Ontario's Electronic Commerce Act1 ("Act") now permits agreements of purchase and sale and other documents that create or transfer an interest in land ("Agreements") to be signed electronically,2 and to satisfy the requirements of the Statute of Frauds.3
Agreements may now be signed using an electronic signature, so long as the electronic signature can reliably (i) identify the person who signed the Agreement and (ii) associate the electronic signature with the Agreement.4The Act however, is largely silent on what is required in order to determine whether the signature or the association of the signature to an Agreement is reliable. Consequently, this leaves parties with the task of establishing on their own which processes and technologies are of sufficient reliability.
What is an Electronic Signature?
An electronic signature is electronic information that a person creates in order to sign a document and that is in, attached to, or associated with the document.5 Electronic signatures may take many forms, from a PDF of a person's written signature that is pasted to an electronic document or a symbol or alphanumeric code that is mathematically or functionally attached to a particular document.6
Step 1: Criteria for Establishing a Reliable Electronic Signature
The first step in assessing whether a signature is reliable is to consider the relationships between the electronic signature, the signor and the document. For example, in order to reliably associate an electronic signature with a document, it may be important to be able to detect whether any alteration has been made to the electronic signature or to the information that the electronic signature is attached to.7 Moreover, in order to reliably establish the identity of the person signing the Agreement, the electronic signature and the power to attach it may be required to be unique to the signatory and under the sole control of the signatory. It is important to note that the requirements of the Act do not replace existing laws, such as various "Know Your Client" requirements or FINTRAC rules, which require persons involved in a real estate transaction, such as lawyers, real estate agents, or banks to otherwise confirm the identity of a purchaser. The reliability requirements under the Act only re-emphasize the need to ensure that appropriate diligence is undertaken in every real estate transaction to verify the purchaser's identity.
Fulfillment of these new criteria under the Act may, in fact, not be required for an Ontario court to conclude that a particular electronic signature or its association with a particular document is reliable. However, these criteria will likely be seen as useful benchmarks in any given case in order to make a determination that a particular electronic signature, or its association with an electronic document, is reliable.
Step 2: Achieving Sufficient Technological Reliability
In order to prove whether an electronic signature is unique to a particular individual, or is attached to a particular document, the party must be able to demonstrate that the technology used to perform said function is secure and effective.
Digital signature technology is one such tool. A digital signature is a kind of electronic signature whereby a computer creates a unique identifier through the application of encryption or encoding.8 Digital signatures fulfill many of the reliability criteria described above in Step 1. Digital signatures ensure the identification of a specific signor, that the signature is attached to or associated with a specific document, and that the document has not been tampered with.9 In fact, Ontario's electronic land registration system already relies on digital signatures.10 Also, PIPEDA's Secure Electronic Signatures Regulations require a digital signature in order for an electronic signature to be enforceable.11
Step 3: The Parties' Power to Define Reliability
The parties themselves can inform what constitutes a sufficiently reliable electronic signature by including such a provision in their Agreement.12 Parties may stipulate what kind of process or technology they require from the other party to establish sufficient reliability. It is important to note that those uncomfortable with electronic signatures, or with serious concerns of fraud, are not forced to accept electronic signatures. Each party to the transaction must consent before an Agreement can be executed by using electronic signatures.13
Members of the legal profession acknowledge that electronic handling of Agreements may be an easier and more efficient process. However, this significant change brings with it fears of fraudulent activity.14 There are concerns that without an actual written signature, where the lawyer can physically identify the signee, electronic signatures may be vulnerable to use by someone transacting fraudulently.15 As in the paper world, the challenge of minimizing fraud in relation to electronic signatures is met by the lawyer, employing appropriate processes, and in this case technologies, to eliminate the risk of fraud as much as possible. Drawing on established tools and methods, one can construct a system of processes and technologies that ensure electronic signatures are reliable, and that parties are protected from fraudulent transactions.
To date, no regulations have been created concerning the use of electronic signatures in Agreements.