COVID-19: signing in counterpart & electronic documents
Coronavirus is causing unprecedented levels of disruption for businesses, with the closure of premises and more people working remotely than ever before. The restrictions on social interaction present practical challenges in relation to the conclusion of contracts and signing of documents. Although we live in an increasingly digital world, many legal documents are still signed on paper using “wet ink”. Scott Peterkin’s recent blog explained how powers of attorney allow companies, LLPs and individuals to delegate the authority to sign and deliver documents. In this blog we consider the potential to expedite the completion of transactions using counterpart or electronic documents.
Signing Documents in Counterpart
The Legal Writings (Counterparts and Delivery) (Scotland) Act 2015 introduced execution in counterpart to Scots law. It is now possible for each party to a document to sign a separate (identical) copy. The complete executed copy will be made up of either (1) all of the counterparts in their entirety; or (2) one of the counterparts in its entirety, collated with the signature pages from the other counterparts. There is no requirement for the document to contain a clause permitting execution in counterpart.
The document becomes legally binding when all parties have signed, and the counterparts are delivered to the parties. The method of delivery should be agreed in advance. If there are multiple parties, they will usually appoint a “nominated person”, often a solicitor acting for one of the parties, to take delivery of all of the counterparts. Delivery of the signed counterpart can be by electronic means, such as a pdf copy sent by e-mail.
The date of delivery also requires to be agreed and documented. It could be the date that all of the counterpart copies are received by the nominated person. In order to control the date that the contract comes into effect, the parties may specify that their counterpart will be held as undelivered until they confirm otherwise, or until a specified condition has been satisfied. The nominated person will circulate a copy of the complete and fully executed document to all parties.
Whilst useful to speed up the signing process, counterpart execution does have some limitations. Execution by one party may require multiple signatures e.g. two directors of a company (although often a director can sign before a witness), or several trustees of a trust. The legislation does not permit those individuals acting for the party to sign separate copies. If a witness is required, they must be physically present. Some face to face meetings will still be required.
Electronic Documents and Electronic Signatures
The term “electronic document” refers to documents created in electronic form such as PDF or Word documents which are never printed on paper. There are various forms of electronic signature, ranging from a simple “tick box” on a retail website, to advanced electronic signatures which are capable of uniquely identifying the signatory.
Signing documents electronically has the potential to eliminate the practical problems with traditional paper documents. Does the law permit us to dispense with paper and ink completely?
The Electronic Documents (Scotland) Regulations 2014 conferred equivalent status and validity on electronic documents as their paper equivalents. The exceptions to that are wills and other testamentary writings.
Contracts which are required by law to be in writing, such as those creating or transferring an interest in land, require a particular form of electronic signature. They are only valid if they have an “advanced electronic signature” which is uniquely linked to and capable of identifying the signatory. To be self-proving, such documents require a “qualified electronic signature”. (QES). A QES is the highest standard of electronic signature, but is not yet widely available in the UK.
In addition, other than two specific categories, it is not possible to register electronic documents in the Land Register of Scotland or the Books of Council and Session. The only documents which may be submitted digitally are (1) dealings with the whole of a registered title submitted using the e-conveyancing system known as “Automatic Registration of Title to Land” (ARTL) and (2) discharges of standard securities over residential property. There is legislation in place to permit the registration of all types of electronic document, but it has not yet been brought into force.
Our Client Guide to Electronic Signatures gives further detail.
For those reasons, traditional paper and ink documents remain the only option for property completion documents such as dispositions, standard securities and long leases, though it is possible to conclude property contracts by exchange of letters signed by QES.
In these challenging times, we can embrace counterpart execution more than ever before to facilitate completion of property transactions. However the law requires to evolve further before we achieve full electronic execution and registration.
We can assist you with the practicalities of concluding contracts and completing transactions. Please get in touch if you think we may be able to help.
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