Signing away

Section 2 of the Law of Property (Miscellaneous Provisions) Act 1989 was enacted before the advent of email as a habitual means of correspondence. It was intended to reduce fraud and prevent parties from unintentionally entering into land contracts by setting down rules for their creation. These specify that the contract must: incorporate all the terms agreed by the parties; be signed by all the parties; and be in writing.

In a recent High Court case, Green (Liquidator of Stealth Construction Ltd) v Ireland [2011] EWHC 1305 (Ch), the judge suggested an email may, in some circumstances, satisfy section 2.

Mrs Ireland had a legal charge granted in December 2008 over a property belonging to a company part-owned by her sister, Miss Gillis. Mrs Ireland had lent the company £300,000 towards the purchase of the property. When the company became insolvent in June 2009, the liquidator claimed that the charge was a preference that should be set aside under the Insolvency Act 1986. Mrs Ireland argued that the creation of the charge in December 2008 did not constitute a preference because she already had an entitlement to the charge, arising out of an agreement contained in an exchange of emails between her and her sister in October 2007, when the company was still solvent.

The judge ruled that the charge was a preference. There had been no contract, as alleged, because the exchange of emails did not refer to all the terms that had been agreed orally between the sisters, nor did the content of the emails point to binding obligations.

Although it wasn't necessary to the outcome of the case, the judge went on to consider whether the emails had been signed in accordance with section 2. The sisters had only inserted their first names at the end of their respective emails, but the liquidator had accepted that the emails had been signed and the judge did not disagree. He said that an email and its reply, when taken together, could constitute a single document for the purpose of section 2, where, as in this case, the second email is sent as a reply and creates a string of emails, in contrast with the position where the recipient creates a new email to type a reply. The former, he said, was the electronic equivalent of a hard copy letter signed by both sender and recipient.

Mrs Ireland's position required her to demonstrate the existence of a contract in an exchange of emails, something of an uphill task, given the facts. She had orally agreed to lend her sister £300,000, at a rate of 15 per cent payable at six-monthly intervals. Miss Gillis later sent an email asking for part of the loan, £145,000, to be transferred to the company's bank account, and promising to arrange a charge over the property in Mrs Ireland's favour. By way of reply, Mrs Ireland emailed, somewhat equivocally' 'Do remind me tomorrow. Any news on the cooker?'

On the strength of this exchange, your average onlooker would probably not conclude that the sisters had entered into a binding agreement, and nor did the court. At best, the emails were evidence that some kind of oral agreement had been reached, but, on a section 2 analysis, the emails did not include all the terms that had been orally agreed, there was no reference to the repayment dates or the interest rate and the oral agreement had been for £300,000, not £145,000. Thus, the 'contract' failed to satisfy the requirement for all the terms to be incorporated into one document, as well the general rule that a contract cannot be made without intention to create a legally binding arrangement.

Flaws in the ruling

Although no enforceable land contract was found to exist in this case, the decision is one more in a series of cases indicating judicial recognition of electronic contracts. Eventually, perhaps, the law will catch up with modern commerce. The Electronic Communications Act 2000 already includes provisions to amend legislation to facilitate electronic conveyancing and yet this summer the Land Registry had to announce that its plans for full electronic conveyancing have been put on hold, in the light of stakeholders' reservations about e-signatures and the potential for fraud.

Apart from anything else, the judge in Green made a very fine distinction that may not stand up to closer scrutiny. With many email systems, replying to an existing email involves choosing 'reply with history', while sending a new email requires you to select 'reply without history'. Most people do not give much thought to which method they select, but, if this distinction catches on, a typed name at the end of an email chain may one day be construed as a signature for the purposes of section 2.

Another weakness in the court's reasoning was that the judge accepted that the sisters had 'signed' the emails on the basis of an earlier case, J. Pereira Fernandes SA v Mehta [2006] EWHC 813 (Ch), in which the High Court declared that, if a party sends an electronically created document, then he or she will be treated as having signed it to the same extent as having signed a hard copy of the same document. The judge in that case said that the appearance of the name of the sender in an email did not, by itself, amount to a signature if it had been automatically generated by an internet service provider after the document had been transmitted. The name must be deliberately inserted by the sender to show that it was intended to give authenticity to the whole document. However, J. Pereira concerned a guarantee signed under section 4 of the Statute of Frauds 1677, and not to section 2, which does not apply to guarantees, a distinction overlooked by the judge in Green.