Scottish law position on e-signing in finance transactions

  1. Why use an electronic signature?
  2. What is e-signing?
  3. Is e-signing valid?
  4. What types of document can be signed electronically?
  5. Are there any restrictions/protocols relating to electronic signatures?
  6. What is the position with overseas entities?
  7. E-signing with a secure platform
  8. E-signing without a secure platform

Why use an electronic signature?

With the implementation of home working and social distancing measures to address the spread of COVID-19, the logistics of signing documents and closing deals have become more complicated.

Traditional signing methods are often unworkable. Physical signing meetings are not possible, and in many cases virtual signings (where each signatory prints, signs, scans and emails their counterpart documents to the co-ordinating lawyers, following up with the “wet ink” signed principals by post) are also often not possible due to restrictions on and difficulties with printing facilities.

Electronic signing (“e-signing”), where an electronic version of the document is signed using an electronic signature, is becoming more common. E-signing is convenient and quick, but counterparties in financing transactions may want to consider the legalities and the level of security and verification which may be required for their finance documents.

What is e-signing?

Scots law follows European law in distinguishing between three main types of e-signature.

Simple electronic signature – This most basic form of e-signing includes mechanisms such as a signatory ‘copying and pasting’ an electronic image of his or her signature, adding their name with a stylus or finger, or simply typing their name into a document. A number of web based platforms (such as DocuSign) allow for execution versions of documents to be shared electronically and provide simple digital e-signatures to be added by the counterparties. The advantage of using an electronic signing platform is that they usually offer additional security and authenticity checks even for simple e-signatures, with enhanced security for the more advanced forms of signature referenced below.

Advanced electronic signature – These forms of signature are more secure as the signatory has a greater level of control over their use and any change to the signature is detectable. They are uniquely linked to the signatory; capable of identifying the signatory; created using means that the signatory can maintain under their sole control and linked to the data to which it relates in such a manner that any subsequent change in the data is detectable.

Qualified electronic signature –This is the highest standard of electronic signature under European law and is the only form of electronic signature which is self-proving (‘probative’) in Scots law (please see section 4 below). This is effectively the electronic equivalent of a physically witnessed signature in Scots law; in Scotland, no physical witness is required (or adds anything) when a document is being signed electronically.

The level of consideration and verification which may be required and therefore whether -and what type of - electronic signature is acceptable in a finance transaction will depend on the circumstances, the context of the document and the signing party. A lender will not be concerned about its own signing process, and borrowers are likely to be more relaxed about their lender’s signing methods. However, lenders are likely to be more cautious regarding their obligors’ signing validity as well as potential evidence of their due execution of the document.

Is e-signing valid?

E-signing can be used for some, but not all, documents governed by Scots law. Under Scots law, electronic signatures are valid for execution of all documents other than wills and testamentary writings. However, there are some practical, as well as legal, restrictions on their use.

What types of document can be signed electronically?

At present it is not possible to register electronic documents in certain registers in Scotland, including the Land Register. This applies to all real estate documents that require to be registered, for example. In such cases wet ink signatures are required.

Additionally, Scots law requires that an advanced electronic signature (see above) be used for the valid execution of those documents that require to be in writing under section 1(2) of the Requirements of Writing (Scotland) Act 1995 (“ROWSA”) (mainly rights in relation to land, gratuitous unilateral obligations and some trusts). Before opting to sign such documents electronically, you must check that the form of e-signature you propose to use is not a basic ‘off-the-shelf’ simple electronic signature product but is the enhanced form of advanced electronic signature required for such documents.

For any other documents under Scots law a simple electronic signature is a valid method of signing, but it will not be self-proving (‘probative’). Using a self-proving means of signature creates an evidential presumption in Scots law that the document was signed (or, in the case of an electronic document, ‘authenticated’) by the signatory. What does that mean in practical terms? If a document isn’t signed in a self-proving manner and the document ever requires to be founded upon in court, additional time and expense may be incurred in first having to establish in court that it was validly signed, unless the counterparty agrees that the document was validly signed. In each case, clients and their lawyers will have to decide if simple (non self-proving) e-signature of the document in question is acceptable, or whether it is preferable to source and use a qualified e-signature. The Law Society of Scotland has issued draft guidance for Scottish solicitors to help them to assess whether electronic signature platforms (such as DocuSign) should be used to sign different types of legal document.

Specifically, for financing transactions, generally most documents governed by Scots law can be signed electronically, including (as well as key Finance Documents) any utilisation requests, notices and acknowledgements, corporate authority documents and other ancillary documents. However, for any documents that must be filed with the Land Register, Register of Sasines or Books of Council and Session, e-signatures are not currently accepted; therefore any security document or other document (e.g. power of attorney) which is to be submitted to any of these Registries must be signed in “wet-ink” physical form. As noted above, even for documents that may validly be signed by a simple e-signature, the parties in each case will have to discuss and agree whether a simple e-signature is sufficient or whether an advanced or qualified form of e-signature is preferable and practical in the circumstances.

An additional point to note is that it is technically possible for one party to sign by e-signature while the other party signs using a “wet-ink” signature and for parties to sign by different e-signature methods or platforms, as long as each party uses a valid execution method. However, there are usually practical reasons, not least future retention and storage, for favouring all party use of one medium over a mix of media.

Are there any other restrictions/protocols relating to electronic signatures?

Before agreeing an electronic signing process, the lawyers should check and confirm there are no restrictions on e-signing in the signing company’s articles (or other constitutional documents), and a client should check there are no restrictions in its own internal policies (for example risk management policies). Where overseas entities and/or jurisdictions are involved in the transaction, the co-ordinating lawyers will need to consult local lawyers in each jurisdiction as to any local restrictions – please see question 6 below).

Where electronic signing is proposed by a counterparty, their lawyers should give early notice to the other parties’ lawyers on the transaction to allow for the e-signing method and process to be considered and agreed in advance. In particular, finance parties may need to confirm whether they have any internal processes or policies which require wet ink physically signed documents (for example, for utilisation requests or bank mandates).

The details of the signing processes should be discussed and agreed as early as possible ahead of completion. Signing/ release instructions should be agreed and circulated by the co-ordinating lawyers generally following the usual protocols for virtual completions.

What is the position with overseas entities or overseas documents?

Where a transaction involves (a) overseas entities and/or (b) documents subject to overseas governing laws, the local lawyers should always be consulted to confirm that (1) in the case of (a) the entity has authority to sign using e-signing, and at all times (ii) that the local law recognises and permits the use of e-signatures, (iii) that the courts in that jurisdiction recognise documents signed electronically, and (iv) whether there are any jurisdiction specific signing formalities such as notarisation or legalisation.

What is the position with English entities or English law documents?

The use of e-signing in financing transactions under English law is considered separately here.

E-signing with a secure platform

There are a number of e-signing platforms available. As mentioned above, one advantage of using an e-signing platform is that even the ‘off-the-shelf’ simple e-signature product offered by such providers is likely to incorporate extra layers of security (and a digital record of the signing process) in relation to the identities of the signatories, which may be helpful in the event of future litigation. Before accepting e-signatures from counterparties using an e-signing platform, the recipient should check the appropriate agreed protocols and steps have been followed and ensure that it is able to download the digital record of signing (the ‘certificate of completion’) from the platform.

CMS has been working with the DocuSign platform since May 2017 for certain clients and transactions and more widely since March this year for various matters, including signature in financing transactions. Alternative encrypted platforms are available for use (for example, Adobe offers similar software). The IT and security protections of any platform should be considered before use, together with the functionalities available in practice as regards the authenticity and verification of the signatories.

By way of illustration, the steps outlined below demonstrate how CMS use the specific functionalities of the DocuSign software in practice where a document is being signed with a simple e-signature:

  • Your co-ordinating lawyer will arrange for the execution versions of documents to be uploaded to the DocuSign platform together with instructions as to how to access the document, using an email address.
  • Your co-ordinating lawyer will arrange for a unique access code to be generated by DocuSign. This can be sent to the signatory by way of a separate email or over the telephone to ensure access to signing platform is restricted to the intended signatory.
  • DocuSign automatically provides an audit trail of the transaction for evidential purposes. A certificate of completion is generated for each transaction which records the history of the document, including which email addresses it was sent to, who accessed it, when and where signatures were added and the IP address of each device used for ‘signing’.
  • The dated original (electronic) document and certificate of completion will be retained by the law firms acting on the transaction together with the other transaction documents.

E-signing without a secure platform

We recommend using encrypted platforms due to the security restrictions, authenticity and verification/audit trail mentioned above. Where a party proposes to sign electronically without using a secure platform, it may not be possible to verify with the same level of comfort (or subsequent evidence) that the correct signatory signed the documents. Whilst fraud can never be discounted (even for a physical signing), there are likely to be no obvious reasons to doubt the authenticity of signatures, particularly where reputable law firms are co-ordinating the signing. However, further checks and confirmations may be considered appropriate, depending on the circumstances, before such signatures are accepted, such as:

  • an e-mail from the signatory confirming he/she inserted his/her signature into the relevant document and intends to be bound by it; and
  • a board resolution from the signing party authorising the specific signatory to sign the documents by e-signature, in the manner in which they intend to e‑sign, confirming the board is aware of the process, potentially attaching a copy of the e-signature.