Canada’s electronic commerce legislation in Canada tells us how to create an electronic document that will satisfy a legal requirement that the information must be in writing. Most such legislation also tells us that a legal requirement that a document be signed is satisfied by an electronic signature. In the common law provinces and the territories, however, it stops short of telling us how to create a sealed document.
This article addresses that shortcoming, if it is one. It will restrict itself to seals on transactional documents. Seals by public authorities will be the subject of a future column [1]. (If you can’t wait, see my June 2011 column on the Apostille Convention [2])
Why do we want seals?
Should we care? The special legal rules about sealed documents (deeds) largely survive, often as free-standing artefacts of the law rather than as an expression of a legal principle. Thus an agreement under seal does not need consideration to be enforceable, unlike a contract. An agreement under seal on behalf of undisclosed principals does not expose those principals to suit if the agreement goes bad. Friedmann Equity Developments v Final Note Ltd [3] [2000] 1 SCR 842. Specialties, which are either acknowledgements or a guarantee of debt plus a seal (A. Frank, “Seals: The Power that Drips from Red Wax” [4]) or any deed (British Columbia Law Reform Commission, Report on Deeds and Seals [5] 1988), enjoyed a longer limitation period than contracts, though that advantage disappeared in Ontario with the Limitations Act, 2002, and in B.C. over a quarter-century earlier.
The B.C. Law Reform Commission recommended the abolition of the seal, or the merger of the doctrine on seals with the general law of contact, mainly to avoid unfair surprises:
An instrument executed under seal is called a deed. Obligations recorded in a deed are subject to an area of law in which the principles sometimes differ dramatically from those which are applied to a simple contract. Since few people are aware of these differences, executing an instrument under seal is a practice which is attended by some danger. Moreover, curious results are to be found in the cases where one legal consequence follows from a contractual obligation, and another, totally different, consequence follows when the same obligation is contained in a deed.
… It is recommended that legislation be enacted to provide the obligations created or recorded by deed have the same legal effect as obligations contained in a simple contract. The enactment of such legislation will dramatically simplify the law and render it more just. [from the Introduction to the 1988 Report. The Commission was willing to see the substitute-for-consideration rule continue.]
In Friedmann, the Supreme Court said that the law on sealed contracts was clear, and only the Legislature could abolish it. Interestingly, the agreement in that case had been signed by the corporate signing officers and sealed with the corporate seal. The application of the corporate seal was thought, however, not to have been intended as a sealing as distinct from just part of normal signing. The Court found, however, that the Ontario Legislature had deemed certain classes of document to have the same effect as if under seal, without having to apply a seal. Thus the rule on seals continued in effect by decree, in the absence of an actual (intentional) seal. The Court cited s. 13 of the Land Registration Reform Act [6] R.S.O. 1990. c. L.4:
Despite any statute or rule of law, a transfer or other document transferring an interest in land, a charge or discharge need not be executed under seal by any person, and such a document that is not executed under seal has the same effect for all purposes as if executed under seal.
This provision essentially applies to the named documents all the rules applicable to seals whether the parties intend them or not. Who knows what was in the mind of the parties to Friedmann at the moment of agreement? The provision does not say if the parties could expressly disclaim that the document is under seal.
It may be noted that the same Ontario statute also abolishes the writing and signature requirement for several documents that have often been sealed. See s. 21:
Despite section 2 of the Statute of Frauds Act, section 9 of the Conveyancing and Law of Property Act or a provision in any other statute or any rule of law, an electronic document that creates, transfers or otherwise disposes of an estate or interest in land is not required to be in writing or to be signed by the parties and has the same effect for all purposes as a document that is in writing and is signed by the parties.
One may ask if abolishing the need for writing abolishes the rule about seals for those documents, or whether somehow the electronic versions as well as paper versions still benefit from virtual sealing thanks to the deeming effect of s. 13. Though the language of application of the two sections is not identical, they likely have about the same scope.
Since the enactment of the Business Corporations Act in 1971, Ontario business corporations have not been required to have seals. Canada Business Corporations Act companies may also be seal-free. For a few years after those statutes were passed, banks tended still to require them on lending documents or certificates. I do not know the present practice, or whether old habits survive in practice.
Pending further legislative action to say for sure that we do not need seals across the board, how are they to be created electronically?
Seals on paper
It will help answer that question to consider how one create a seal on paper. The matter is not as obvious as it may seem. Whether a document is sealed depends on the intention of the parties, and the parties must give some evidence that they have turned their minds to the sealing. The easiest way is of course to attach to the paper a wafer, in the absence of wax and a signet ring, and that will suffice – if the intention is clear. If the wafer is attached before the parties ever see the document, an attack might be possible. As the Court said in Friedmann, “the application of the seal must be a conscious and deliberate act.”
Signing a form contract that already has printed on it the words ‘signed, sealed and delivered’ or the abbreviation ‘l/s’ in a circle, is not guaranteed to suffice as a seal unless the parties can be said to have adopted the notion. That is why the parties sometimes circle the ‘l/s’ mark in ink. (The BCLC Report says that the initials stand for ‘locus sigilli’ – the place of the seal – rather than for ‘legal seal’, not that it matters.) I once sealed a sale of corporate shares by tearing up a postage stamp and sticking the parts after the parties’ signatures to serve as seals. Though the transaction later turned sour, no one ever doubted the validity of the seal.
It used to be thought that the act of affixing a seal was a method of making the person doing it take seriously the obligations being created by the process. The same claim was made for a signature, but the rarity of sealing gave it even more power. Many methods of electronic signature lose this ceremonial effect – clicking ‘OK’ on a web site somehow does not seem as weighty, though the legal effect can be just as serious. The same is true of a seal. Just adding some words to a text that the signer (the client) may not read attentively or at all is not likely to provide an extra appeal to prudence.
A corporation can impress its metal seal on the paper, with or without the benefit of a colourful sticker to highlight the impression. The BCLRC Report says that the seal of the corporation is actually its formal signature, rather than a separate ‘seal’. As noted, the Friedmann case was fought on the need for a seal, the usual corporate seal not being demonstrated to have been affixed for any purpose except plain vanilla signing. So a corporation that wants its seal to be a ‘real seal’ may need to add words to say so.
Common law electronic seals?
As a result of this focus on intention rather than form, it is arguable that one can seal an electronic document simply by expressing the intention that its execution is to be considered to be under seal. Particularly cautious counsel could use words like those in the LRRA that persuaded the Supreme Court in Friedmann: ‘the parties intend that this document has the same effect for all purposes as if executed under seal’. Really cautious counsel could propose the addition of additional text (like ‘l/s’, why not?) to serve as evidence of this intention, if the words are not thought sufficient.
If one has a click-through agreement, however, one does not have the opportunity to add words. Usually in such agreements a seal would not have much legal purpose anyway.
Legislation on electronic seals
Canadian legislation offers four treatments of seals: the Quebec detailed method; the federal secure electronic signature; the Ontario potential regulation; and the rest is silence.
Quebec’s Act to provide a legal framework for information technologies [7], R.S.Q. c. C-C.1, proceeds here as elsewhere by looking at the policy functions of the seal rule and saying how the functions are to be satisfied electronically (by a ‘technological document’, in the terms of the statute). Here is s. 13 on seals, and the follow-up section with more details:
13. Where the function of affixing a seal, signet, press, stamp or other instrument is
(1) to preserve the integrity of a document or authenticate the document as an original, the purpose may be achieved, in the case of a technology-based document, by means of any process appropriate to the medium used ;
(2) to identify a person, an association, a partnership or the State, the purpose may be achieved, in the case of a technology-based document, according to the rules provided in subdivision 1 of Division II of Chapter III ;
(3) to protect the confidentiality of a document, the purpose may be achieved in the case of a technology-based document, according to the rules provided in section 34.
14. As regards the form of a document, one or more processes may be used to fulfil the functions or achieve the purposes provided for in sections 12 and 13, making use of the characteristic features of the medium used.
I will not track through the cross-references. Suffice it to say that the statute would allow parties to create an electronic seal for the functions named. It may be noted that the common law function(s) of a seal, to import the rules of deeds and to show the parties the seriousness of the transaction, are not part of the Quebec Act.
The federal approach is in the second part of the Personal Information Protection and Electronic Documents Act [8] S.C. 2000 c. 5. Section 39 says this:
A requirement under a provision of a federal law for a person’s seal is satisfied by a secure electronic signature that identifies the secure electronic signature as the person’s seal if the federal law or the provision is listed in Schedule 2 or 3.
Rather than Quebec’s functional approach, the federal government relies on a specific technology, secure electronic signatures as defined by s. 48 of the Act and as further prescribed by the Secure Electronic Signature Regulations [9] SOR/2005-30. Essentially this requires a digital signature from a government of Canada public key infrastructure or from a PKI cross-certified with it. This demanding approach only works if the provision requiring the seal is listed in the named Schedules. To date only one statute and its regulation are listed: the Federal Real Property and Federal Immovables Act [10] S.C. 1991 c.50, plus one subsection of the Canada Labour Code.
Ontario was asked by private sector interests to insert something into its Electronic Commerce Act, 2000 [11], S.O. 2000 c. 17, to allow for seals in case they turned out to be needed. Since it was not clear at the time how to do an electronic seal, the question was deferred to the regulations. Here is subsection 11(6):
The document shall be deemed to have been sealed if,
(a) a legal requirement that the document be signed is satisfied in accordance with subsection (1), (3) or (4), as the case may be; and
(b) the electronic document and electronic signature meet the prescribed seal equivalency requirements.
No regulation has been made, or even requested, in the eleven years since the E-Commerce Act was adopted.
The other common-law provinces and the territories have all implemented the Uniform Electronic Commerce Act and have maintained the Uniform Act’s silence on electronic seals.
Conclusions
To summarize, there is no authoritative method of creating an electronic seal in the common law provinces; the federal statute is almost inactive; and Quebec’s statute, if its sealing provisions are used, does not serve the same function as in the rest of the country.
From this one may conclude either that not much electronic commerce is going on, or that the private sector has quietly figured out how to do an electronic seal but has not publicized the method, or that it has turned out in the electronic age that seals are not all that useful after all. One suspects the last explanation is the right one. Electronic commerce may have achieved in practice what the BCLRC was aiming for by legislation: the disappearance of the seal.