The Land Registration Act 2002 outlines the legislative framework for the implementation of an e-conveyancing system for properties in England and Wales. The proposed system is highly ambitious and considerably more complex than the few systems that are in place in other jurisdictions, such as New Zealand. The Land Registry has much work to do to create a system that has the complete confidence of property professionals and the public.

Sensibly, the Land Registry is taking a step-by-step approach to the project. Earlier this year, the first part of the e-conveyancing secondary legislation consultation paper was published. It seeks views on the draft Network Access Agreements, which will govern the terms under which conveyancers will be able to access the system, and on the draft Land Registration (Electronic Communications) Order 2007, which will allow contracts for the sale of land to be made electronically.

Proposals for a new s2A to be inserted into the Law of Property (Miscellaneous Provisions) Act 1989 are set out in the box opposite. Yet, whilst IT experts are working on perfecting a fraud-proof system, which will be vital to the integrity of an e-conveyancing system, a recent case has highlighted the danger of unwittingly entering into binding legal arrangements simply by using a more mundane form of electronic signature, with some suggestion that this could apply to contracts for the sale of land.

J Pereira Fernandes SA v Mehta [2006]

This case concerned the validity of a guarantee that had purportedly been given in an e-mail. Whilst not a contract for the sale of land, the giving of a guarantee is similarly subject to various statutory formalities. Under s4 of the Statute of Frauds 1677, a guarantee must be in writing, or evidenced in writing, and that agreement or the memorandum of that agreement must be signed by the guarantor or their authorised agent. The rationale behind this is to protect people from giving such guarantees without due consideration and without being clear on its terms. A similar rationale underlies the formalities for contracts for the sale of land contained in the 1989 Act.

J Pereira Fernandes (JPF) was a company which supplied bedding products to Bedcare (UK) Ltd, a company of which Mr Mehta was a director. Bedcare owed JPF debts of just under £25,000 and, when they failed to pay up, JPF sought to have Bedcare wound up. On receipt of the winding-up order, Mr Mehta asked one of his employees to e-mail JPF’s solicitors, asking them to adjourn the hearing of the petition subject to a personal guarantee for £25,000 from Mr Mehta and proposing a repayment schedule.

JPF’s solicitor rang Mr Mehta accepting the offer and adjourned the hearing. However, when they sent Mr Mehta the paperwork to formalise the agreement, they heard nothing in return. Eventually, JPF sought to enforce the guarantee. Whilst Mr Mehta’s name did not appear in the e-mail, his e-mail address was automatically included in the e-mail header. JPF claimed that this was sufficient for the guarantee to be enforceable under the Statute. The judge at first instance agreed but Mr Mehta appealed on two grounds: first, that the e-mail did not constitute adequate evidence of the agreement under the Statute; and secondly, that the signature was insufficient for the guarantee to be enforceable.

Was the guarantee made in writing?

On the first point, the e-mail undoubtedly contained an offer to give a guarantee and set out clearly the terms of that offer. Further, Mr Mehta did not dispute that he had authorised his employee to send the e-mail. The question was simply whether it was ‘in writing’ for the purposes of the Statute and the judge had little difficulty in finding that it was.

Although the judge did not consider the Interpretation Act 1978, it is worth noting that ‘writing’ is defined in this Act as including ‘typing, printing, lithography, photography and other modes of representing or reproducing words in a visible form’. There has been some debate as to whether an e-mail falls within this definition. The argument usually proposed for saying that it does not is a highly technical one, based on the idea that the information is actually held digitally in a code that is unintelligible to humans.

However, in the Law Commission’s 2001 report, Electronic Commerce: formal requirements in commercial transactions, it was firmly of the view that e-mails can satisfy the function of writing. However the data is transmitted from one machine to another, the fact is that the sender can see what they are typing on screen and the recipient can read it on screen and can, of course, print it out as a written record.

The report was commissioned to review whether new statutory provisions were required to implement the EU’s Electronic Commerce Directive (2000/31/EC). This requires all member states to ensure that their legal systems allow contracts to be concluded by electronic means, and that any obstacles to the use of electronic contracts be removed.

The Law Commission’s conclusion was that, by and large, existing statutes could cope with new technology.

It did, however, note that greater formality might be required to protect the integrity of certain transactions and that specific legislation would therefore be needed to ensure this. It gave as an example the giving of guarantees, commenting that maintaining the current level of formality would protect against ‘hasty or ill-considered conduct’. Unfortunately, the report did not consider contracts for the disposition of land, but the same must be true for these.

However, until any such legislation is passed, it is difficult to argue against Judge Pelling’s conclusion that Mr Mehta’s guarantee was given in writing.

Had the guarantee been ‘signed’?

The other question was whether the guarantee had been signed. Neither Mr Mehta’s name nor that of his employee appeared in the e-mail. However, JPF contended that because Mr Mehta’s email address appeared in the header to the e-mail, it had been signed.

It has long been held that a signature which appears incidentally on a document is insufficient – there must be a clear intention on the part of the signatory to authenticate the terms of the contract (Caton v Caton [1867]). Whilst Judge Pelling was unclear as to how the header made its way onto the e-mail, there was no doubt that it was an automatic process, one over which the sender had no control. That being the case, he said, to conclude that the header was an authenticating signature for the purposes of the Statute would be to undermine the whole rationale behind the Statute.

He therefore allowed Mr Mehta’s appeal and held the guarantee unenforcable.

What was clear, however, was that he would have found differently had Mr Mehta’s name, or even that of his employee, been typed at the bottom of the e-mail. His view was that creating and signing an electronic document is no different to printing off the same document and signing it manually.

This, again, is consistent with the Law Commission’s view. Its 2001 report concluded that typing one’s name, scanned manuscript signatures or even clicking an ‘accept’ button on a website could constitute a signature as they all indicate an intention to authenticate the transaction. Both the Law Commission and Judge Pelling noted that it is long established that simply signing one’s initials or marking a document with an ‘X’ is sufficient to create a signature. Even signing under a pseudonym can be valid.

It is also worth noting the provisions of the Electronic Communication Act 2000, which laid down the basic framework for e-commerce. Section 7(1) says that an electronic signature shall be admissible in evidence in relation to any question as to the authenticity of the communication or data, or as to the integrity of the communication or data. Section 7(2) provides that an electronic signature is anything in electronic form incorporated into or otherwise logically associated with any electronic communication or electronic data for the purposes of establishing the authenticity of the communication or data and/or the integrity of the communication. No specific examples are given but it seems certain that someone typing their name in an e-mail would be covered by this definition.

Therefore, the failure by Mr Mehta’s assistant to put a name to the e-mail had saved her employer a significant liability. Yet, most people would not forget to put their name at the bottom of an e-mail. What seems nothing more than a common courtesy could potentially create legally binding and costly obligations. Bizarrely, it appears that those who forget to sign an e-mail are in a better position than those who do not.

What is not considered in the case is whether automated signatures of the type inserted by many firms in outgoing e-mails would be sufficient for authentification purposes. The underlying logic behind Judge Pelling’s decision and the Law Commission’s view is the need to show an intention to authenticate. It could certainly be argued that anything added automatically, such as the header to Mr Mehta’s e-mail, cannot truly be said to convey that intention. However, it could equally be argued that the sending of the e-mail in the first place showed sufficient intention, although an unsigned e-mail may not be one that the recipient can rely upon to indicate that the message was sent with the purported author’s authority (an authority more easily imputed where there is a signature, even if it has been inserted automatically). However, this point remains to be considered.

Could contracts for land be created by e-mail?

Although the Law Commission does not specifically consider contracts for the disposition of land in its 2001 report, this must be one of the areas where, for public policy reasons, formality is required. Interests in land can be extremely valuable and it cannot be acceptable that a contract to dispose of these could be formed by an exchange of e-mails. E-mails are a relatively informal means of communication. The pace of modern business life is such that, rightly or wrongly, people often fire off e-mails without giving them the same consideration that they would a letter.

However, until legislation requires otherwise, the Mehta case suggests that such a contract could be formed by e-mail. An e-mail was found to be sufficient to satisfy the formality requirements set out in the Statute of Frauds, so why not also those contained in the 1989 Act? The decision is consistent with the Law Commission report that older statutes do not generally need to be updated to adapt to new technology. It also follows the spirit of the EU’s Electronic Commerce Directive that statutory obstacles to electronic commerce be removed.

Section 2 of the 1989 Act requires contracts for the sale or other disposition of an interest in land to be in writing, incorporate all the terms that the parties have expressly agreed in one document and be signed by, or on behalf of, each party.

There can be no doubt that an e-mail could set out all the terms agreed between parties. E-mail is considered a form of writing and the Law Commission and Judge Pelling agree that adding one’s name to that e-mail can amount to a signature.

The only issue then is that a contract for the sale of land must be signed by both parties, or, where contracts are exchanged, there should be duplicates signed by each party. It seems that all the other party would have to do would be to e-mail back their agreement to the terms and ‘sign’.

It should also be noted that the courts appear currently to be bending over backwards to work round the formality requirements of s2 so as to prevent landowners wriggling out of contracts for land because they claimed the statutory formalities had not been met (for example, Cobbe v Yeomans Row Management Ltd & anor [2006], Oates v Stimson [2006] and William David Lloyd and MGL (Rugby) Ltd v Andrew Michael Sutcliffe [2007].

Therefore, it is not inconceivable that an exchange of e-mails could constitute a contract for the disposition of land.

Signatures for e-contracts

That being the case, it is clear that much greater formality is required for the signature of e-contracts and that this will need to be imposed by statute. The Land Registry recognises this and the proposed s2A to the 1989 Act requires electronic signatures to be ‘certified’.

Whilst we await its proposals in the next part of its consultation paper, it appears that this will involve some sort of encryption system, which will mean that only the parties involved, or their advisers, will be able to sign a document. Of course, identity checks will need to be in place to confirm that the parties involved are who they claim to be.

To the extent that the Mehta decision creates a dangerous precedent for land transactions, these dangers should only remain until such time as the formality requirements for e-contracts take statutory effect. However, it should be remembered that e-conveyancing is still some way off and that it will not initially be compulsory. Until then, the Mehta case should serve as a salutary lesson to treat e-mails with the same care and formality as other written documents.

The standard advice would be to mark all e-mails which might give rise to a contractual obligation as ‘subject to contract’. However, this is by no means foolproof and the subsequent behaviour of the parties can support an inference that a binding agreement has been reached (see Proforce Recruit Ltd v The Rugby Group Ltd [2006]).

Conclusion

With the pace of modern business, it is all too easy to send off an e-mail quickly without reflection. E-mail is still seen as a relatively informal means of communication, and people tend to take more time and care over a traditional letter. However, the Mehta case and the views of the Law Commission suggest that there is now potentially no legal distinction between the two. Given that marking an e-mail ‘subject to contract’ cannot be said with any certainty to protect the sender, maybe the safest (albeit the least polite) solution is not to put one’s name to e-mails to avoid inadvertently entering into legally binding agreements. © Property Law Journal