Signing on the dotted line easy as 1-2 in the digital world

As technology evolves to more fully service the needs of business, business has become increasingly reliant on technology and all it has to offer. But the relationships between technology, business, and the laws within which they operate have not yet fully evolved. Even though the technology to move further ahead may be in place, the bridge allowing society to transition from the paper world to the digital isn’t yet fully built.

One major pillar upon which that bridge rests is the electronic signature. Sure, signing your John Henry on a document that is dispatched electronically is not a complicated matter; legislation has allowed for the various components of electronic commerce for more than a decade. Unless, of course, it’s real estate we’re talking about.

The provinces, except Manitoba and New Brunswick, excluded electronic signatures involving the purchase and sale of real estate. Quebec did not use the Uniform Electronic Act, which served as the foundation for the legislation in the other provinces. Prince Edward Island and Newfoundland and Labrador repealed their exclusion when they instituted electronic land registration systems. Quebec’s governing body for real estate brokers adopted a set of technical specifications for electronic signatures in land transactions to comply with that province’s Act to Establish a Legal Framework for Information Technology.

In Ontario, a private members’ bill to amend the Electronic Commerce Act to allow for the use of electronic signatures in real estate transactions has gone through second reading. A previous attempt died on the order table last year when former premier Dalton McGuinty suddenly announced his resignation and prorogued government.

“Different provincial regulators have interpreted similar statutory language differently,” observes Simon Parham, legal counsel with the Canadian Real Estate Association. The association has examined the legislation in each of the provinces and the exceptions under legislation. “Each regulator has its own view.” He points to a strict position taken by the Real Estate Council of Ontario in its Registrar’s Bulletin, which cautions against using e-signatures in purchase-and-sale agreements in Ontario prior to the change in legislation and compares it to the position taken by the Real Estate Council of Alberta in an Information Bulletin, which finds they are acceptable in Alberta.

Alberta’s position is emphasized in Leoppy v. Meston, where the Alberta Court of Queen’s Bench held a house could be sold by exchange of e-mails, despite the exclusion of land transactions from Alberta’s e-commerce statute.

The use of electronic signatures is key in the evolution of the justice system to fully exploit all technology has to offer, suggests Patrick Cormier, CEO of the Canadian Centre for Court Technology, but there are jurisdictional challenges as well as difficulties in processes. When it comes to real estate transactions, for instance, land registry offices must be equipped to deal effectively and securely in the digital world for them to accommodate electronic signatures. “In each province, in each court, there’s a different IT model. This creates a complex arrangement that is very difficult,” he says. “At the heart of it are signatures, electronic signatures.”

Through its study last year, Analysis of Digital & Electronic Signatures in the Canadian Justice Sector, the centre tried to provide a framework with a purpose-driven approach by offering the legislative tools needed to change the laws. It lays out five attributes required for an electronic signature to become part of the permanent record, however they don’t necessarily apply in law:
• it is a permanent record,
• is well bound to a document,
• have evidence of a specific purpose,
• be traceable,
• and be personal to an individual.

Cormier sees the electronic signature as having the potential to be more reliable than the paper version and eventually, it will be universally accepted. As the generation which has been raised on computers and the Internet matures, it will more readily embrace the digital world. “There is resistance, but this will wither over time,” he says. “There’s a shift in culture.”

While electronic signatures are an effective replacement of a “wet” signature, the next step up, the digital signature, is considered more secure. It includes role-based attributes often used with professional associations. Essentially what is required is an encryption pattern unique to the individual that is affixed to the document, commonly a pdf, which can’t be altered. If the professional organization issues a digital signature, it can also revoke it if the individual is no longer a member in good standing.

The idea of a digital signature is to create an authentic identity for an individual who frequently uses digital documents, like a lawyer. “The electronic signature will just replace the action of signing with a pen. The digital signature is the higher standard,” says Christian Sarailis, who practices business law and commercial litigation in Quebec City. “The electronic signature, by itself, is actually something anybody can use. For a normal citizen, the electronic signature is something that is actually doable.”

Sarailis equates the current use and understanding of electronic signatures as being at the same point now as electronic commerce was in 2000. It’s existing and it’s clearly part of our future, but there is still some hesitation to use it.

It was while doing an international deal involving many partners in different jurisdictions that Sarailis saw the need for the efficient, effective, and authorized use of electronic signatures. He needed something that speeded up the traditional process involving a courier moving paper. What he wanted was a service that could take care of the technical end of things while he focused on the legal aspects. Having found nothing that satisfied him, he eventually partnered with a web development group creating Signsquid.

The company presents itself as a practical alternative for businesses that sign contracts with customers and clients no matter where they are. Sarailis identifies it as the country’s only web-based solution which binds the consent to the parties.

But it isn’t alone in what it does. Real estate transactions are verified by notaries in Quebec, considered to have a tight jurisdiction. Notarius was launched by Quebec’s notaries association for the effective use of electronic signatures in real estate transactions and has since expanded to service other professionals across the country.

The provinces are all essentially moving in the same direction, and all are expected to eventually allow the use of electronic signatures in all transactions, finally including those involving real estate.

Ontario’s Ministry of the Attorney General counsel John D. Gregory has been following this evolution closely and has written on it extensively. At the 2011 Uniform Law Conference of Canada his paper “Real Estate Transactions in the Uniform Electronic Commerce Act” suggested the time had come to remove the real estate exclusion. “The exclusion is still a message, not a prohibition but a warning, a special status that can lead to confusion and lack of certainty about the applicable legal rules and thus to a chilling effect on innovation,” wrote Gregory. “It is time for that to change.”

That position has been adopted by Ontario.

“It is not clear that there is enough difference between real estate transactions and other documents to justify a different treatment for electronic documents. The intent of the Electronic Commerce Act is how to give legal effect to electronic communications (documents and signatures), especially in the light of legal rules that appear to assume the use of paper,” says Brendan Crawley, a spokesman for Ontario’s Ministry of the Attorney General. “A great amount of work has been done over time to devise secure and reliable signature systems. The electronic land registration system in Ontario (as distinct from the transactional documents that the statutory amendment is about) relies on secure, digital signatures based on cryptography. This is used between lawyers and the director of land titles in a tightly regulated system.”

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