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The Validity of E-signatures

About The Author

Maxi Kussatz (Writer)

Maxi graduated from the University of Birmingham in 2013, where she studied Law and Business. Having trained with the German Legal Consultancy firm Meyer-Reumann and Partners in Abu Dhabi, Maxi is now returning to the UK to study for here LPC at University of Law Cambridge. Maxi's interests lie in EU Law, International Law, and Intellectual Property.

Signatures occur in every day life, whether it is putting your name on a bill or any other sort of contract. Contract law has conventionally required the parties to annex their signatures to a document in order to have properly documented transactions.With the development of the electronic age, e-signatures have started to replace the traditional written form. Electronic signatures, or e-signatures, have been defined in European Council Directive 1999/93/EC (“The E-Signatures Directive”) as ‘any letters, characters, or symbols manifested by electronic or similar means and executed or adopted by a party with an intent to authenticate a written document’ or as ‘data in electronic form which are attached to or logically associated with other electronic data and which serve as a method of authentication’.

Electronic signatures may take a number of forms; for example there are digital signatures, digitized fingerprints, retinal scans, pin numbers, digitized images of handwritten signatures, or simply names typed at the end of an email. 

Digital signatures improve the capability of contracting parties to validate electronic communication. Although, digital signature law is essential for the adjudication of disputes between parties in e-commerce, it is still in its infancy. The United Nations published the Model Law of Electronic Commerce (“MLEC”) in 1996. The MLEC approved the utilization of electronic signatures, stating that electronic signatures would have the same legal impact as a hand written signature, and did not command the use of any specific type of technology.

The United Kingdom enacted the Electronic Communications Act in 2000. The Act recognises the legitimacy of electronic signatures and confirmed their permissibility as evidence in court. Furthermore, the United Kingdom’s Electronic Signatures Regulation came into force in 2002, which realised certain provisions of the European Union’s E-Signature Directive

EU Directive for Electronic Signatures

The European Council Directive 1999/93/EC establishes the legal framework for electronic signatures at European level. The endeavour is to make electronic signatures easier to use and help them become legally recognised within the Member States.

Article 1 of the Directive defines the scope as:

The purpose of this Directive is to facilitate the use of electronic signatures and to contribute to their legal recognition. It establishes a legal framework for electronic signatures and certain certification-services in order to ensure the proper functioning of the internal market.

The Directive features the ‘technology neutral approach’ of the UN Model Law on Electronic Commerce. The Directive defines two distinct kinds of electronic signatures, which are the simple electronic signature and the advanced electronic signature. The simple electronic signature is defined in Article 2.1 of the Directive as:

[D]ata in electronic form which are attached to or logically associated with other electronic data and which serve as a method of authentication.

The advanced electronic signature is defined in Article 2.2 as:

An electronic signature, which meets the following requirements,

  1. it is uniquely linked to the signatory;
  2. it is capable of identifying the signatory;
  3. it is created using means that the signatory can maintain under his sole control; and
  4. it is linked to the data to which it relates in such a manner that any subsequent change of the data is detectable

Thirdly, the Directive develops the concept of advanced electronic signatures based on a qualified certificate, which are created by a secure-signature-creation device. The secure-signature-creation is used to ensure that the key can neither be forced nor replicated.

The requirements for qualified certificates are listed in annex I of the Directive:

  1. the indication that the certificate is issued as a qualified certificate;
  2. the identification of the Certification Authority and the State (European or foreigner) in which it is established;
  3. the name (or pseudonym) of the signatory, to identify her/him;
  4. signature-verification data which correspond to signature-creation data under the control of the signatory;
  5. the indication of the period of validity of the certificate;
  6. the identity code of the certificate; and
  7. the advanced electronic signature of the certification-service-provider (Certification Authority).

This type of digital signature is believed to have a strong value in court as it guarantees authentication, reliability, and confidentiality. The chief advantage of a qualified signature is that an assessment of whether it offers adequate guarantees with respect to authenticity and integrity is not necessary. A qualified signature is automatically valid for any context throughout the EU. This however is just an assumption as there is no relevant case law available.

Implementation of the Directive

Member States are granted flexibility in how the Directive is to be implemented. This flexibility, however, creates differing national frameworks, which seems to defeat the directive’s main goal of structuring a consistent legal framework across the European Union.

A study performed by Professor Jos Dumortier, Director of the Interdisciplinary Centre for Law and Information Technology (ICRI) confirmed that ‘most of the EU Member States have, more or less faithfully, transposed the Directive into national legislation’. Although it seems as though Member States have been successfully incorporating the Directive into national laws, Dumortier has identified a number of problematic issues.

Under UK law, the Electronic Communications Act 2000 and the Electronic Signatures Regulations 2002 comprehensively define e-signatures. They can include a pdf or image file of a signature which is sent by email as a alternative for the signatory signing the contract in person, or even the addition of a person’s name or initials at the end of an email.

Under the Electronic Communications Act 2000 all these methods would potentially amount to being legally binding means of executing a document. However, there are complications that may arise:

  1. Impersonation: it is much more straightforward for someone to steal an image file or make a copy of an electronic signature and pretend to be the truthful signatory than faking an ink signature;
  2. Tampering: e-mails can easily be intercepted and tampered with, without leaving any traces behind; and
  3. Evidential considerations: difficulties may arise when trying to establish that an e-signature is genuine and more importantly that the signatory intended to be bound.

Over the years, attempts have been made to adapt old contract law to new means of communication. In Golden Ocean Group Limited v Salgaocar Mining Industries PVT Ltd the Court of Appeal had to deliberate over a sequence of emails between Golden Ocean Group and Trustworth Shipping in which they agreed the charter of a ship. In the email correspondence reference was made to the deal being ‘fully guaranteed by’ an affiliate of Trustworth.

The court found the signature requirement was satisfied. The email in which the guarantee was concluded simply contained the name ‘Guy’ (one of SMI’s broker was called ‘Guy Hindley’) and SMI disputed that this was only a ‘salutation, and moreover one delivered in a “matey” or familiar fashion”. Nevertheless, the Court considered that ‘brokers may communicate with one another in a familiar manner but that does not detract from the seriousness of the business they are conducting’.

It was held that Mr Hindley had added his name to the document to indicate that it ‘came with his authority and he took responsibility for its contents’. Therefore it was considered to have sufficiently met the criteria of the Statue of Frauds. The case takes a big leap in the application of e-signature legislation and confirms the EU regulation’s concept of simple signatures.

Italy passed the Bassini Law on March 15, 1997, which confirms the use of e-signatures for legal transactions. Contrary to UK legislation, it treats a digital signature as an equivalent to handwritten signatures only if it is based on asymmetrically paired keys that are certified by an officially authority. Italy’s legislation does recognize digital signatures from other Member States, but only if they are based on ‘equivalent requirements’.

On August of 1997, Germany passed Digital Signature Law. Germany’s legislation focuses on defining the ‘conditions under which digital signatures are deemed secure’. Contrasting to the Italian Law, it does not allow e-signatures the legal equivalency of hand-written signatures. But digital signatures meeting voluntary technical standards merely are presumed to be ‘secure’ in a court of law. The key effect of the German legislation is that users of electronic signatures may benefit from a legal presupposition that is not achievable through the use of other types of electronic authentication technology.

Problems that arise

Mainly due to globalization, many processes throughout the business world are becoming fully electronic. Companies rely on the legality of e-signatures as it allows them to enter into business with others without having a physical presence in another country. Although the UN Model Law attempts to create a unified framework for the international use of electronic signatures, international information transfers are automatically subjected to different legal regimes, creating confusion and problems. This is visible on a small scale for example when looking at the United States. In the US, the definition of what qualifies as an e-signature is very wide and is set out in the Uniform Electronic Transactions Act (UETA). It was mainly influenced by the American Bar Association committee white papers and the uniform law circulated by the National Conference of Commissioners on Uniform State Laws. Under UETA, e-signatures are defined as ‘an electronic sound, symbol, or process, attached to or logically associated with a record and executed or adopted by a person with the intent to sign the record’. In 2000 the US issued the ESign Act, which used this definition as a starting point. Although most States have enacted UETA, New York, Washington State and Illinois have not done so, which represents different legal bases concerning e-signatures within the US.

This issue might also arise on a larger scale when it comes to international commercial transactions, which may or may not define electronic signatures differently. Therefore, the United Nations Commission on International Trade Law (UNICATRAL) enacted a new text dealing with electronic signatures. Article 9, paragraph 3 of the United Nations Convention on the Use of Electronic Communications in International Contracts 2005, establishes a mechanism for functional equivalence between electronic and handwritten signatures at the international level as well as for the cross border recognition.

Article 3, Paragraph 9:

Where the law requires that a communication or a contract should

be signed by a party, or provides consequences for the absence of a signature,

that requirement is met in relation to an electronic communication if:

(a) A method is used to identify the party and to indicate that party’s intention in respect of the information contained in the electronic communication; and

(b) The method used is either:

(i) As reliable as appropriate for the purpose for which the electronic communication was generated or communicated, in the light of all the circumstances, including any relevant agreement; or

(ii) Proven in fact to have fulfilled the functions described in subparagraph (a) above, by itself or together with further evidence.

Conclusion

The nonexistence of a common legal base regarding digital signatures makes it very difficult for most businesses to implement a digital signature system, as it is difficult to foresee the outcome should an electronic signature be challenged in court. The UN Model Law has triggered much change as now the EU, US, Australia, Canada, Hong Kong, New Zealand, Philippines, Singapore, South Africa, South Korea, Switzerland, United Arab Emirates all give the same legal status to e-signatures as to written signatures. On the other hand, in China, India, Japan and Russia, electronic signatures are enforceable but do not have the same legal status as a written signature.

Due to the present uncertainty as to the basis of digital signatures in some countries and the resulting lacunae, numerous people still refrain from using this electronic means. Nevertheless, when electronic signatures are handled with as much consideration as handwritten signatures, electronic signatures will receive the same legally binding status internationally, which will be a great boost to international commerce.

Further Reading

Thomas J. Smedinghoff, Electronic Contracts & Digital Signatures: An Overview of Law and Legislation, 564 P.L.I. PAT. 125, 162 (1999).

David K.Y. Tang & Christopher G. Weinstein, Electronic Commerce: American and International Proposals for Legal Structures, in Regulation and Deregulation: Policy and Practice in the Utilities and Financial Services Industries 333 (Christopher McCrudden ed., 1999).

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Tagged: Commercial Law, Contract Law, European Union, International Law, Trade

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