The Business Law committee of the Law Society recently published guidance on e-signatures and electronic contracts. The guidance discusses the use of the multiple types of e-signature (simple electronic signature, advanced electronic signature and qualified electronic signature) provided for under the Electronic Identification and Trust Services for Electronic Transactions in the Internal Market Regulation 2014 (“eIDAS”) as also subject to the requirements of the Electronic Commerce Act 2000 (“ECA2000”).
Focusing on banking transactions, in this jurisdiction, the use of e-signatures and electronic documents remains a relatively new phenomenon. Current “virtual” signings and closings are more likely to follow the “Mercury” approach where scanned, wet-ink signatures are circulated by PDF with originals to follow. We are not yet seeing lenders (or borrowers) move towards e-signatures as a common form of execution although COVID-19 restrictions may bring an impetus to using alternative methods of signing.
E-Signatures & Electronic Contracts
There are a number of matters that must be considered where use of e-signatures and electronic documents is to be proposed, in particular:
- Adopting an e-signature approach assumes that (i) the party wishing to sign in this manner is set-up to do so and (ii) that the other party(ies) is (are) willing to accept e-signature and an electronic contract. Consent is a key requirement to the use of e-signatures1.
- If parties are to sign by way of electronic signature, the form of signature proposed to be used needs to be considered both in terms of the requirements of the legislation (the ECA2000 gives guidance as to the appropriate usage of different types of e-signature) and practicality. It should be noted that the ECA2000 differs from the eIDAS in terms of the types of e-signature. The ECA2000 requires “advanced electronic signatures based on a qualified certificate”. eIDAS does not require that an advanced electronic signature be based on a qualified certificate.
This difference may cause difficulties if parties from different jurisdictions are seeking to sign using e-signatures where their e-signatures are established based on their own national legislation implementing the eIDAS. If there is any question of their ability to arrange an e-signature that complies with the requirements of the ECA2000 this could operate as a block to the use of e-signatures on a transaction in Ireland.
The difference between eIDAS and the ECA2000 is also particularly pertinent when considering documents required to be executed under seal. The ECA2000 deems the requirement for a seal to have been met in certain circumstances where an “advanced electronic signature based on a qualified certificate” is used.
Practically speaking, where an advanced electronic signature based on a qualified certificate is required by the ECA2000, an e-signature for a signatory will only be able to be set-up where a qualified trust service provider (who can meet ECA2000 requirements) has previously verified the identity of the person who would be signing digitally.
- Given that for a party to set-up for signing by way of an e-signature there will be certain pre-requisites to be met, early consideration of requirements (consent, type of e-signature, establishment of e-signature to be used) will be required. It would seem likely that there will need to be consensus as to the platform/service provider to be used for e-signing. Determining to sign by e-signature is not a “last minute” decision pre-execution.
- The fact that a document is signed by way of e-signature does not mean that an original does not exist. The original may exist solely in electronic form. However, in such cases further steps need to be taken to comply with the requirement under section 17 and 18 of the ECA2000 that an electronic copy be retained in permanent format and be capable of production during the period for which it is required.
- The ECA2000 is not prescriptive as to how electronic originals should be retained but when considering the retention of signed electronic documentation parties will need to consider matter including the following:
- in a case where signature is by an advanced electronic signature based on a qualified certificate, a third party “qualified trust service provider” will inevitably be involved in the signature process and the parties will need to check if the electronic document that is signed will be “locked-in” to that QTSP’s systems and / or how it can otherwise be accessed and/or moved to another storage medium.
- if a “simple electronic signature”3 is used, whether the document will be stored with a third party provider or if the signatories have systems in place to store and maintain this. The consequences of IT failure and not having a back-up system in place will need to be borne in mind; will this be insured against? Policies and procedures to ensure that hardware and software will continue to be available and preserved to ensure access to the electronic document for the required time period of its lifetime. If a contract is of very long term special care may need to be taken in respect of this.
- if a third party provider is being used, whether there are ongoing costs that need to be catered for in the electronic contract and what are the consequences for the contract if these are not kept current.
- There remain circumstances where e-signature and electronic documentation may not be appropriate (for example, where Registry of Deed registration is required with a wet-ink original).
- The guidance also indicates that combined wet-ink and e-signatures may be used for contracts so that it is possible for one party to sign a wet-ink hard copy original and another to e-sign an electronic contract. Whether this will have the practical effect of enabling the adoption of e-signatures sooner where both parties consent to their use but only one is set-up to actually sign electronically remains to be seen.
Practice in the Irish banking market has not evolved to the point that the adoption of e-signatures in banking transactions is commonplace. Where non-physical signings are appropriate a “Mercury” style virtual closing is a more common practice at corporate banking level financings.
However, this is an evolving space and the COVID-19 restrictions could result in an opportunity to make virtue from necessity with a move towards more common adoption of electronic signing and documentation.
For more information, please contact Tim Waghorn email@example.com.
1 Section 13(2)(b) of the Electronic Commerce Act 2000
2 “data in electronic form which is attached to or logically associated with other data in electronic form and which is used by the signatory to sign” – per eIDASBack to Full News
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About the Author
Tim is an Associate in the Banking and Financial Services team at Hayes solicitors. Tim has extensive experience advising both borrowers and lenders across a wide range of financing transactions including corporate debt facilities, complex cross-border financings, export-credit backed lending and leveraged/acquisition finance.