Businesses can breathe a sigh of relief after the High Court upholds the principle that electronic signatures are acceptable for the purpose of consumer credit legislation.
Bassano v Toft and others [2014] All ER (D) 36 (Mar), [2014] EWHC 377 (QB)
The first and third defendants (Mr Toft and Borro Loan Ltd) sought to recoup loans to the claimant, Ms Bassano, based on the security of her musical instrument. Ms Bassano disputed the claims on the basis that the loan was not enforceable by reference to provisions of the Consumer Credit Act 1974 (CCA 1974) in relation to the first defendant and that the third defendant's loan had not been validly executed. The Queen's Bench Division decided that both defendants were entitled to recoup the monies loaned.
Ms Bassano, was a professional musician, owning a valuable viola. Between 2009 and 2011 she used the viola as security to obtain loans from the defendants. Mr Toft and Borro brought proceedings to enforce repayment of the loans, in part against the proceeds of the sale of the viola. The court had to decide the following issues:
Ms Bassano claimed that the agreement was not properly executed because it was not executed in a way that complied with CCA 1974 as Ms Bassano did not sign it. CCA 1974, s 61(1)(a) provides that a regulated agreement is not properly executed unless a document in the prescribed form itself containing all the prescribed terms and conforming to regulations under CCA 1974, s 60(1) is signed in the prescribed manner. The issue was whether Ms Bassano had 'signed' it. All loans by Borro were made online. The customer had to create an account online with personal information and choose a password. The process included the presentation of the formal loan agreement on the screen. It included, among other things, the name of the borrower as part of the agreement. The customer indicates acceptance of that loan agreement by clicking on an acceptance button marked 'I Accept' which is in a defined field on the screen. The agreement is incapable of being changed after the customer has clicked on the 'I Accept' button.
The judge said that there was nothing in CCA 1974 to suggest that regulated agreements should not be capable of electronic signatures and he could see no reasons of policy why a signature should not be capable of being affixed and communicated electronically to an agreement regulated by CCA 1974. Ms Bassano electronically communicated to Borro her agreement to be bound by the terms of loan agreement by clicking on the 'I Accept' button and thereby generating a document sent to Borro bearing her typed name which authenticated the document and communicated her agreement to be bound by its terms. That constituted signing it so as to fulfil the requirements of CCA 1974, s 61.
A further question arose as to whether the location of such signature is in the form prescribed by the Consumer Credit (Agreements) Regulations 2010, SI 2010/1014, reg 4(3)(a) which requires it to be in 'the space in the document indicated for the purpose'. The words 'I Accept' appear in such a space, but Mrs Bassano's name appeared on the previous page. The judge decided that the statutory regulation was fulfilled. In this case, the signature was made by the electronic communication of the words 'I Accept' which were in the space designated for a signature. They constituted a good signature because the word 'I' can be treated as being the mark which is unambiguously that of Ms Bassano affixed for the purposes of authenticating and agreeing to be bound by the terms of the document. The signature was therefore in the designated space by reason of the words 'I Accept' being in that space. The name on page one was evidence that 'I' is Ms Bassano's mark, if any were needed in addition to the evidence that it was she who clicked the button—but it was the words 'I Accept' which constituted the signature, not the name on the previous page.
There were various issues around the enforceability of the agreement with Mr Toft, which was a consumer credit agreement within the meaning of CCA 1974 and was therefore only enforceable against Ms Bassano to the extent permitted by CCA 1974. The judge said that the loan agreement did not require Mr Toft to be licensed. As it was a one-off transaction, it was not made in the course of carrying on a consumer credit business, nor was it made in the course of his business as a dealer or any business. Therefore the loan was a non-commercial agreement. That fact was sufficient to entitle Mr Toft to judgment for the loan plus interest.
The judge ultimately decided that Mr Toft's claim had priority over Borro's and would be paid from the proceeds of the sale of the viola. Given the prevalence of payday loans and the ubiquity of the Internet in the consumer credit environment, it is probably a relief for lenders that the court held that clicking 'I Accept' was a sufficient signature to meet the requirements of CCA 1974. Indeed it is probably also a relief for borrowers who wish to avoid unnecessary bureaucracy and to carry out their business online. For further information on consumer credit, see Practice Notes: Drafting and varying consumer credit agreements and Regulated agreements. For more information on e-signatures, see Practice Note: Electronic signatures—legislation, benefits and shortcomings.
Helen Hart, solicitor in the Lexis®PSL Commercial team.
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