Glossary of Terms. Electronically Stored Information Straight-Through-Processing (the complete electronic facilitation of the customer transaction)

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2 Glossary of Terms Term E-Approval Meaning The process that a retail customer goes through from the point at which the application stage ends to the execution of the electronic contract and conclusion of the sales process to create a legally binding agreement This includes the following five stages: 1 identification / verification 2 presentation and review 3 signature capture and delivery 4 storage and management 5 capturing and storing of electronic evidence ESI STP Electronically Stored Information Straight-Through-Processing (the complete electronic facilitation of the customer transaction) Confidential, IOCS Ltd, 2010 Page 2

3 Table of Contents [ 1 Introduction 4 11 This Document 4 12 Risk 4 13 Will Your Electronic Contract Stand Up In Court? 5 [ 2 Expert Sources 6 [ 3 What is E-Signature? 8 [ 4 Summary Legal Guidance Customer Experience 13 [ 5 Expert Opinion and Research Expert Legal Opinion: Brazell Expert Legal Opinion: Wright Expert Legal Opinion: Judge Paul W Grimm / Lord Bissell & Brook Expert Legal Opinion: Judge Christopher M Klein / Professor Edward J Imwinkelried Expert Analyst Opinion: Gartner, Gregg Kreizman Expert Analyst Opinion: Tower Group, Karen Pauli 28 [ 6 Notes ] 29 Confidential, IOCS Ltd, 2010 Page 3

4 [ 1 Introduction 11 This Document The purpose of this document is to collate expert opinion on the requirements for a legally robust electronic approval process Where possible, expert opinion pertains to UK law Where case law is cited the nearest comparable e-signature legal regime has been chosen: that of the US (due to the lack of UK case law) 12 Risk Use of e-signature is relatively new particularly so in Europe Whilst the benefits are great, the risks associated with abandoning a physical contract medium can be significant Consider the following high profile UK e-signature projects: UK Institutions HSBC: restricted roll-out HBOS: abandoned RBS: restricted roll-out A&L: abandoned Citibank: restricted roll-out In the US the country with the most comparable e-signature legislation to that of the UK - electronic signature has been around for longer and case law exists: US Institutions American Express: electronic evidence failed in court (American Express v Vee Vinhnee) Markel Insurance: electronic evidence deemed inadmissible in court (Lorraine v Markel) Bank of America: switching to specialist e-sign provider USAA Bank: abandoned initial solution Allstate: abandoned initial solution Geico: initial solution shut down by internal compliance Progressive: abandoning initial solution Country Financial: initial solution shut down by internal compliance Confidential, IOCS Ltd, 2010 Page 4

5 What is particularly interesting about this list is that in each case the main issue was not the legality of the solution deployed it was the enforceability of the resultant electronic agreements The message, echoed by the UK s foremost legal authority on E-Signature Law (Lorna Brazell, Bird & Bird), is that simply complying with the law may be insufficient 1 As American Express discovered to their cost (Vee Vinhnee vs American Express, 2003), the implications of failure to enforce an electronic agreement are significant The main issue is not the individual customer agreement it is the precedent set by its non-enforceability Once a single agreement fails, all previous agreements are now open to repudiation in the same way Nor does the failure have to be one s own all it takes is the failure of a comparable agreement, completed in a comparable way, for all such electronic agreements to be undermined 13 Will Your Electronic Contract Stand Up In Court? Consider the following questions taken from the UK s leading authority on electronic signature and act as a checklist for enforceability: Do you use an internally-built e-sign system? Is any of your e-sign evidence (including the customer ID) internally gathered, stored and reproduced? Is there any part of your evidence which is not protected with a digital signature? Are you unable to reproduce the actual web pages the customer saw? Are you unable to replay the actions the customer undertook? Is the customer copy of the contract different in any way to what they e-sign online and/or what you keep? Would you need to rely upon technical evidence if challenged? If the answer to any of these questions is YES, then your electronic contracts are open to repudiation in the same way as companies like American Express have already experienced 1 Evidential Pit-Traps in Electronic Transactions, Bird & Bird, 2007 Confidential, IOCS Ltd, 2010 Page 5

6 [ 2 Expert Sources IOCS has spent two years researching the legal context surrounding electronic agreement processing In addition to reviewing all relevant case law, we have obtained legal opinion from the UK s leading experts in e-signature, eid and Consumer Credit law The issue is not the creation of a legal sale process It is in ensuring that the out-put from this process (the evidence) is fit for purpose and will stand up to legal challenge and that an enforceable agreement is attained Our assessment of evidential requirements is based upon the guidance and opinion of the expert parties below: Bird and Bird, Lorna Brazell, Partner: the UK s leading expert on e-signature law and e-contract enforceability Author: Electronic Signatures, and Identities Bird & Bird, 2008; Evidential Pit-Traps in Electronic Transactions, Bird & Bird, 2007; Analysis of a Proposed Online Contracting Process Possible Evidential Shortcomings, Bird & Bird, 2008; Electronic Identity Verification Legal issues surrounding the identity of a contracting party, Bird & Bird, 2008 Hogan Lovells, Emily Reid, Partner: specialist in retail banking and consumer credit and one of the UK s leading experts on the electronic execution of consumer credit agreements Author: Executing Consumer Credit Agreements Electronically, Lovells, 2008 Eversheds, Jonathan Guest, Partner: specialist in banking, retailer financing and consumer credit, in-depth knowledge of the industry in the UK, extensive experience advising the majority of retailer finance and mail order companies in the UK Benjamin Wright: lawyer, government advisor and leading US expert on e-signature and electronic evidence Author: E-Signatures, Are We Building Sufficient Electronic Evidence? B Wright, 2007; The Law of Electronic Commerce, Aspen Law & Business, 2006 Lord Bissell & Brook: US specialist e-records management legal experts Authors: From E-Discovery to E-Admissibility Lorraine v Markel and What May Follow, Lord Bissell & Brook, LLP 2007 Judge Paul W Grimm: Chief Magistrate Judge, Maryland - the presiding judge in Lorraine v Markel and author of the subsequent 101-page opinion on getting e-records into evidence Judge Christopher M Klein: US Bankruptcy Judge, Eastern District of California, and Chief Judge of the Bankruptcy Appellate Panel of the Ninth Circuit the presiding judge in American Express v Vee Vinhnee Professor Edward J Imwinkelried: Professor of Law and Director of Trial Advocacy, University of California Author: 11-Factor Foundation Process for Electronic Records, Matthew Bender, 2008 Confidential, IOCS Ltd, 2010 Page 6

7 Tower Group, Karen Pauli, Senior Analyst Author: Electronic Signature and Secure Forms in the Insurance Industry: Taking the P&C Pen to the Web, Tower Group, 2007 Gartner, Gregg Kreizman, Research Director, IT Author: Electronic Signature Suites and Services: Preserving the Electronic Trail 10 Years From Now, Gartner 2008 Confidential, IOCS Ltd, 2010 Page 7

8 [ 3 What is E-Signature? A common misconception about e-signature is that it is a technology or technological solution As many companies have found out to their cost, it is not E-Signature is a legal process resultant in an enforceable agreement Anything technological must be there simply to facilitate this process By way of example, e-signature is NOT: Signature Capture: this is typically what many people think of as their actual e-signature - a tick in a tick-box or a click-to-approve button online Ironically, whilst this is a necessary component of the e-signature process, it does not in itself confer legal enforceability to an agreement Since a click of a mouse can be such an arbitrary act, it cannot be relied upon to prove a customer s intent to be bound by the terms and conditions of an agreement Of greater legal weight is the process by which it came to be there Digital Signature: this is simply a means by which ensure the integrity of, in this case, an e-approved agreement (and its associated evidence) The agreement, through Digital Signature technology, is rendered tamper evident and/or tamper proof It is the name of the technology which is, perhaps, confusing and might better be thought of as a digital seal Whilst this is a necessary component of the e-signature process, it does not in itself confer legal enforceability to an agreement Identification / Verification (ID&V): clearly it is important to establish and verify the identity of any party to a legal agreement ID&V does, however, speak nothing to the intent of an individual to be bound by the terms of an agreement In this respect it is a crucial component of the e-signature process but does not in itself, confer legal enforceability to an agreement What, then, is e-signature? In essence, it is a five-step legal process: Step 1 - ID&V: within an online process, it is critical to establish the customer exists and that it is that customer who is undergoing the e-signature process It is also critical to ensure that this occurs in full prior to the agreement being executed, and that the ID&V audit trail is, in perpetuity, linked to that executed agreement Step 2 - Presentation and Review: critical here is to be able to present the agreement to a customer in a way which is: a) non-prejudicial b) reproducible c) compliant As many companies have found to their cost, this may not be as simple as a tick in a box Confidential, IOCS Ltd, 2010 Page 8

9 Step 3 - Signature Capture & Delivery: over and above capturing the customer s tick-in-a-box or the fact that they clicked an I Approve button, it is critical to deliver a copy of the executed agreement to the customer in a manner of their choosing Typically customers Save their agreements, but to conform to UK CCA legislation, they may need to have the option of printing a copy The enterprise does, of course, retain their copy Whilst the law does not stipulate that the two have to be identical, the more differences that exist between them (particularly in terms of format), the more exposed the agreement is to future repudiation In one UK banking case, the customer, after having e-signed and HTML agreement, downloaded an unsigned PDF of the terms and conditions This created a numbers of legal risks: The customer did not actually have a copy of his agreement Two separate sets of terms and conditions now existed The customer s set was not permanently and non-repudiably linked to the bank s Confidential, IOCS Ltd, 2010 Page 9

10 It was impossible to prove who had the definitive set The customer could easily have changed their terms Every one of these points leaves the agreement open to repudiation Step 4 - Storage & Management: once the agreement has been executed and delivered (eg saved by the customer), the electronic evidence has been created, it all has to be stored and managed The means by which this happens can have significant impact on the enforceability of an electronic agreement Critical issues include: Ensuring the agreement and associated evidence are tamper-evident How the evidence and agreement are permanently linked Access control How the agreement evidence can be amended / updated Securitisation (creating an authoritative copy and managing chain of custody) Step 5 Capturing and Storing of Electronic Evidence: the common denominator in cases where enterprise e-signature solutions have proved unsuccessful (either in court or as deemed by internal compliance), is a lack of robustness around the evidence captured and evidential processes employed For steps 1-4, the evidence, the means of its capture, the form in which it is stored and the way in which it is subsequently conveyed comprise the single most important factors in determining the enforceability on a electronically approved agreement Confidential, IOCS Ltd, 2010 Page 10

11 [ 4 Summary Legal Guidance As we have seen a legal e-signature process does not necessarily generate an enforceable agreement What, then, can be done to maximise enforceability? According to the UK s leading expert in E-Signature law there are six cornerstones to legal enforceability 2 : 1 Customer identity must be established and verified prior execution of contract 2 The process, context and identity must be captured 3 Link between what offeree (customer) saw and signed is critical 4 The offeree (customer) should be able to keep a copy of the contract 5 Evidence should be digitally-signed and the evidential processes should be independent 6 Evidence should be intelligible even by the non-technical 1 - The customer s identity must be established and verified prior to execution of the contract: see document: Use of Electronic Identity Verification in e- Signature reference UEIDVES The process, context and identity must be captured: typically the enforceability of a legal agreement (whether electronic or otherwise) depends less upon the affixed signature, and more upon establishing the signee s intent Specifically, their intent to be bound by the terms and conditions of the agreement - indeed, some examples of modern consumer credit agreements can be executed in the absence of a signature altogether The emphasis is, again, on the intent Intent, being a state of mind, is difficult to establish The more of the e-signature process a solution captures, the greater its ability to establish a customers intent 2 Summarised from : Evidential Pit-Traps in Electronic Transactions, Bird & Bird, 2007 and Electronic Identity Verification Legal issues surrounding the identity of a contracting party Bird & Bird, 2008 Confidential, IOCS Ltd, 2010 Page 11

12 A solution should be able to reliably recreate exactly what the customer did and saw at the time of signing Merely capturing actions through web logs may not be sufficient to convince either a customer or a court of law about what actually happened during the e-signature process 3 - Link between what offeree (customer) saw and signed is critical: the way in which the agreement appears to the customer is vital Things like font size, font type, colour, signing box positioning are all of legal importance To maximise enforceability, a solution should be able to reliably recreate exactly what the customer saw at the time of signing Merely capturing what was served (as in the case with web logs) may not be sufficient to convince either a customer or a court of law as to what was on display at the time 4 - The offeree (customer) should be able to keep a copy of the contract: the closer a solution can get to a carbon copy scenario, the higher the likely level of enforceability The customer s copy should, for the most part, be demonstrably identical to the enterprise s copy The two copies should also be permanently and non-repudiably linked In this way if the agreement were challenged years after its execution, both parties can produce their copy, they can be proven identical and can be proven to be linked (ie only one set of terms and conditions can have existed) 5 - Evidence should be digitally signed and the evidential processes should be independent: a core component of any e-signature solution must be a capability to create, store and convey evidence This is analogous to a witness or notary and, in the same way, should be demonstrably independent Companies which have built their own e-signature solution have compromised this evidential independence and, as a result, have compromised the evidence As in the case of American Express 3, it means that the enterprise is now reliant upon their internal IT team to testify as to the integrity of the solution Often the case will come to court years after the solution has been built and key IT team members may have moved on Digital Signature is a technology for securing data It is analogous to a wax seal or a lock (this is not the same as electronic signature is a legal process by which a signing party confers intent It is analogous to a physical [wet] signature) Digital Signature is the internationally accepted security standard for ensuring the integrity of data - in this case, evidence Any electronic evidence [pertaining to an electronic contract] is open to repudiation if not digitally signed Digital Signature security has three main purposes within E-Signature: To render evidence non-repudiable To link different evidence collateral together - analogous to locking different documents in the same box To enable evidence to be used practically because each evidence pack can be secured individually, institutions do not require specialist storage systems and can access and circulate evidence as they require 3 American Express vs Vee Vinhnee, 2003 American Express IT testimonial was unable to prove the robustness and integrity of the system they built, a key reason why their case was lost in court Confidential, IOCS Ltd, 2010 Page 12

13 Each of the above functions has been identified as an evidential requirement to maximise electronic agreement enforceability by the world s leading experts on electronic signature Secure Database / Secure PDFs: Storing electronic evidence in a secure database is not the same as digitally signing that evidence Access to a secure database is controlled by the institution which created it If the institution were to store [non-digitally signed] evidence in a secure database to which they had access, the evidence would be repudiable and, therefore, compromised (the same is true of a Secure PDF) Non-digitally signed evidence within a secure database, also presents practical problems: it must stay in the database and cannot be used or circulated externally 6 - Evidence should be intelligible even by the non-technical: consider the parties who may, in the event of dispute, need/want to review any evidence created: Internal legal department The customer A judge / magistrate It is likely that none of these parties will be highly technology literate (especially in the case of the judge / magistrate) The evidence, then, must be communicable in such a way that it can be understood easily by the layman In many cases, where a magistrate s hearing lasts for minutes, computer based evidence may not even be admitted Legally robust e-signature solutions should be able to demonstrate points 1-5 in detail for a significant case using computer evidence Additionally they should also be able to revert to paper-based evidence to prove the same for shorter less arduous cases 41 Customer Experience Clearly it is no use having a legally robust e-signature process if it is unusable from a customer perspective Common issues impacting customer experience include: Client-side software requirements: ideally any solution should be zero client PDF downloads: any solution necessitating the download of a PDF to the client No true copies of agreement: customers should be able to obtain an actual copy of their agreement, and not just the wording of the terms and conditions to which they subscribed No save-and-return: customers should not be forced to complete the e-signature process in a single sitting No reversion to paper: customers should, if they wish, have the ability to revert to paper either for the review process or to execute the agreement Complex or intrusive ID&V process: customers should be able to ID&V in a simple, seamless way at the beginning of the e-signature process Confidential, IOCS Ltd, 2010 Page 13

14 [ 5 Expert Opinion and Research 51 Expert Legal Opinion: Brazell Bird and Bird, Lorna Brazell, Partner: the UK s leading expert on e-signature law and e-contract enforceability Author: Electronic Signatures, and Identities Bird & Bird, 2008; Evidential Pit-Traps in Electronic Transactions, Bird & Bird, 2007; Analysis of a Proposed Online Contracting Process Possible Evidential Shortcomings, Bird & Bird, 2008; Electronic Identity Verification Legal issues surrounding the identity of a contracting party, Bird & Bird, 2008 Context: the following has been summarised from: Evidential Pit-Traps in Electronic Transactions, Bird & Bird, 2007 and Electronic Identity Verification Legal issues surrounding the identity of a contracting party Bird & Bird, 2008 Introduction: Regardless of the theoretical legal effect of a mouse click or digital signature, acceptable signature methods in principle, the adequacy of supporting evidence is the critical test of effectiveness of an electronic transaction process In short, the presence of a legal signature is a necessary but not a sufficient condition for a contract to be enforceable Legislative Response: The solution lies not in ever more sophisticated signature mechanisms, but in maintaining appropriate records of how the signature whatever its form came to be applied, in a format which will be reliably accessible and credibly authentic at whatever future date a dispute comes about The archival record should include not only the signed document itself, but evidence as to any introductory or explanatory material which the signatory reviewed and confirmations that they gave of having done so before signing Will it still be possible to access the electronic document at all 5, 10 or 20 years into the future, when storage technologies have moved on? Will a court be ready to accept in evidence an electronic record which has been migrated from one medium to another, possibly several times, and may have been exposed to the possibility of alteration each time? These issues are easily overlooked in focussing too much on the sequence of events leading up to signature But in any dispute, they are likely to emerge as at least as important as the credibility of the signature mechanism employed Since very few cases have as yet been heard in which electronic signatures have been in issue, however, the commercial world remains in a state of relative ignorance as to the risks in relying upon any form of signature technology in purely electronic form The Issues in Dispute: Confidential, IOCS Ltd, 2010 Page 14

15 Particular kinds of contract may require additional elements to be proved in order to be enforceable For instance, in consumer credit agreements In the electronic context, this will require the court to be confident that the customer has actually viewed in full the pages setting out the relevant notice Simply requiring them to click a box which says I have read the terms and conditions may not be sufficient since it is common knowledge that very few will in fact read them Similarly, certain types of contract may be subject to regulatory requirements as to the clarity of presentation of the document, or that a complete and accurate copy was subsequently delivered to the consumer, compliance with which may be difficult to demonstrate at a later date Ideally, it should be possible to show whether the signatory did in fact access the page with the terms and conditions, and even how long they spent with that page open, to create a convincing record that the necessary notice was indeed conveyed Any [or download] despatched with the transaction record needs to be stored with the log as to its time and date of despatch and of course the evidence that the copy was indeed attached Proof of Intention: In civil law systems such as those of continental Europe a notary is sometimes required to ensure that the signatory understands the significance of their act This additional step provides independent evidence of the signatory s intention a signatory may have visited a number of different web pages, possibly belonging to different businesses, in only a few moments before arriving at the page subsequently signed Having viewed a range of different offers and contexts in making up their mind, the signatory may well be able to argue that they did not realise what they were doing in clicking a particular button The relying party [the bank]may need to identify which web pages were linked to which others, the order in which the signatory navigated through these, what responses the signatory gave to each of a series of options or challenges on the path to the final signature and precisely what was displayed on the signatory s screen at the time Merely recording what appears in the web server s memory does not establish beyond doubt what the operating system and browser in use on the signatory s computer may have been showing them Fonts and font sizes, screen colours and intensities can make a significant difference to the appearance of an electronic document and particular text within it, which in turn could provide a basis for repudiation: that the signatory simply did not see relevant, critical information Proving the Case: the offeror [the bank] will have the burden of proving to the court that in fact the transaction was structured and executed so that the offeree could not reasonably have been in any doubt as to what they were doing Execution of web-based electronic transactions will need to be supported with electronic evidence of how the execution of the transaction was carried out and that the electronically signed records represent what the offeree saw through the web site While all systems for web portals produce log files, the log files only capture requests made by web-browsers while a user is viewing and clicking on web pages As a result, the log shows what a user asked for while looking at a web page but cannot reproduce with any certainty exactly what web page was presented to the user unless the e-signature, each and every web page sent to be viewed by the user and each of their actions are captured and stored as part of the audit trail Ideally, the same package should be made accessible to the signatory Confidential, IOCS Ltd, 2010 Page 15

16 Finally, independence of the signature records from the party subsequently relying upon the signature may further support the credibility of the evidence by removing any realistic possibility of tampering after the event, since the party holding the record would have no personal interest in influencing the outcome of a dispute Standard of Proof: In the context of a shift from paper-based transactions to electronic agreements, there is a much higher level of uncertainty as to what is necessary to ensure that the contract is enforceable Crucial test cases will not be decided until many thousands of agreements have been made using the existing processes In these circumstances, a handful of electronically signed contracts being found unenforceable may trigger a loss of confidence in the whole suite of contracts which had been signed and recorded using the same process Limitations of liability may be found inapplicable, choices of law and dispute resolution mechanisms may not be binding At the very least it would lead to a rash of individuals attempting to overturn them on the basis that the same flaws might lead to their own obligations being discharged In these circumstances, technicalities such as the admissibility and weight of evidence carry substantial practical significance Systems being implemented today need to be designed to capture and securely store all of the evidence that might, one day, be called upon, in such a form as to guarantee that it will be admitted and believed Admissibility: Documents also come under suspicion because they can be forged or tampered with Accordingly, documents were formerly admitted in evidence in the United Kingdom only if a witness was available who could testify as to the provenance of the document and what it recorded A document as such was considered reliable only if it was an original record, had not been altered in any way, and was not counterfeit However, for most documents forming the basis of an electronically signed transaction, it will not be at all clear what (if anything) constitutes the original document Provided that the records have been captured accurately, which could be established by for instance ensuring that all parties had identical copies while the transaction was still fresh in the mind, a digitally signed copy incorporating all of the information needed to verify the content of the transaction and the intent of the parties in entering it - agreement, signature and surrounding context - should only very exceptionally be open to future challenge The closer such a record appears to the paper based equivalent long familiar to the courts, the higher its chances of acceptance Evidential Weight: When the traditional rule disallowing hearsay evidence was abolished in respect of English proceedings, it was replaced by guidelines for the courts to assess the weight to be given to such evidence4 These are: 4 Sections 1 and 4 Civil Evidence Act 1995, respectively Confidential, IOCS Ltd, 2010 Page 16

17 (a) whether it would have been reasonable and practicable for the party by whom the evidence was adduced to have produced the maker of the original statement as a witness; (b) whether the original statement was made contemporaneously with the occurrence or existence of the matters stated; (c) whether the evidence involves multiple hearsay; (d) whether any person involved had any motive to conceal or misrepresent matters; (e) whether the original statement was an edited account, or was made in collaboration with another or for a particular purpose; (f) whether the circumstances in which the evidence is adduced as hearsay are such as to suggest an attempt to prevent proper evaluation of its weight Accordingly, the relying party should prepare to be able to bring forward supporting evidence to address each of these issues Where electronic documents are concerned, the best that can be done is to provide an audit trail of records as to what was done to the document to create it, to retain it as a permanent record, and how any document has subsequently been accessed, when and by whom To minimise the complexity of the resulting evidence, the complete set of information comprising the signature process should be retained as a single document, preferably digitally signed, so that only a single audit trail is required Ideally, the record should not have been in the possession of a person who had any motive to conceal or misrepresent events Ultimately, the records should add up to a reliably authentic set of records enabling the court to review the web-page process the signatory went through prior to signing and the handling and storage of the document once signed Conclusions: Businesses need to take a precautionary approach to concluding transactions through purely electronic means This means looking beyond merely ensuring that an electronic signature is applied which complies with the legal requirements for recognition as a signature Rather, the technologies employed for the whole transaction must capture sufficient information as to the process, context and identity of the counterparty for the business to be in a position to convince a court, possibly many years later, that a binding agreement was indeed intended and accepted by both sides Context: The following has been summarised from Analysis of a Proposed Online Contracting Process Possible Evidential Shortcomings, Bird & Bird, 2008 The process analysed consists of the following steps: 1 Customer agrees to complete agreement online 2 An HTML version of the terms and conditions is served 3 Customer clicks-to-sign in the appropriate box 4 Web-logs of pages served (and customer actions) are captured and digitally signed 5 Customer down-loads PDF version of the terms and conditions (unsigned) Confidential, IOCS Ltd, 2010 Page 17

18 Note: Brazell uses the term application here meaning customer agreement There are several possible points of attack in the process as regards the customer s completion of the application The most obvious is that a customer wishing to default could argue that the loan terms were not sufficiently drawn to his or her attention before they entered into the contract (or at all) If the terms were available to be read, but sufficient steps were not taken to draw them to the counterparty s attention until after the contract was formed, any exclusion or exemption clause may not be incorporated (Parker v SE Ry (1877) 2 CPD 416) In the hypothetical process shown, the customer is given the opportunity to review the terms and conditions but not forced to Best practice would be for the consumer to be required to give positive confirmation that they have read and agreed to the loan terms themselves, before they are able to sign the final agreement, for instance by scrolling through them 5 To establish that this was done, evidence that the consumer visited the relevant page must be captured and produced to show that they had reviewed the terms before signing (whether or not they actually did read the terms is immaterial ) The proposed process appears to give the customer the opportunity to review and print a set of terms, but then suggests that different terms may be incorporated in the actual contract since you will be given an opportunity to print or save a copy of your Personal Loan Agreement later A defaulting customer could rely on this statement and the separation of the terms presentation in the two stages of the process to argue that the terms they saw and agreed to at this stage were not the same as those which turned up in the Personal Loan Agreement (which they did not rereview) and so any contract formed was based on the previous terms and not that stored with their signature It could also be argued that it was unclear as a result whether the necessary notices had not been given, leaving the contract unenforceable If a PDF is available for the customer to print, but an html version generated for signature, then both should be captured to disprove this possible objection The customer s grounds for quibbling over this issue would be minimised if the terms the customer is required to review are then captured and bound into the actual signed contract Further, a customer could claim not to have had Adobe Reader and argue on that basis that they could not access the terms in advance and so a notice requirement was not met Finally, a customer might argue that any terms now available on the website are not the same as the ones applicable at the date of their loan and so the contract is uncertain; evidence should be captured to show when any changed terms were uploaded, so that the bank can prove which set of terms were on display on the date on which the contract was made, and to show that the record of such changes is a complete record The process captures a web-log of the served page and the customer s e-signature The complete interaction with this webpage needs to be captured and stored in a tamper-proof fashion All of the evidence that has been captured is likely to have been stored for several years before it is called upon in any dispute The hypothetical process appears to show the various captured data being stored in various bank databases Since electronic storage media obsolesce relatively quickly, a defaulting customer could try to argue that one or more of the bank s electronic records must have been migrated 5 The implication here is that the enterprise should be able to prove whether and how such scrolling occurred Confidential, IOCS Ltd, 2010 Page 18

19 onto newer storage since initial capture, and may have been altered (whether deliberately or accidentally) in that process They may also argue that one or more of the bank s storage systems are insecure such that changes could have been made even absent migration of records, either by a bank employee or by an intruder The stored record should therefore be both: 1 as obsolescence-proof as possible, such that it can be both retained and retrieved over a potentially lengthy period of time, and 2 digitally signed to be tamper-evident at a later date Of course, the more separate items of data are stored the credit check results, the terms sent to the customer and the submitted application say the more points of potential attack there are, since any one of these could have been the target of alteration A single complete record which has been handled as a single file throughout is likely to be more difficult to undermine evidentially 52 Expert Legal Opinion: Wright Benjamin Wright is a lawyer, government advisor on e-signature and leading US expert on e-approval and electronic evidence Author: The Law of Electronic Commerce, Aspen Law & Business, 2006; E-Signatures, Are We Building Sufficient Electronic Evidence? B Wright, 2007 Context: the following is taken from Wright s article: E-Signatures, Are We Building Sufficient Electronic Evidence? B Wright, 2007 As organizations adopt electronic signatures, a question of whether the strength of the evidence being created is sufficient remains We have all seen simple solutions on the Web where consumers sign by clicking an "I Agree" or "I Hereby Sign" button These solutions are easy to build and easy to use But will an "I Agree" button stand up as evidence in court? Quality of signature evidence is especially important to financial institutions such as banks and insurance companies The Office of the Comptroller of the Currency cautions that even though signature law is liberal in its definition of what might qualify as an electronic signature, banks need to ensure they can prove their e-commerce records The OCC observes that while a simple symbol may qualify as a "signature," a bank may still not be able to enforce that signature if its electronic records are inadmissible as evidence in court (OCC Advisory Letter , "Electronic Record Keeping," June 21, 2004) Institutions want to sell products and services via the telephone or the World Wide Web Some are tempted to use a simplistic method for signature, such as a mouse click, the push of a button or the typing of one's name, where the final record of the signature becomes a mere notation in a database But institutions should assess the long-term value of such a signature Litigation over loans, insurance policies, securities trading and so on often plays out years after the original documentation is signed If the institution needs its customer to sign a contract, a disclosure or a disclaimer, but the institution possesses weak evidence of the signature when the matter is adjudicated, the institution can suffer dearly The obligations of the customer may be unenforceable Or limitations of the institution's Confidential, IOCS Ltd, 2010 Page 19

20 liability may be ineffective Or a clause mandating arbitration may be void, thus forcing the institution to litigate in an inconvenient, undesirable court Cases Consider the experience with computer records, such as databases, as evidence in court American courts have long accepted computer records, but under some conditions Typical computer records are "hearsay," which are not admissible as evidence into the courtroom However, an exception to the hearsay rule is that business computer records, shown to be reliable, are admissible In theory, that sounds good for institutions that keep database records of customers typing things or clicking on this or that But practice is another story Showing that computer records are "reliable" grows ever more difficult as the years pass between the beginning of an electronic transaction and the date of trial It is no easy task for an IT department to maintain thorough documentation about the configuration and reliability of its infrastructure, or documentation on the exact appearance of web pages as of any given date What is even more difficult is for the IT department to produce a credible witness to attest to all of this in a trial American Express learned this lesson recently, as a creditor in a bankruptcy To document a $40,000+ credit card debt, the company produced computer records, together with a witness to testify about the computer system from which the records came But the court was dissatisfied with the witness and concluded the company had failed to establish the reliability of its computer records So the court rejected the records Hence, a big institution, which has a reputation for being well managed, could not collect a debt ( American Express Travel Related Services Co v Vee Vinhnee, 336 BR 437 [9th Cir Dec 16, 2005]) The practical upshot of this case is not that business computer records are inadequate legal evidence Rather, it is that when a company relies on typical computer records, the IT staff really has to be on the ball and capable of producing persuasive testimony when it is needed That's often difficult Preserving and vouching for long-term records is challenging for an institution when it uses e-commerce to authenticate transactions or form contracts with its customers An institution and its stakeholders (investors, regulators, auditors, partners, customers) cannot assume that the IT staff it has today will be around tomorrow to testify persuasively about a mouse-click, button-push or a notation in a database Institutions did not face this issue in the old days, when they got signatures on paper A paper document with a signature is a free-standing package of evidence It can be traded and sold as an individual commodity It carries value into the future without the need for staff being on call to testify about the mechanics of how it was created The law recognizes it as original evidence and, therefore, not subject to the hearsay rule What's Needed? So what's needed for e-commerce? An ideal electronic signature solution would create an archive that is analogous to a paper document The archive would be self-contained, which means it would hold all the information an investigator would need years in the future to evaluate the signature and its connection with the terms signed The investigator (such as a court or an auditor) should be able to do its work without knowing about the technical infrastructure that supported the transaction when it was signed The infrastructure, staff and system documentation could all be gone Under this ideal, the electronic archive, such as a paper-and-ink document, can be traded, sold or assigned as a stand-alone commodity Confidential, IOCS Ltd, 2010 Page 20

21 53 Expert Legal Opinion: Judge Paul W Grimm / Lord Bissell & Brook Lord Bissell & Brook LLP are US specialist e-records management legal experts Authors: From E-Discovery to E-Admissibility Lorraine v Markel and What May Follow, Lord Bissell & Brook, LLP 2007 Judge Paul W Grimm is the Chief Magistrate Judge, Maryland and was the presiding judge in Lorraine v Markel and author of the subsequent 101-page opinion on getting e-records into evidence Note: the legal opinion in this, section 5, pertains to the US case Lorraine v Markel Insurance Context: the following is taken from the legal white paper analysing the Lorraine v Markel case law: From E-Discovery to E-Admissibility, Lorraine v Markel and What May Follow 2007, Lord Bissell Brook to introduce hard copy of the terms and conditions of a contract formed using e-signatures at a company website may require a credible witness at the company to testify or swear to the e-contracting process as a way to authenticate the hard copy of such record bearing the party s signatures In testifying about the e-contracting process, and why the witness is confident that the hard copy accurately reflects the e- contract as it was in fact formed, the witness may be challenged on the various steps taken by the company to verify the identity of the person signing the e-contract, to secure the e-record after the e-contract was signed, to securely archive and retrieve the electronic record and a host of other aspects of the e-contracting and electronically stored information (ESI) management process Creating and securely archiving and retrieving an audit trail of the entire ESI management process from the steps to verify the identity of the persons signing the record all the way through to sealing electronically the document and then securely archiving and retrieving the e-contract are examples of essential elements of an effective e-contracting process Context: the following is taken from the LexisNexis case review: Lorraine v Markel: Electronic Evidence 101, 2007 LexisNexis In a contractual dispute between an FS company and a customer, the associated electronic evidence was deemed inadmissible The presiding judge (Judge Paul W Grimm) wrote a 100-page opinion on how to get electronically stored information into evidence Judge Grimm points out that one of the problems with the authenticity of electronically stored information is that : Computerised data raise unique issues concerning accuracy and authenticity The integrity of data may be compromised in the course of discovery by improper search and retrieval techniques, data conversion or mishandling Confidential, IOCS Ltd, 2010 Page 21

22 This is a key point for litigants who self-collect electronically stored data If a company or law firm does not have the requisite expertise to properly collect data, they would be wise to seek help from an expert companies should think of the litigation process as merely one piece in the entire life-cycle of their [electronic] records: from creation to storage to preservation to collection, to use at trial all the way through until the information is no longer needed, preserving the integrity and the ultimate usability of that information from beginning to end 54 Expert Legal Opinion: Judge Christopher M Klein / Professor Edward J Imwinkelried Judge Christopher M Klein is the US Bankruptcy Judge, Eastern District of California, and Chief Judge of the Bankruptcy Appellate Panel of the Ninth Circuit the presiding judge in American Express v Vee Vinhnee Professor Edward J Imwinkelried is Professor of Law and Director of Trial Advocacy, University of California Author: 11-Factor Foundation Process for Electronic Records, Matthew Bender, 2008 Context: the following is taken from the official court transcripts and notes from the American Express v Vee Vinhnee appeal, Dec 16 th, 2005, HAROLD S Marenus, Clerk US Bankruptcy App Panel of the Ninth Circuit It incorporates Professor Edward J Imwinkelried s 11-Factor Foundation Process for Electronic The court declined to admit plaintiff s [American Express ] computerized business records as inadequately authenticated at a bench trial, but gave plaintiff a chance to cure the foundational defects in a post-trial submission When the ensuing submission proved unsatisfactory to the court, it entered judgment for defendant [Vinhnee] and added salt to the wound by noting that plaintiff would have prevailed on one of two counts if the records had been admitted An American Express employee testified that he was the custodian of [electronic] records that the entries thereon were made at or about the time of the transactions, that the records were kept in the regular course of business, and that the regular practice was to retain the records The witness, in response to the court s inquiry, testified that the term duplicate copy appeared on the exhibits because the records were maintained electronically The court then explained that the electronic nature of the records necessitated, in addition to the basic foundation for a business record, an additional authentication foundation regarding the computer and software utilized in order to assure the continuing accuracy of the records the court deferred ruling on the admission of the exhibits Offering American Express an opportunity to cure the foundational defect later, and calling counsel s attention to an evidence treatise on point, it completed the rest of the trial At the close of trial, the court held the evidentiary Confidential, IOCS Ltd, 2010 Page 22

23 record open so that American Express could supplement its foundation for admission of the computer records Once American Express made its post-trial submission and the evidentiary record closed, the court rendered written findings: The court refused to admit the electronic business records because it concluded that the defective evidentiary foundation was not cured by the supplemental materials The declaration did not establish the declarant s qualifications to testify Nor did the court perceive testimony that the business conducts its operations in reliance upon the accuracy of the computer in the retention and retrieval of the information in question The primary authenticity issue in the context of business records is on what has, or may have, happened to the record in the interval between when it was placed in the files and the time of trial In other words, the record being proffered must be shown to continue to be an accurate representation of the record that originally was created Authenticating a paperless electronic record, in principle, poses the same issue as for a paper record, the only difference being the format in which the record is maintained: one must demonstrate that the record that has been retrieved from the file, be it paper or electronic, is the same as the record that was originally placed into the file Fed R Evid 901(a) Hence, the focus is not on the circumstances of the creation of the record, but rather on the circumstances of the preservation of the record during the time it is in the file so as to assure that the document being proffered is the same as the document that originally was created In the case of a paper record, the inquiry is into the procedures under which the file is maintained, including custody, access, and procedures for assuring that the records in the files are not tampered with The foundation is well understood and usually is easily established The paperless electronic record involves a difference in the format of the record that presents more complicated variations on the authentication problem than for paper records Ultimately, however, it all boils down to the same question of assurance that the record is what it purports to be The logical questions extend beyond the identification of the particular computer equipment and programs used The entity s [bank s] policies and procedures for the use of the equipment, database, and programs are important How access to the pertinent database is controlled and, separately, how access to the specific program is controlled are important questions How changes in the database are logged or recorded, as well as the structure and implementation of backup systems and audit procedures for assuring the continuing integrity of the database, are pertinent to the question of whether records have been changed since their creation There is little mystery to this All of these questions are recognizable as analogous to similar questions that may be asked regarding paper files: policy and procedure for access and for making corrections, as well as the risk of tampering But the increasing complexity of ever-developing computer technology necessitates more precise focus Some of these questions are becoming more important as the technology advances For example, digital technology makes it easier to alter text of documents that have been scanned into a database, thereby increasing the importance of audit procedures designed to assure the continuing integrity of the records See George L Paul, The Authenticity Crisis in Real Evidence, 15 PRAC LITIGATOR No 6, at (2004) This adds an extra dimension to consideration of whether the computer was regularly tested for errors See 5 WEINSTEIN 90111[2] (2005) A fuller description of the problem is: In general, the Federal Rules of Evidence apply to computerized data as they do to other types of evidence Computerized data, however, raise unique issues concerning accuracy and authenticity Accuracy may be impaired by incomplete Confidential, IOCS Ltd, 2010 Page 23

24 data entry, mistakes in output instructions, programming errors, damage and contamination of storage media, power outages, and equipment malfunctions The integrity of data may also be compromised in the course of discovery by improper search and retrieval techniques, data conversion, or mishandling (MANUAL FOR COMPLEX LITIGATION (FOURTH) 11446) This ever-expanding complexity of the cyber world has prompted the authors of the current version of the Manual for Complex Litigation to note that a judge should consider the accuracy and reliability of computerized evidence and that a proponent of computerized evidence has the burden of laying a proper foundation by establishing its accuracy MANUAL FOR COMPLEX LITIGATION (FOURTH) (2004),6 citing with approval, Gregory P Joseph, A Simplified Approach to Computer-Generated Evidence and Animations, 43 NYL SCH L REV 875 ( ) In effect, it is becoming recognized that early versions of computer foundations were too cursory, even though the basic elements covered the ground For example, it has been said that a qualified witness must testify as to the mode of record preparation, that the computer is the standard acceptable type, and that business is conducted in reliance upon the accuracy of the computer in retaining and retrieving information Professor Imwinkelried perceives electronic records as a form of scientific evidence and discerns an eleven-step foundation for computer records: 1 The business uses a computer 2 The computer is reliable 3 The business has developed a procedure for inserting data into the computer 4 The procedure has built-in safeguards to ensure accuracy and identify errors 5 The business keeps the computer in a good state of repair 6 The witness had the computer readout certain data 7 The witness used the proper procedures to obtain the readout 8 The computer was in working order at the time the witness obtained the readout 9 The witness recognizes the exhibit as the readout 10 The witness explains how he or she recognizes the readout 11 If the readout contains strange symbols or terms, the witness explains the meaning of the symbols or terms for the trier of fact Although this is a generally serviceable modern foundation, the fourth step warrants amplification, as it is more complex than first appears The built-in safeguards to ensure accuracy and identify errors in the fourth step subsume details regarding computer policy and system control procedures, including control of access to the database, control of access to the program, recording and logging of changes, backup practices, and audit procedures to assure the continuing integrity of the records there needs to be enough information presented to demonstrate that the person is sufficiently knowledgeable about the subject of the testimony Confidential, IOCS Ltd, 2010 Page 24

25 Regardless of the question of the declarant s qualifications, the trial court also ruled that the declaration was deficient as to basic foundational requirements for admission of electronic records, noting particularly the need to show the accuracy of the computer in the retention and retrieval of the information at issue The declaration merely identified the makes and models of the equipment, named the software, noted that some of the software was customized, and asserted that the hardware and software are standard for the industry, regarded as reliable, and periodically updated Storage of the card-member information is on an IBM Mainframe Z390 Computer American Express has 22 of these computers currently in operation The billing software is mainly performed using the Triumph software package purchased from Arthur Anderson In addition to the Triumph software there is also the Legacy software package The system that tracks and stores the Record s [sic] of Charges, (ROC s), is the World Wide Card Authorization System, (WWCAS) This system was written by American Express based on IBM structure guidelines American Express computer policy and system control procedures, including control of access to the pertinent databases, control of access to the pertinent programs, recording and logging of changes to the data, backup practices, and audit procedures utilized to assure the continuing integrity of the records: all of these matters are pertinent to the accuracy of the computer in the retention and retrieval of the information at issue 55 Expert Analyst Opinion: Gartner, Gregg Kreizman Gregg Kreizman is Research Director, IT with Gartner He is the author of: Electronic Signature Suites and Services: Preserving the Electronic Trail 10 Years From Now, Gartner 2008 Context: the following is taken from: Electronic Signature, Suites and Services: Preserving the Electronic Trail 10 Years From Now, Gartner 2008 Opening Statement: Legal Precedent: It's About Admissibility and Process, Not So Much The Signature Are there a bunch of different ways to implement legal electronically signed records? Yes Are there ways to implement electronically signed records that have a better chance of standing the test of time? Yes Archival: Long-Term Archiving Standards and Support for E-Signatures Still Emerging: PDF Documents XML Multi-type Content PDF/A Archive TIFF Scanned Images JPEG Photographs Inherently supports e- XML DigSig standard Base specification - ISO Metadata external Metadata external Confidential, IOCS Ltd, 2010 Page 25

26 signatures of different kinds standard Current standard Embed other content types May require browser plug- Multi-vendor support supports field level digital but near ubiquitous No native metadata but signatures only - will improve Format owned by Adobe standards groups working to resolve Multi-vendor support Reader free and near ubiquitous Browser/reader ubiquitous Select a non-proprietary archiving standard that will stand the test of time for long-term archiving: XML The "format" of the document is a key issue for long-term archiving XML is an open formation, but it is not widely used for document archiving XML signature is an international standard; however, the base standard only covers digital signature for parts of defined XML structures Signature metadata elements must be added in PDF PDF is widely used, but it is more of a de facto standard Its specifications are widely adopted by multiple e-signature vendors with varying technologies PDF/A PDF/A is emerging as the potential archiving standard for long-term record retention The ISO standard is based on the Adobe PDF specification 14 and only supports imbedded digital signatures Future versions of the standard will likely support newer versions of the Adobe specification and therefore more and more complex signature types and methods Testifying: If called to testify, your staff will need to be conversant regarding your standard operation procedures and be able to communicate in laymen's terms regarding process and controls Importance of Process: The form of electronic signature appears to matter little in court cases It is the set of other controls, mostly processes that are supported by technology, that are making the difference when enterprises are implementing electronically signed records Records Presentation, Review and Consent: Confidential, IOCS Ltd, 2010 Page 26

27 This process ensures that the user is made aware of what they are signing and demonstrates consent This is to mitigate claims that they didn't see what they were signing Storage and Retrieval: Here, the signed record is stored for operational purposes and for posterity Signed records should be stored with contextual information, such as date and time, credential validity at time of signature and consent indicators Records may be stored to a variety of enterprise records systems or off-site at an e-signature hosting service's site Record creation and rendering software, and maybe even the operating platform, may have to be archived to ensure accurate retrieval a decade or more in the future and to mitigate concerns with outdated software and hardware retrieval concerns Audit: This process includes operational reporting and the abilities to report or reproduce events when needed for court or other reasons Where the Risks Lie: Figure 2 Confidential, IOCS Ltd, 2010 Page 27