How to Sign a Commercial Document During a Pandemic | Practical Law

How to Sign a Commercial Document During a Pandemic | Practical Law

This Legal Update is a focused analysis of how parties can validly sign commercial agreements and other documents during a pandemic. This Update considers contracts governed by applicable Canadian provincial and federal law and the approach that courts have taken to the requirement for signatures.

How to Sign a Commercial Document During a Pandemic

Practical Law Canada Legal Update w-024-6762 (Approx. 13 pages)

How to Sign a Commercial Document During a Pandemic

by Practical Law Canada Commercial Transactions
Maintained • Canada (Common Law)
This Legal Update is a focused analysis of how parties can validly sign commercial agreements and other documents during a pandemic. This Update considers contracts governed by applicable Canadian provincial and federal law and the approach that courts have taken to the requirement for signatures.

Historical Background

For several centuries and until recently, the written document dominated the commercial world. Agreements consisted of a single sheet of paper or, if necessary, several sheets bound together, with signatures from each of the parties placed at near the end of the document. All parties signed one and the same document. The parties delivered the original signed document to each other.
More recently, technology has affected almost every aspect of the contract formation process. The typewriter and photocopier made it possible for each signing party to sign and retain an identical original of the agreement. Later, facsimile machines allowed parties to exchange signed copies of an agreement by means of telecommunication. Parties could also execute counterpart versions of the same agreement, which would be considered one and the same document. Still more recently, the internet has facilitated the exchange of documents by scanning and transmitting them electronically as an attachment to an email. Electronic signatures in various forms abound, and there are various means of using secure electronic signatures.
The law has never been far behind. Nor have legislatures and courts been reluctant to embrace and adapt to new technologies. The image of the law as perhaps standing in the way of modern ways of transacting business is a misconception. Through history, the law has been able to adapt to changing modes of transacting business, and there is little evidence that the legislatures or the courts have been derelict.
At the time of writing, a global pandemic (2019 novel coronavirus disease (COVID-19)) has been declared by the World Health Organization (WHO). It is no longer business as usual. In-person meetings are discouraged or prohibited. Public health concerns are forcing many to work from home in isolation from co-workers and counterparties.
The broader issue this raises is: to the extent that business is still to be transacted, how do the parties do that and how confident should they be that the methods that they use today will be enforced by a court tomorrow should the need arise?
More narrowly, the issue examined in this Legal Update is: how does one sign a commercial document during a time when it is too risky to sign and deliver a document at a physical meeting or too inconvenient to use traditional methods, such as scanning a signed agreement and transmitting it by email to the opposing party or its counsel.
This Legal Update seeks to provide an answer to that important question.

International and Canadian Legislation

International

In 1996, the United Nations Commission on International Trade Law (UNCITRAL) promulgated the UNCITRAL Model Law on Electronic Commerce (Model Law). The Model Law sought to assist countries across the world develop largely uniform commercial legislation to facilitate the conduct of business by electronic means. Under the Model Law, parties are not compelled to use electronic commerce, they must expressly or impliedly consent to its use.
One of the key legislative goals of the Model Law was to eliminate or override barriers to the use of electronic commerce and to achieve neutrality between conducting business electronically or in paper format. The operative principle is that, with narrow exceptions, electronic documents are deemed to be the functional equivalent of their paper counterparts.
The US is by a wide margin Canada's largest trading partner. There, e-commerce transaction falls largely under state jurisdiction. In 1999, the National Conference of Commissioners on Uniform State Laws (now known as the Uniform Law Commission) developed the Uniform Electronic Transactions Act (UETA) as a project that it could recommend for adoption by each of the members states, the District of Columbia, Puerto Rico, the US Virgin Islands and other US territories.

Canada

In Canada, work proceeded to adopt the Model Law both federally and provincially.

Federal Legislation

Federally, the principal manifestation of the Model Law was the enactment in 2000 of Part 2 of the Personal Information Protection and Electronic Documents Act, S.C. 2000, c. 5 (PIPEDA). Other manifestations include the addition of Part XX.1 (Documents in Electronic or Other Form) to the Canada Business Corporations Act, R.S.C. 1985, c. C-44.
The purpose of Part 2 of PIPEDA is to provide for the use of electronic alternatives where federal laws contemplate the use of paper to record or communicate information or transactions (section 32, PIPEDA). Part 2 is consistent with the Model Law.
PIPEDA defines both "electronic document" and "electronic signature" broadly. The former means representations of information or concepts in any form (defined as data) that is recorded or stored in any medium or by a computer system or similar device and that can be read or perceived by a person or a computer system or other similar device, and includes a display, printout or other output of that data (section 31(1), PIPEDA). The term "electronic signature" is defined as a signature that consists of one or more letters, characters, numbers or other symbols in digital form incorporated in, attached to or associated with an electronic document in section 31(1), PIPEDA). Finally, PIPEDA defines the separate concept of secure electronic signatures section 31(1), which are required for electronic documents that consist of affidavits, statutory declarations or documents that require one or more witnesses (sections 44-46, PIPEDA).

Provincial and Territorial Legislation

At the provincial and territorial level, the Uniform Law Conference of Canada (ULCC) developed its Uniform Electronic Commerce Act, 1999 (UECA), which also faithfully implements the Model Law for enactment at the provincial and territorial legislatures.
In 2000 and 2001, most provinces and territories enacted a largely uniform statute closely based on the UECA. In Ontario, the statute is the Electronic Commerce Act, 2000, S.O. 2000, c. 17 (ECA). By 2011, all provinces and territories other than Québec had enacted a close analogue of the UECA.
In 2001, Québec, a mixed civil law jurisdiction, enacted its Act to establish a legal framework for information technology, CQLR c. C-1.1 (Québec Act). The Québec Act adheres to the same principles as the Model Law.
Using the ECA as a reference point for the other common law jurisdictions, the legislation enshrines the following fundamental principles:
  • Use of electronic documents is entirely optional. No one is compelled by the ECA to use it (section 3(1), ECA).
  • Before electronic documents can be used, a party must consent to its use (section 3(1) and (2), ECA) and may revoke its consent.
  • Unless otherwise agreed by the parties, an offer, acceptance of an offer and any other matters relevant to the formation of a contract may be expressed by means of an electronic document, electronic information or other acts that result in an electronic communication, such as touching or clicking on an appropriate icon or other place on a computer screen or speaking (section 19(1) and (2), ECA).
  • Electronic documents are deemed to be the functional equivalent of their paper counterparts, except for:
    • wills and codicils, and trusts created by wills or codicils;
    • powers of attorney for an individual's financial affairs (sometimes called a power of attorney for property) or personal care of an individual;
    • negotiable instruments;
    • in some jurisdictions (although no longer in Ontario), transfers of an interest in real property; and
    • documents of title (with a limited exception for contracts for the carriage of goods).
    • (Section 31(1) and (2), ECA.)
  • The writing requirement may be satisfied by the provision of an electronic document if the information contained in that document is accessible so as to be useable for subsequent reference (section 5, ECA).
  • An electronic signature is deemed to be the functional equivalent of an original signature (section 11(1), ECA). An electronic signature is defined as electronic information that:
    • a person creates or adopts in order to sign a document; and
    • is in, attached to or associated with the document.
    (Section 1(1), ECA.)

Receptiveness of Courts to Advances in Technology

As described under Historical Background, before the widespread use of the internet there was the fax machine.
An early case in which a court considered the validity of faxed signatures is United Canso Oil & Gas Ltd., Re., 1980 CarswellNS 29 (N.S. S.C.) (United Canso). To obtain the desired outcome in a shareholder vote, the chair of the meeting of United Canso, a public corporation, rejected all proxies that were delivered by fax on the basis that the by-law of the corporation stipulated that the authority of the proxyholder "shall be in writing in any sufficient form signed by the appointer…".
The court considered then prevailing practices in Canada and the US, concluding that faxed proxies met the signature requirement of the by-law and were not to be excluded in the voting tabulation. The court broadly embraced the use and legal recognition of new technologies, stating that:
  • The law must recognize the realities of doing business. Manual preparation of documents and manual execution of documents have given way to computer printouts and facsimile signatures (United Canso, at paragraph 67).
  • It is impractical and unjust to impose on shareholders of a public corporation onerous and expensive requirements of proof with respect to voting of shares by proxy (United Canso, at paragraph 67).
  • Facsimile signatures are just as valid as manual signatures on proxies that are mailed in without proof of who signed them (United Canso, at paragraph 103).
A same issue arose in Beatty v. First Exploration Fund 1987 & Co., 1988 CarswellBC 158 (B.C. S.C.) (Beatty), a case involving faxed proxies at a meeting of the partners of a publicly-traded limited partnership. To manipulate the outcome of a partnership vote, the chair of the meeting disallowed votes cast by faxed proxies on the basis that the limited partnership agreement provided that a proxy must "be signed by the appointer … in writing".
The court held, however, that the faxed proxies met the signature requirements of the limited partnership agreement and could not be excluded, emphatically declaring that:
  • The conduct of business has for many years been enhanced by technological improvements in communication. Those improvements should not be automatically rejected when attempts are made to apply them to matters engaging the law (Beatty, at paragraph 29).
  • Unless there are compelling reasons for rejection, technological improvements should be encouraged, applied and approved (Beatty, at paragraph 29).
  • There is no greater opportunity for the perpetration of a fraud by the use of faxed proxies than by the use of original proxies (Beatty, at paragraph 27).
The court in Beatty cited earlier examples of judicial acceptance of technological advances. Specifically, it referred to:
  • English, Scottish & Australian Chartered Bank, Re, [1893] 3 Ch. 385 (Eng. C.A.), where the court allowed overseas proxies to be locally collected in Australia and the proxy votes to be telegraphed to the formal meeting in London.
  • Sadgrove v. Bryden, [1907] 1 Ch. 318 (Eng. Ch. D.), where the court approved the use of a cablegram to convey voting instructions.
Finally, in Newbridge Networks Corp., Re, 2000 CarswellOnt 1401 (Ont. S.C.J. [Commercial List]) (Newbridge), Justice Farley approved an interim order authorizing the public corporation, Newbridge, to use an electronic procedure for notice to, and voting by, approximately 4,300 holders of options granted to current and former employees in various locations in Canada and throughout the world. In the course of doing so, he opined that:
  • Technology should be the handmaiden of the law and not the converse (Newbridge, at paragraph 4).
  • The purpose of the signature requirement on a proxy is to enable the signer (the option holder) to confirm to the intended recipient (the proxyholder and the corporation) that the signer is advising as to the choice selected (for example, a vote for or against each specific resolution) (Newbridge, at paragraph 6).
  • The security of electronic passwords compares favourably with a written instrument leaving an indelible trail of ink, using his own indecipherable and inconsistent handwritten squiggle as an illustration (Newbridge, at paragraphs 6 and 7).
The decisions in United Canso, Beatty and Newbridge each predated the coming into force of the ECA in Ontario and its counterpart statutes in Nova Scotia and British Columbia. Therefore, each case was decided on common law principles and without the imprimatur of a legislative fiat. Nevertheless, the courts were able to find that the signature requirement could be met by evolving technologies and was not limited to traditional ink on paper handwritten signatures.

Interpretation of the Signature Requirements after the Enactment of the Electronic Commerce Legislation

Decisions have been rendered in five Canadian provinces on the effect of the various provincial Electronic Commerce Acts on signatures sent as part of an email transmission. Three of these decisions are at an appellate level. The appellate decisions will be first discussed in chronological order, followed by the courts of first instance in British Columbia and Alberta.

New Brunswick

Girouard v. Dreut, 2012 CarswellNB 227 (N.B. C.A.) (Girouard) involved a series of emails between the prospective seller and buyers (a couple) of a residential condominium on Kijiji. The court decided the case on the basis that, at least in the case of negotiations for the sale of site-unseen residential real property between parties not legally represented, there is a rebuttable presumption that the parties, merely by their rapid-fire email exchanges, did not intend to enter into a binding legal agreement even if they reach a consensus on the essential terms of their deal (that is, the property, the price and the parties).
Nevertheless, in obiter dicta, the court commented on the effect of the signature requirement enshrined in the Electronic Transactions Act, S.N.B. 2001, c. E-5.5 (now R.S.N.B. 2011, c. 145) (NB ETA), which is a derivative of the ULCC's UECA. While it expressly declined to express an opinion on whether an email amounts to an electronic signature because it was unnecessary to its decision, the court made the following observations:
  • It is generally accepted that signatures serve to:
    • identify the person who is signing (that is, the source and authenticity of the document); and
    • establish the signatory's approval of the contents of the document.
    (Girouard, at paragraph 28.)
  • The treatment of email signatures in the UK and US jurisprudence as lacking consistency (Girouard, at paragraph 29).

Saskatchewan

Arguably, the leading authority on emails as electronic signatures is I.D.H. Diamonds NV v. Embee Diamond Technologies Inc., 2017 CarswellSask 154 (Sask. Q.B.), affirmed 2017 CarswellSask 484 (Sask. C.A.) (IDH Diamonds). The issue in this case was whether emails sent by the debtor to the plaintiff creditor acknowledged the indebtedness between the parties for purposes of the two-year basic limitation period under The Limitations Act, S.S. 2004, c. L-16.1 (SK Limitations Act). Under the SK Limitations Act, an acknowledgement of the debt "must be in writing and must be signed by the person making it …"
In a carefully reasoned decision, the Chambers judge held that the emails met both the common law and statutory definitions of a signature, the latter of which is defined in The Electronic Information and Documents Act, 2000, S.S. 2000, c. E-7.22 (SK EIDA), another close derivative of the UECA.
In IDH Diamonds, the emails took the following form at the end:
 
"Sincerely
Mike Botha
CEO
Embee Diamond Technologies Inc.
[Home of Sirius Star Diamond]
[Address; telephone; website]
[Company logos]"
The emails did not contain a digital signature, which electronically reproduces the individual's handwritten signature. The debtor had digital signatures, but they were never used in this case.
In reaching the conclusion that the emails met the signature requirements of the SK Limitations Act, the Chambers judge reasoned as follows:
  • Other courts have considered an electronic signature as a valid signature simply under longstanding principles of common law (IDH Diamonds, at paragraph 43), citing Buckmeyer Estate, Re, 2008 CarswellSask 216 (Sask. Q.B.)), a case in which a email was held to satisfy the requirement of being a signed instrument for purposes of designating a beneficiary of an insurance policy (IDH Diamonds, at paragraph 46).
  • Common law courts have considered several deviations from "wet ink" signatures, including simple modifications, such as:
    • crosses;
    • initials;
    • pseudonyms;
    • printed names; and
    • rubber stamps.
    (IDH Diamonds, at paragraph 43.)
  • The provisions of the SK EIDA do not displace the common law (IDH Diamonds, at paragraph 44).
  • The signature also met the statutory definition of an electronic signature (which has the same definition under the SK EIDA as it has under the Ontario ECA and the UECA) (IDH Diamonds, at paragraph 57).
In brief reasons, the Saskatchewan Court of Appeal affirmed the Chambers decision, finding no error in the interpretation and application of the SK EIDA or the identification and application of common law principles. To date, the Court of Appeal decision in IDH Diamonds is the only definitive court of appeal decision in Canada on whether emails constitute electronic signatures. The Court of Queen's Bench decision in IDH Diamonds is also the most extensively reasoned decision by a court in Canada.
IDH Diamonds has been influential in the remaining jurisdictions that have considered electronic signatures.

Ontario

Ontario has one appeal decision relevant to electronic signatures and several lower court decisions.
The appeal decision is Lev v. Serebrennikov, 2016 CarswellOnt 4878 (Ont. Div. Ct.) (Lev), a case, like IDH Diamonds, also involving whether a debtor had acknowledged a debt in a signed writing for purposes of the Limitations Act, 2002, S.O. 2002, c. 24, Sched. B (ON Limitations Act).
The jurisprudence in Ontario before Lev was divided.
In Bedell v. Kidder, 2011 CarswellOnt 9095 (Ont. S.C.J.) (Bedell), the trial court judge had asserted, without referring to the ECA, that an email did not satisfy the signature requirement for an interest in land under the Statute of Frauds, R.S.O. 1990, c. S.19. Similarly, in Toronto Common Elements Condominium Corp. 2041 v. Toronto Standard Condominium No. 2051, 2015 CarswellOnt 10124 (Ont. S.C.J.) (Toronto Condo 2041), the trial court held that an email did not satisfy the ON Limitations Act because, among other things, it was not signed. The same interpretation was given in Bain v. Merton, 2014 CarswellOnt 17565 (Ont. S.C.J.) (Bain), where, however, the court did not refer to the ECA and decided the outcome on the basis that the basic limitation period had already expired before the email was sent.
However, in Temple, Re, 2012 CarswellOnt 2817 (Ont. S.C.J.) (Temple), the trial court held that an email acknowledging the debt with the individual's name on the email was a sufficient signature for purposes of the ON Limitations Act.
In Lev, the Divisional Court sided with the view that an email can satisfy the signature requirements of the ON Limitations Act, effectively upholding Temple and overruling Toronto Condo 2041 and, implicitly, Bedell and Bain. The Divisional Court held that, in every case, the issue is one of fact concerning authenticity. On the facts of Lev, the email was not signed by the debtor with his physical signature; however, his name was on the email and was clearly sent by him from his email address, which was noted on the email. This was enough to make it a signed written acknowledgement.
More recently, Lev was followed in University Plumbing v. Solstice Two Limited, 2019 CarswellOnt 5341 (Ont. S.C.J.), which was also a case concerning an acknowledgement of a debt for purposes of the ON Limitations Act.

British Columbia

The issue in Johal v. Nordio, 2017 CarswellBC 1811 (B.C. S.C.) (Johal), was the same as that in IDH Diamonds and Lev, namely, whether an email satisfied the signature requirements for an acknowledgement of debt under the Limitation Act, S.B.C. 2012, c. 13 (BC Limitation Act). The email ended in a similar way to that before the court in IDH Diamonds, namely:
 
"Cheers
Marco Nordio
President
Studio Residences Inc.
[Canadian and US telephone numbers]
[Office email address]
[Company website]"
The court cited IDH Diamonds and concluded that the email constituted a signed written acknowledgement. The Electronic Transactions Act, S.B.C. 2001, c. 10, does not require the use of a digital signature.

Alberta

The first Alberta case addressing the meaning of email signatures is Leoppky v. Meston, 2008 CarswellAlta 60 (Alta. Q.B.) (Leoppky). It related to an agreement between an estranged unmarried couple over the transfer of ownership in their joint home and, therefore, requiring a writing signed by the transferor to comply with statute of frauds legislation applicable in Alberta. In this case, the defendant, Meston, sent an email confirming the terms the agreement using the email address of her sister but signed at the foot with Meston's first name, January. This was held to be sufficient to meet the requirement of the Statute of Frauds, 1677 (c. 3), 29 Car. II, an English statute that is part of the received law of Alberta. This result was reached without any reference in the reasons to the Electronic Transactions Act, S.A. 2001, c. E-5.5 (AB ETA).
The same issue arose again 1353141 Alberta Ltd. v. Roswell Group Inc., 2019 CarswellAlta 1502 (Alta. Q.B.). However, this time the email was sent not by the corporate transferor but rather by its solicitor, who attached at the bottom his block electronic signature. The email also included a header identifying who sent the email. The court relied on the AB ETA, Leoppky and IDH Diamonds in reaching the conclusion that the email satisfied the signature requirement of the Statute of Frauds.
Finally, Columbos v. QuinnCorp Holdings Inc., 2019 CarswellAlta 2393 (Alta. Q.B.), involved the issue of whether an email acknowledging a debt met the signature requirement under the Limitations Act, R.S.A. 2000, c. L-12 (AB Limitations Act). Citing IDH Diamonds, the court held that the presence of the corporate officer's name and title at the bottom of the email was sufficient in the circumstances to meet the signature requirement of the AB Limitations Act.

Application to Other Provinces and Laws

Extension to Remaining Jurisdictions

At this point, it is fair to say that appeal courts in Saskatchewan and Ontario have ruled that simple emails (without a digital signature) can satisfy both the writing and signature requirements under provincial legislation. The Ontario Divisional Court decision in Lev effectively overrules a weakly reasoned line of cases to the contrary. Trial level decisions in Alberta and British Columbia are consistent with the positions in Saskatchewan and Ontario.
The New Brunswick Court of Appeal in Girouard did not need to decide the issue and intentionally left it for another day.
While the courts in the remaining provinces and territories have not yet ruled on emails as electronic signatures, given the substantially uniform adoption of the UECA, it seems highly likely that courts in the remaining jurisdictions will follow the consistent line taken in Alberta, British Columbia, Ontario and Saskatchewan. Courts in Alberta, British Columbia and Ontario have not hesitated to adopt the Saskatchewan decision in IDH Diamonds. This can be expected to continue. The likelihood of deviation diminishes with each new provincial court that follows the established pattern. Otherwise, the legislative goals of enacting uniform federal, provincial and territorial legislation would be defeated.

Extension to Other Laws

To date, the case law has largely been confined to agreements for the sale of land and acknowledgements of debts to renew limitation periods. However, in light of the ECA in Ontario and its cognate legislation in other provinces and territories, it is difficult to see any plausible basis to distinguish between the recognition of emails as meeting the signature requirements for purposes of land transfers and renewals of limitation periods and its similar recognition in the following important commercial contexts:
  • Signing a security agreement as required by section 11(2)(a) of the Personal Property Security Act, R.S.O. 1990, c. P.10 (and its counterpart in other common law jurisdictions).
  • Endorsing a security certificate within the meaning of section 1(1) of the Securities Transfer Act, 2006, S.O. 2006, c. 8 (and its counterpart in other jurisdictions)
  • Signing a guarantee in compliance with statute of frauds legislation (such as, in Ontario, section 4 of the Statute of Frauds, R.S.O. 1990, c. S.19).
  • Signing a resolution in writing of:
    • shareholders in accordance with section 142(1) of the Canada Business Corporations Act, R.S.C. 1985, c. C-44 (CBCA) or section 104(1) of the Business Corporations Act, R.S.O. 1990, c. B.16 (OBCA); or
    • directors under section 117(1) of the CBCA or section 129(1) of the OBCA (or cognate provincial or territorial legislation).
  • Executing a form of proxy under National Instrument 51-102 - Continuous Disclosure Obligations.