Appendix B
Letter from the Department for Constitutional
Affairs to the Committee Specialist
Proposal for the Regulatory Reform (Execution
of Deeds and Documents) Order 2004: response to request for information
Thank you for your letter of 17 September 2004 setting
out questions posed by the Committee in relation to the proposed
RRO mentioned above. The Department is grateful to the Committee
for this opportunity to explain its proposals further.
Q 1 Please indicate whether the Department
considers that the Companies Act 1985 permits the execution of
a document by the application of an electronic signature.
The Department considers that neither the Companies
Act 1985 nor the amendments proposed to it in the draft order
create any obstacles to the ability of a company to execute an
electronic document by the application of an electronic signature.
The purpose of the order is to specify how documents may be executed.
It does not introduce any new concepts or requirements that discriminate
against electronic contracting.
Although, ultimately, only the courts can decide
whether the Companies Act 1985 permits the execution of a document
by the application of an electronic signature, the Committee may
be interested to know that the Law Commission has published advice
on the use of electronic documents in an e-commerce context. It
advised that electronic documents and signatures in visible form,
such as e-mail and website trading, would satisfy statutory requirements
for documents to be written and signed unless the statutory context
otherwise required. An example of such a statutory context that
required paper would be one that obliged documents to be sent
by post. The Commission did not specifically consider the requirements
of the Companies Act 1985 but the Department does not consider
that the terms of the Act are such as to rebut the Commission's
general presumption in favour of permitting electronic documents.
The Law Commission's advice 'Electronic Commerce:
Formal requirements in commercial transactions' was published
in December 2001. It is available on the Law Commission's website
at http://www.lawcom.gov.uk .
Finally, as stated in the memorandum to the Committee
of July 2004, I would reiterate that the Government is not persuaded
that section 36A of the 1985 Act cannot be interpreted as applying
to electronic contracts and that should further legislative changes
be necessary in England and Wales in relation to the execution
or signature of electronic documents, they should be addressed
by an order made under section 8 of the Electronic Communications
Act 2000 or other appropriate means rather than the proposed regulatory
reform order.
Q 2 Please indicate whether the proposed amendments
to the Law of Property Act 1925 in paragraphs 3 and 4 of Schedule
1 to the proposed Order requiring that witnesses to the signature
of deeds and other instruments shall also formally attest the
signature would have the effect of creating any obstacle to the
witnessing of such deeds remotely by persons using electronic
conferencing equipment, and whether any such obstacle would contravene
the EU directive on E-Commerce.
Section 74(3) of the Law of Property Act 1925 provides
that a person may, as attorney, execute a conveyance for a corporation
by signing in the name of the corporation in the presence of at
least one witness. A conveyance for these purposes is very widely
defined. The amendment at paragraph 3 of schedule 1 specifies
that the witness must attest the signature. To do this the witness
will sign the document.
As mentioned, the effect of the amendment is to require
the witness to attest the signature of the attorney. In theory,
section 74 does not actually require this, but, in practice, as
noted by the Law Commission in its report 'The Execution of Deeds
and Documents by or on behalf of Bodies Corporate' (Law Com no
253), 'it is unlikely that there would be any difference between
the two provisions' (para 7.36). This is because under the present
law the person taking delivery of the deed would want evidence
that a witness had been present and would usually insist that
the witness signed the document.
The amendment at paragraph 4 effects a similar change
where the person signing on behalf of another person is itself
a corporation.
Article 9 of the E-Commerce Directive prohibits the
creation of obstacles to the use of electronic contracts. It is
not entirely clear whether, and if so to what extent, deeds and
other instruments are contracts for the purpose of the Directive.
For the purpose of this reply, we have assumed that at least some
of them will be contracts within the Directive.
The Department acknowledges that the amendments might,
in theory, be considered to add a new requirement or burden to
the process of executing a deed. However, in practice, the new
requirement or burden is negligible and embeds current best practice.
As the Law Commission's advice mentioned in reply to question
1 implies, if the conveyance in question is electronic, the witness's
signature could be a digital, scanned or typed electronic signature.
The requirement of attestation is therefore not an obstacle to
the creation of electronic contracts.
Whether it is possible to satisfy the requirement
that the deed be signed in the presence of a person by using electronic
conferencing equipment has not been determined by the courts.
The point does not seem to have been considered by the Law Commission
in the advice mentioned. The Commission did briefly discuss the
possibility of witnessing an electronic will but in doing so only
envisaged that the witness would be present in the same room as
the testator. The Department's initial view is that section 74
requires the witness to be physically present with the signatory.
In so far as this may be an obstacle to the electronic creation
of deeds, it is not one introduced by the proposed order.
Q 3 Please indicate whether the proposed requirement
in paragraph 10 of Schedule 1 to the proposed Order that directors
and secretaries of more than one company which is party to a given
document must sign that document separately for each company on
whose behalf they act creates any impediment to the execution
of documents by means of electronic signature.
Paragraph 10 also implements a recommendation of
the Law Commission. The Commission took the view that the administrative
convenience of a director or secretary for several companies signing
only once rather than several times in 'the relatively small number
of cases where the practice might be regarded as useful' was outweighed
by need for a clear rule (Law Com No 253 para 3.33). The reform
is intended to provide certainty that each and every company is
bound by the deed being executed. The fact that several electronic
signatures would have to be applied to the document rather than
a smaller number may be an additional burden or requirement but
it is not an additional impediment to the execution of an electronic
document as it is satisfied by the repetition of an action rather
than a different action.
Q 4 Please indicate i) whether the Department
considers there are any material differences in the relevant legal
requirements and practices in respect of the execution of deeds
and documents between the various United Kingdom jurisdictions;
and ii) whether, and in what respects, the effect of the proposed
Regulatory Reform Order would be to bring about a convergence
in the legal regimes for the execution of deeds and documents
by corporations in England and Wales, Scotland and Northern Ireland.
The Department considers that there are material
differences between the legal requirements and practices as to
the execution of deeds and documents as between England and Wales
on the one hand and Scotland on the other. The legal requirements
and practices as between England and Wales on the one hand and
Northern Ireland on the other are, however, similar. The Department
does not consider that the proposed order would bring about a
convergence between the different jurisdictions.
Q 5 Please indicate whether the Government
has any plans for additional legal reforms to these areas of the
law in Scotland and Northern Ireland and, if it does, what mechanism
it is intended to use to give effect to such reforms.
The Government has no such plans. The law relating
to the execution of deeds and documents is largely devolved. The
proposed reforms in the draft order are intended to apply to England
and Wales only. Reform of the equivalent areas of the law in
Scotland and Northern Ireland would be for the Scottish Executive
and, currently, the Northern Ireland Office.
Q 6 Please indicate what plans if any the
Department has for the implementation of those elements of the
Law Commission's recommendations which address the powers of liquidators
throughout the United Kingdom under the Insolvency Act 1986.
The Law Commission recommended the amendment of liquidator's
powers for England and Wales only and the Government has accepted
that recommendation. The aspect of corporate insolvency law affected
by the recommendation is a reserved matter in relation to Scotland.
However, it is a devolved matter in Northern Ireland. The Department
omitted these recommendations from the draft order to preserve
its territorial extent. The Department will liaise with the departments
responsible for insolvency law to try to identify a suitable legislative
vehicle to implement the Commission's recommendation.
Q 7 Please indicate whether the Department's
proposal will have the effect of revising execution requirements
which pertain to corporations which are co-operatives or are other
types of mutual corporation.
Corporations which are co-operatives or mutual societies
are included in the category of corporation called 'corporations
aggregate'. The consultations carried out by the Law Commission
and the Department were extended to these types of corporations
and feedback was received. As these types of corporations can
include the smallest mutual society and the largest local authority
it was decided not to introduce a uniform way of executing documents
as this could impose burdens in a disproportionate way. However,
Section 74 of the Law of Property Act 1925 does apply to corporations
aggregate and this is amended by the proposed reforms to introduce
a presumption about execution of documents when carried out in
a certain way under seal. This will enable people dealing with
corporations of any kind to be more certain about when documents
are executed when done in accordance with the amended provisions
of Section 74. Therefore whilst co-operative and mutual corporations
will be affected by this new presumption of execution under seal
(Section 74) there is no proposal to dictate to them when they
should use a seal.
I hope these answers are helpful.
1 October 2004
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