In refinancing transactions, a pay-out agreement is commonly negotiated between a new lender and the existing lender in connection with those outstanding debts and obligations that are to be paid out from the funds of the new financing. Frequently the closing of such a refinancing is delayed, and a new issue may often arise after a pay-out agreement has been agreed to and signed by all parties to the agreement. Inevitably one of the signatories is unavailable to sign an amended pay-out agreement before closing, and one party agrees by e-mail correspondence sent via blackberry to sign the amended payout agreement post-closing once his or her flight has landed and he or she is back in the office. Can this e-mail undertaking be relied on? In the absence of a signed, stand-alone undertaking document, is an e-mail undertaking to sign an agreement or to make a change sufficient to enforce the terms of the amended (but unexecuted) pay-out agreement if a dispute were to arise?

The Electronic Commerce Act, 2000 (Ontario) (the “Act”) provides us with a set of rules governing the conduct of electronic business transactions so that functionally equivalent electronic forms may be used in place of paper documentation. With respect to the requirement for signatures on original documentation, the Act stipulates two requirements. First, there must be a reliable assurance as to the integrity of the information. Second, the electronic format must be accessible so as to be usable for future reference and capable of being retained.

The question of enforceability of any email undertaking arises due to the nature of its electronic format. The Act requires that the information, in whatever electronic form, remain complete and unaltered, apart from changes that arise out of the normal course of communication, storage and display. The reality however is that the technology behind e-mails, though intended to be secure, is still capable of being misappropriated. The possibility of distorting information exchanged via electronic mail cannot be ruled out and accordingly, the integrity of information contained in e-mails is open to compromise. The party providing an email undertaking can always allege his or her message was altered or tampered with, raising some doubt as to the scope and content of the undertaking given.

Neither the case law nor applicable statutory legislation tells us whether e-mail undertakings are prohibited, or in fact, readily enforceable. Although delivering a fully signed document by email is common practice among today’s business parties, relying on an email undertaking alone for any more substantive promise could prove to be hazardous. If a dispute were to arise as to whether a party agreed to sign an amended payout agreement or alternatively, which terms of the amended pay-out were ultimately agreed to, you could encounter significant difficulties in enforcing your position. Waiting for a signed written undertaking confirming a prior e-mail undertaking would be a cautious and prudent approach.