Prepare for smartcard signatures

Commercial contracts in the modern era commonly involve parties in multiple locations, often spread across the globe. Picture: AP
Commercial contracts in the modern era commonly involve parties in multiple locations, often spread across the globe. Picture: AP
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New bill will allow legal documents to be signed in counterpart and delivered electronically

ALTHOUGH Scots law does not always require contractual agreements to be in writing, in many cases – particularly high value transactions – the parties will prefer a signed agreement to reduce the risk of ambiguity.

In the past, arranging for all parties to sign one document did not present too much of a challenge. However, commercial contracts in the modern era commonly involve parties in multiple locations, often spread across the globe. Consider the logistical difficulties of a manufacturer in Inverness signing a contract with parties based in Melrose or Mumbai.

Many legal systems, including that of England and Wales, allow for completion of transactions remotely; each party signs separate but identical copies of the document (known as counterparts), rather than the same document. The copies are sent to the other parties, normally as an e-mail attachment. Under Scots law, however, it is not clear whether this is possible.

The traditional requirement for all parties to meet in one place to apply their signatures to the transaction documentation has a number of unwelcome side-effects: gathering a significant number of people to sign numerous documents can be a time-consuming and complex process – and one which may give rise to additional expense in the form of increased travel and accommodation costs. Alternatively, parties may sign the document and send it from party to party by post or courier, but this inevitably leads to delays. A common way of getting around this situation has been to change the governing law of the contract to one which permits virtual completion, usually English law. Although a pragmatic solution, it has wider repercussions for Scots law. This is because where, for example, English law has been chosen as the law of the contract, it will usually make sense for the English courts to deal with any disputes that arise, with a corresponding detrimental effect on the development of Scots law.

The Legal Writings (Counterparts and Delivery) Bill, which is currently making its way through the Scottish Parliament, aims to remove the existing uncertainty in Scots law. The Bill has two aims: firstly, it will allow legal documents (both in traditional paper and electronic form) to be signed in counterpart. Secondly it will enable documents to be delivered electronically, resolving current doubts as to whether e-mailing a copy of a signed paper document makes it legally effective. Providing for electronic delivery will also increase certainty as to the precise time at which a document takes effect which may be critical.

In England, questions have arisen around the use of pre-signed signature pages – pages signed in advance with the document being finalised later. The advantage is that documents can be amended without the need for a new round of formal signatures. However, they do carry a risk of fraud and/or mistakes.

The Bill attempts to address concerns by providing conditions that must be met where only part of the document is delivered electronically. In addition to cutting down on cost and delay, it is hoped that the measures set out in the Bill will increase the likelihood that businesses will choose Scots law for their contracts and promote Scotland as a place to do business.

The Legal Writings Bill is just one of a number of developments in this area. The European Parliament, as part of its digital agenda, aims to create a secure and trusted system of electronic signatures across the continent, which would eventually phase out the requirement for traditional wet ink signatures.

By November 2015, the paper practising certificates held by solicitors in Scotland will be replaced by a new “smartcard” incorporating a secure digital signature. The signature will be activated by a pin code, allowing solicitors to sign documents and contracts entirely electronically. The signature appearing on screen will contain an imbedded security certificate to confirm its authenticity.

Concluding contracts under Scots law is on course to reach its 2.0 moment and the Scottish legal profession is poised to make the most of these changes.

• Graeme MacLeod is a partner and Emma Boffey is a lawyer in the disputes team at CMS www.cms-cmck.com