signature in email correspondence. In particular, being capable of inadvertently authenticating intent, as if it was a deliberate act of manually typing their name at the bottom of an email.

If such an outcome is not intended, the email should make this very clear, by for example, stating in the header or at the top of the email in bold or underlined text “subject to contract” or similar language to negate any intention to become bound through an exchange of emails. Including a mere disclaimer is unlikely to reduce the risk as it is insufficiently specific or noticeable.

Whilst this is a County Court ruling (despite the High Court citation), and therefore not binding in relation to subsequent County Court decisions or those of the higher courts, the outcome of the case is a warning for all lawyers especially those involved in property-related transactions.

 


* Electronic signatures: contract for the sale of land (County Court) by Practical Law Corporate, available at: https://uk.practicallaw.thomsonreuters.com/Document/Iff568ea8e36e11e9adfea82903531a62/View/FullText.html?transitionType=SearchItem&contextData=(sc.Search)

** https://www.lexology.com/library/detail.aspx?g=2bdaaee8-ea07-4dc1-8728-7b23ce6179ce

*** Law Commission Report on ‘Electronic execution of documents’ available at: https://www.lawcom.gov.uk/project/electronic-execution-of-documents/

**** Electronic signatures: contract for the sale of land (County Court) by Practical Law Corporate, available at: https://uk.practicallaw.thomsonreuters.com/Document/Iff568ea8e36e11e9adfea82903531a62/View/FullText.html?transitionType=SearchItem&contextData=(sc.Search)