Corporate update: the latest corporate law developments March 2023

Typed name in email is a “signature”

In Hudson v Hathway [2022] EWCA Civ 1648, the Court of Appeal has confirmed that typing even just a first name at the bottom of an email may satisfy a legal requirement for a written document to be “signed”. In an increasingly digital age, this case is a timely reminder that email, and other forms of seemingly informal correspondence, can have legal consequences.

Background

The general rule under English law is that a contract does not need to be in any particular form to be legally binding. In some cases, however, a particular form of contract may be required by statute – for example, the contract may have to be in writing and “signed”.

The Interpretation Act 1987 defines “writing”, and it has long been established that emails will fall within that definition. However, there is no statutory definition of “signed” and whether a mark in a document amounts to a signature will depend on why it was inserted in the first place. If a person has added their name with the intention of authenticating the document – i.e. showing their intention to be bound – then that will amount to a signature for legal purposes.

Facts

The case concerned the beneficial ownership of a house purchased in the joint names of Mr Hudson and Ms Hathway, an unmarried couple, who later separated. Following separation, the parties exchanged sporadic emails concerning their financial arrangements. In one such email Mr Hudson agreed to give Ms Hathway various assets and in relation to the family house, he said that he wanted “none of the proceeds of that either”. Mr Hudson signed off the email by typing his name: “Lee”. Ms Hathway emailed back saying “your suggestion, as I understand it, is you get sole ownership of your shares and pension, I get the equity from the house… Is that right? If so, then I will accept this.” Mr Hudson responded by email saying, “yes, that’s right.” Again, the email was signed off with “Lee”.

Mr Hudson later issued proceedings seeking an order for the sale of the property with an equal division of the proceeds. Among other things, the Court had to decide whether the emails with Mr Hudson’s typed name at the bottom complied with the relevant statutory formalities under the Law of Property Act 1925. There was no dispute that the emails were in “writing” and so the principal question was whether the emails had been “signed”.

Court of Appeal decision

The Court of Appeal held that by adding his name “Lee” to the bottom of his emails, Mr Hudson had satisfied the legal requirement for signing and the emails amounted to enforceable dispositions of property.

In making its decision, the Court noted that Acts of Parliament should generally be taken to cover developments in technology if they give effect to the statutory purpose. It also referred to a long line of authorities which held that deliberately subscribing a name to an email amounted to a signature. There was also no distinction between typing one’s name and an automatically generated email sign-off: both were sufficient to indicate that the sender intended to authenticate the document.

Comment

Email is a common method of digital communication and is used for both commercial and informal purposes. As highlighted by the Court of Appeal, the fact that individuals may be familiar with each other and sign off their emails using just their first names, does not lessen the seriousness of any transaction they may be undertaking in those emails.

Each case will inevitably turn on a proper interpretation of the messages between the parties and the particular way in which they are signed, but individuals should take care to ensure that their email communications do not inadvertently amount to binding legal contracts. The same cautionary approach should also be taken in relation to other informal methods of communication, including direct messaging via social media platforms. If the legal requirements for a contract are met, the technology over which that contract is formed, is unlikely to matter.

The benefit of a (reasonable) limitation clause

A recent decision from the Inner House of the Court of Session in Scotland is a useful reminder of the benefits of including a limitation of liability clause in a contract. It also provides some helpful guidance on assessing whether such a clause satisfies the “reasonableness” test in the Unfair Contract Terms Act 1977 (UCTA).

“Reasonableness” test

UCTA provides that a contract term excluding or restricting liability for breach of duty in the course of business will not be effective unless it is fair and reasonable. The question of what is reasonable is considered by reference to what the parties knew (or ought reasonably to have known) when the contract was made. Where the clause limits liability to a specific sum, the resources available to the party seeking to rely on the limitation, and their ability to insure against that liability, will also be relevant.

Further factors which can be taken into account include, among other things:

• the relative bargaining strengths of the parties; and
• whether the customer knew (or ought reasonably to have known) about the existence and extent of the limitation.

The onus of proving that a limitation of liability is reasonable lies with the party seeking to rely on it.

Facts

The case (Benkert UK Limited v Paint Dispensing Limited [2022] CSIH 55) was brought as a result of a fire at a printing factory. The fire was caused by the failure of a jubilee clip that connected a hose to an ink dispensing machine. When the clip failed, highly flammable solvent vapour or ink leaked from the hose and ignited.

The printing company had engaged a maintenance company to carry out regular services of the dispensing machine. The printing company argued that the maintenance company was in breach of contract by failing to exercise reasonable care and skill when carrying out its obligations under that contract. In particular, the printing company said the maintenance company should have advised it to replace the jubilee clips with more secure fittings which did not carry the same risk of detachment associated with the jubilee clips.

But the maintenance contract contained a limitation of liability clause. This provided that the maintenance company’s total liability was limited to the annual maintenance charge which was around £3,200 – considerably lower than the £29m of damage to the factory caused by the fire.

The printing company challenged the limitation of liability clause, arguing that it did not satisfy the reasonableness test set out above.

Decision

In actual fact, the court didn’t need to consider the limitation clause because it found that the maintenance company had not breached the relevant contract. It said that advising the printing company to change the design of the dispensing machine by replacing the mechanism for attaching the hoses went beyond its contractual obligation to simply maintain the machine.

But, helpfully, the court did go on to consider whether, if the maintenance company had been liable, it would have been able to rely on the limitation of liability in its contract. The court noted that the reasonableness test applied equally to contracts between large commercial parties as it did to contracts with consumers or small businesses, although the relative size of the parties involved may affect their relative bargaining strengths. In relation to commercial parties, they are the best judge of what is reasonable for them and the courts should be reluctant to interfere with a bargain made by a commercial party. The printing company could have attempted to negotiate the terms of the maintenance contract, including the limitation, and it had the bargaining strength to do so. But it never did – it simply accepted the standard terms.

The printing company clearly knew (or must be taken to have known) of the existence and terms of the limitation. It was the only clause in the contract that was in capital, underlined letters – a format that was designed to be eye-catching and bring it to the customer’s attention.

In relation to the availability of insurance, the court said that the printing company was in a far better position to estimate the potential losses to its business from a fire at the factory and to insure against those losses (which it had in fact done). It would be unrealistic to expect the maintenance company to insure against the substantial losses which could be sustained by all its customers when it was in no position to be able to estimate them.

All these were factors which pointed strongly to the conclusion that the limitation clause was reasonable.

Comment

Any business providing goods or services would be well advised to consider including a limitation of liability in its contract documents. Any such clause must be reasonable but, as this case shows, it may be possible to link the limitation to the amount being paid for the goods or services provided (£3,200 here) rather than the more significant potential losses if the contract is breached (£29m for the fire). Ensuring that the limitation is highlighted in the contract and clearly brought to the customer’s attention may help the party seeking to rely on it.

A regulated business would also need to check if it was subject to any minimum requirements which must be taken into account when drafting any applicable limitation.

Although this is a Scottish decision, and therefore not binding on the English courts, the UCTA reasonableness test is essentially the same in both jurisdictions. Accordingly, it is probably indicative of the approach an English court would take when faced with a similar question.

Consultation on extension of payment practices reporting regime

The Department for Business, Energy & Industrial Strategy has published a consultation setting out its proposals to amend the payment practices reporting regime (as currently found in the Reporting on Payment Practices and Performance Regulations 2017 and the equivalent LLP regulations).

Entities within scope of the current regime must produce a report on their invoice payment practices and policies every six months and publish that report on a Government-hosted website that is available to the public. It is a criminal offence to fail to publish a report containing the necessary information within the specified filing period of 30 days.

The consultation follows the Government’s Statutory Report on the Regulations, which concluded that although the Regulations had brought much needed transparency to the payment practices of large businesses, more still needed to be done.

The current consultation seeks views on whether:

• the Regulations should be amended to extend their effect beyond 6 April 2024, when they are currently scheduled to expire;
• there should be an additional requirement to disclose the total value of payments not paid within agreed terms (and not just the proportion of invoices);
• reporting businesses should be required to include their payment practices and performance in the directors’ report as well as publishing on the Government-hosted website; and
• where more than one business within a group is required to report under the Regulations, all businesses should be included within the directors’ report (rather than just a group summary.)

The consultation also includes proposals on clarifying how supply chain finance is reported and additional reporting requirements relating to disputed invoices.

Responses to the consultation should be submitted by 28 April 2023.

Consultation on regulation of cryptoassets

The Government has launched a consultation on the future regulation of cryptoassets and the activities underpinning their use.

As the Government notes, these assets can offer significant new financial services opportunities for users but they are complex and rapidly evolving. Their benefits can only be realised sustainably if they are appropriately regulated to minimise the associated risks. The high-profile failures of entities such as FTX only highlight the potential risks for the markets and investors in this area.

Although the promotion of certain cryptoassets within the UK is currently regulated by the FCA, most are outside the broader financial services regime. So this consultation looks at how to bring centralised cryptoassets into that regulatory framework.

In particular, the Government is seeking views on:

• the scope of cryptoassets and the activities associated with them, which should be brought within the regulatory regime;
• the trigger points for regulation, such as a cryptoasset being admitted to trading on a cryptoasset trading venue or offered to the public;
• responsibility and liability for disclosure or admission documents relating to cryptoassets; and
• the development of a market abuse regime for cryptoassets (broadly based on that which currently exists for shares and other securities under the UK Market Abuse Regulation).

The consultation also includes a call for evidence in respect of decentralised finance (DeFi), that is financial services which are offered without the use of traditional financial intermediaries. While these currently form only a small proportion of the cryptoasset market, there has been a marked increase in their adoption in recent years.

The consultation closes on 30 April 2023, following which further consultations on specific rules will be issued.

This is a wake up call for anyone involved in the cryptoasset sector, including those providing advisory services to them. They would be advised to start preparing now for tighter regulatory requirements.

First published in Accountancy Daily.