Column

Electronic Real Estate Transactions

Much of the legal status of electronic communications in Canada (and elsewhere) rests on legislation based on the United Nations Model Law on Electronic Commerce of 1996. The Model Law’s main Canadian implementation has been through the Uniform Electronic Commerce Act, adopted in 1999. All the common law provinces, Yukon and Nunavut have enacted the Uniform Act, as shown here. Quebec adopted its Act to establish a legal framework for information technology in 2001, mainly based on the principles of the Model Law though not using the Uniform Act as its template. The electronic documents part of the federal government’s Personal Information Protection and Electronic Documents Act (PIPEDA) was inspired by the draft of the Uniform Act available in mid-1998 when the federal statute was prepared, though some significant variations were made.

The purpose of the Model Law and the Uniform Act, and thus of most Canadian legislation, was to remove barriers to the legally effective use of electronic communications. They did not intend to regulate that use. They wanted to be sure that legal rules that appeared to require ink and paper, such as writing and signature requirements, did not stand in the way of electronic communications. They did so by setting out a ‘functional equivalent’ to the existing form requirements. Electronic communications that performed the specified function were taken to satisfy those form requirements.

These were new principles in the mid-1990s when UNCITRAL developed them. People were not sure whether they would work, and thus how widely it was safe to apply them. As a result of that caution, the Model Law allows for exceptions to the operation of its rules, though it does not say what those exceptions should be. Thus articles 6 (on writing requirements), 7 (on signatures) and 8 (on originals) all have a paragraph reading ‘The provisions of this article do not apply to …’. Each implementing country was left to decide the scope of the rule and what to carve out of it.

In deciding what to include or leave out, Canada had to consider the two main features of the Model Law that were adopted by the Uniform Act: they were minimalist and they were technology-neutral. They set out their rules for functional equivalence but did not say how to achieve them or what technology to apply to do so. (Quebec’s statute was less minimalist but still technology neutral. Parts of PIPEDA are not technology neutral.) Parties to electronic transactions were left to decide what was prudent. Just as a contract written on a Kleenex tissue in pencil, signed with an X, can be a legally effective contract but is unlikely to be acceptable in commercial practice, so too certain kind of electronic communications will not satisfy basic business considerations. The legislation does not make that choice for the users.

With such considerations in mind, the Uniform Law Conference excluded from the Uniform Act a number of communications: wills, testamentary trusts, personal powers of attorney and land transfers that would require registration to be effective against third parties. These documents shared the characteristic that they are often prepared by people without legal advice, people who may have little knowledge of what makes an e-document secure. The decision about prudent practice might be particularly risky to leave open for those people.

In addition, not everyone might appreciate the risks of buying land without registration. Most provinces at the time of the Uniform Act did not have electronic land registration, and Ontario’s system was tightly controlled as to access and technology. Thus whatever people might come up with to transfer land would probably not be registrable in any event. The Uniform Law Conference’s decision to exclude these land transfers reflected the same decision made in then-recent statutes in Australia (see for example the regulations under the Electronic Transactions Act, 2000 of New South Wales) and Singapore (see s. 4 and Schedule 1 of the Electronic Transactions Act.)

As noted in my last column here, the Uniform Act also excluded negotiable instruments, for other reasons.

Recently a number of people have been asking whether the real estate exclusion is still needed, if it ever was. Should the Uniform Act and its provincial enactments be amended to remove that exception, so the legislation would apply to real estate transfers? I will tell you now that I am not going to answer that question; I want to hear your answer. Here are some of the considerations that appear to me to be relevant to the question.

First, we need to appreciate the limited scope of the ‘exception’. The Uniform Act says that where the law requires writing or an original, the requirement may be satisfied by an electronic document of certain characteristics. A signature requirement may always be met by an electronic signature. Thus if the law does not require any of these forms, the legal effect of electronic communications does not rely on the legislation based on the Uniform Act.

Our law rarely requires writing or signatures. As a matter of business prudence, people do tend to ‘get it in writing’, and signatures are widely used for authentication and for the ceremonial purpose of making people realize they are doing something with serious consequences. Just as business prudence leads people to do this, business prudence can govern whether and how they do it electronically.

The main law that requires writing in real estate transactions is the Statute of Frauds. It says that an interest in land needs to be made or created in writing signed by the parties. That statute was certainly present in the minds of the drafters of the Uniform Act. (I chaired the working group of the Uniform Law Conference that prepared it.) The Statute of Frauds applies to the creation of the interest in land, but not to the negotiation that leads to that creation. None of the surrounding documents and correspondence needs to be in writing.

The second consideration deals with the nature of ‘writing’. When the Model Law and the Uniform Act were drafted, it was at least an open question whether electronic communications could be considered to be ‘writing’ for legal purposes. Both documents were created on the assumption that ‘writing’ meant ‘on paper’ (or some other tangible medium), and an electronic communication was not in writing. Given the uncertainty on that point, it made sense to remove the doubt by spelling things out.

Since that time, however, the world has become much more familiar with electronic communications. Courts in several common law countries have held that electronic communications satisfy the Statute of Frauds writing and signature requirements without any statutory help. The Alberta Court of Queen’s Bench in Leoppky v Meston 2008 ABQB 45 found a series of emails capable of constituting an enforceable transfer of a house (though on the evidence, intention to convey was not present). The Court did not mention Alberta’s Electronic Transactions Act, which excludes land transfers in any event (section 7(e)).

The High Court of Singapore decided in SMI Integrated Transware v Schenker Singapore [2005] SGHC 58, [2005] 2 S.L.R. 651 (P.C.) that email headers could constitute signatures so as to satisfy Singapore’s Statute of Frauds, despite the exclusion of land transfers (including a lease of the kind in issue) from the Electronic Transactions Act.

Earlier this year, the Commercial Court of the Queen’s Bench Division of the English and Welsh High Court found a guarantee constituted by a chain of emails presumptively enforceable under the English Statute of Frauds. Golden Ocean Group v Salgaocar Mining Industries [2011] EWHC 56 (Comm). The parties agreed that an email signature would satisfy the statute (para. 95).

The third consideration is that not all Canadian jurisdictions have excluded real estate transfers. New Brunswick did not put any exclusions into its Electronic Transactions Act. Quebec’s legal framework statute does not mention immovable property. The operation of the law on this point in those provinces has not created problems, to my knowledge. The American equivalent to the Uniform Act, the Uniform Electronic Transactions Act, did not exclude land transfers. It left the question of registrability to the recorders of land transactions.

For that matter, Manitoba has never proclaimed in force the part of The Electronic Commerce and Information Act authorizing electronic equivalents of writing and signature. So all electronic transactions, not just ones involving real estate, have to find their legal support outside the enabling statute, without noticeable harm to business in that province.

UNCITRAL revisited the question of the legal effect of e-communications in the Electronic Communications Convention in 2005. Confidence in the use of such communications, and in UNCITRAL’s ‘solution’ for removing barriers to them, had grown to the extent that the Convention makes binding on member states what the Model Law had simply put out for adoption or adaptation. The Convention spells out the exceptions, too, as the Model Law had not done. No exception was given, or suggested in the Working Group’s discussions leading up to the Convention, for transactions involving land.

The Uniform Act and its enactments say that it yields to any other law that authorizes, prohibits or regulates electronic communications (section 2(5)). The purpose of this provision was to avoid conflict between the generic permission of the UECA and any existing laws that already created a statutory regime for e-documents or e-filing. The provision clears the way for electronic registration statutes, and ensures that even a general permission to satisfy writing and signature requirements of land transfers would stop short of making an e-transfer registrable.

For example, Ontario’s Land Registration Reform Act, 1994 provides for e-registration of land transfers by special instruction from an authorized user of the system (generally a lawyer for one of the parties) but not for the registration of the transfer documents. Those transfer documents should be legally enforceable in any event, however, if only to justify the lawyer’s instructions to the land titles registry. Thus the e-commerce legislation might still be usefully invoked for the transfer (if it were not excluded), even though the registration is separately dealt with. (One may compare Ontario’s system with that in force in British Columbia, about to become mandatory. As in Ontario, BC’s Electronic Transactions Act excludes land transfers from its general enabling rules.)

(Most of Part 2 of PIPEDA applies only to statutes and regulations specially designated under the Act. It is interesting that the only federal legislation to which it applies, eleven years after it came into force, is the Federal Real Property and Federal Immovables Act. There may be some real demand for electronic land transfers.)

The Uniform Act was clear in its policy that excluding land transfers was not a statement that these transfers should never be done electronically, but only that additional security might be needed. “They seem to require more detailed rules, or more safeguards for their users, than can be established by a general purpose statute like this one.” See the annotation to s. 2 of the Uniform Act.

The practice seems to have evolved since then. Real estate documents are frequently exchanged by fax, and closings done on the basis of faxed documents. Yet faxes are essentially electronic documents, and a faxed signature is no more reliable than a digitized signature that reproduces the handwriting by electronic means. Banks are known to close mortgage financing on the basis of documents in Portable Document Format (PDF), often with signed paper documents to follow – but the money changes hands on the strength of the electronic versions (and no doubt on the presence of considerable other legally enforceable security).

Most land transfers are not done by people all on their own. If they do not have lawyers, they generally rely on at least one and often two real estate agents, who are licensed professionals entirely capable of watching out for basic questions of security, and who of course know about the need for registration of interests being created. The risk of fraud, say by the creation of multiple inconsistent transfer agreements, is arguably no higher for electronic than for paper documents. (The various incidents of mortgage fraud in recent years have not depended on electronic documents in particular.)

In the light of these considerations of law, policy and practice, is the exclusion of real estate transfers from the Uniform Act and its provincial enactments still justified? Given the case law, one might think that the Act could simply be ignored; the Statute of Frauds seems to be comfortable with e-communications – though only one Canadian trial-level court has so held, so far as I know. However, the exclusion is still a message, not a prohibition but a warning, a special status. Is it time for that to change?

Comments

  1. Electronic land documents, where we are in Ontario and what Ontario should do

    When we want to create an interest in land, we must ask: (1) Is the interest in land validly created? (2) Can we register the interest in land so created?

    In Ontario, we can use any electronic document to create an interest in land, without complying with any other requirements, and we can register an interest in land so created in the land titles system. (Creating an interest in land can include entering into a contract to do so.)

    In 2000, Ontario may have intended that we should use only the Ontario electronic land registration system for an electronic document that created an interest in land. If so, the above differs from what was intended.

    Ontario should probably change its laws to ensure that the requirements in the Ontario Electronic Commerce Act, 2000 apply when we use an electronic document to create an interest in land in Ontario.

    (1) Is the interest in land validly created?

    We can create an interest in land only:

    (a) For a contract, by word of mouth plus written and signed evidence, or plus conduct.

    (b) By a signed writing, sometimes also with a seal.

    (c) By an electronic document.

    As to (a) and (b), the requirements are in the Statute of Frauds and Conveyancing and Law of Property Act.

    As to (c) (creating an interest by an electronic document):

    1. In 1984, Ontario lifted all the requirements of (a) and (b) for an electronic document in an electronic registration area (now all of Ontario). Ontario then imposed no other requirements for the electronic document. The Ontario Land Registration Reform Act did this, as explained below.

    2. In 2000, Ontario allowed electronic commerce and created new requirements for it, but didn’t impose the requirements on a document that creates an interest in land. The Ontario Electronic Commerce Act, 2000 allowed electronic commerce and created the requirements, but section 31 showed that the Act didn’t apply to a document that both created an interest in land and wouldn’t affect a third person if it wasn’t registered, as explained below.

    Therefore, an electronic document can create an interest in land in Ontario under the 1984 Act, without complying with any of the requirements of the 2000 Act.

    (2) Can we register the interest in land so created?

    It’s easier for the government (and now its computers) to register an interest in land if a document creating it is in a form. So the government wants to say that we can’t register a document creating an interest unless it’s in a form, and may even want to say that a document can’t create an interest in land unless it’s registered.

    Ontario law doesn’t show that we can’t register a document that creates an interest in land unless it’s in a form, as explained below. Nor does it show that a document can’t create an interest unless it’s registered. For the reasons below, it shouldn’t show either of these things.

    Therefore, any electronic document can create an interest in land in Ontario, without complying with any other requirements, and we can register that interest.

    Reasons for (1) (Is the interest in land validly created?)

    Sections 18 and 19 of the Ontario Land Registration Reform Act show that the sections 17, 20 and 21 below apply to land in an Ontario electronic land registration area, now all land in Ontario. (The government couldn’t convert a few properties to the land titles system, but they’re still in the area.)

    Section 13 shows that, despite any law, a transfer, charge, discharge or guarantee in a charge needn’t be under seal and has effect as if under seal.

    Two definitions in section 17 together say that an “electronic document” is a document in an “electronic format,” which includes one produced by making an electronic copy of a written document. The Act doesn’t try to say what the word “electronic” means. It shows that the document must only be electronic and that an electronic copy of a written document is only an example.

    Section 21 says that, despite any law, an electronic document that creates an interest in land is not required to be in writing or to be signed, and has the same effect as a document that is in writing and signed. This isn’t limited to documents prepared in the Ontario electronic land registration system. The result of this and section 17 is that any electronic document can create an interest, without complying with any other requirements.

    It’s true that section 20 says that an electronic document “submitted for registration” must be in a form and completed in a way approved by the director. But this doesn’t prevent any electronic document from creating an interest. (As shown below, it doesn’t prevent an interest created by any electronic document from being registered either.)

    Section 21 of the Ontario Land Registration Reform Act made it unnecessary for section 31 of the Ontario Electronic Commerce Act, 2000 to exclude a document that creates an interest in land. As John points out in his article, the 2000 Act says that nothing in it limits the operation of any provision of law that expressly authorizes, prohibits or regulates the use of electronic information or electronic documents (section 26(1)).

    It’s odd that sections 13, 21, 26(1) and 31 all deal with the same issue, but in different words. Can we harmonize the meanings, or must the words lead to a morass of distinctions? For example, as section 21 says that an electronic document needn’t be on paper, surely section 21 must mean that it needn’t be under seal either, even though section 13 applies only to a transfer etc.

    Section 31 shows that the Act doesn’t apply to a document that both creates an interest in land and won’t affect a third person if it isn’t registered. This glosses over how land registration laws actually work. The Ontario Land Titles Act works by giving, to a person, some kinds of interest in land, at certain times, free from some kinds of interest, and by compensating if either it corrects a mistake by returning an interest that it’s wrongly taken away, or doesn’t correct a mistake that wrongly took an interest away. The Act also controls the priority of interests. The italicized words don’t directly refer to the effect on a third person. Obviously, the fact that the register shows an interest means that a third person can find out about it. But, for example, would the Act apply to a document that created what’s called an “overriding interest” (one that’s not included in the above words “free from some kinds of interest,” and that’s therefore good even if it’s not registered)?

    Any distinction between kinds of documents can cause problems. For example, a contract can create an equitable interest in land if it’s specifically enforceable. In Ontario, what would this mean for an electronic sale agreement, where the court would have denied specific performance and given only damages?

    The Electronic Registration Act (Ministry of Consumer and Business Services Statutes), 1991 may apply in some cases.

    Reasons for (2) (Can we register the interest so created?)

    Ontario has built its electronic land registration system on its land titles system. The Ontario Land Registration Reform Act governs the process of electronic land registration and the Ontario Land Titles Act governs the substance.

    Ontario’s general land law is rich and complex. The Ontario Land Titles Act tends strongly to require the land titles system to reflect interests created under this general law.

    The basic provisions of the Ontario Land Titles Act are identical to, or substantially the same as, those in the English Land Transfer Act 1875. It also copies at least one provision in the English Land Transfer Act 1897. Ontario didn’t follow the major English land reforms in 1925. Since then, the English Land Registration Act 2002 has replaced the 1925 reforms. The Ontario Land Titles Act became isolated from its sources and from laws in other jurisdictions, as have other Ontario laws on real estate. The conversion of almost all properties from the registry system to the land titles system for electronic registration has brought a sea change in the importance of the Ontario Land Titles Act. Although Ontario leads the world in electronic land registration, Ontario has fallen materially behind in land titles policy and law.

    There were two major Court of Appeal cases on the English Land Transfer Acts 1875 and 1897, Capital and Counties Bank, Limited v. Rhodes, [1903] 1 Ch. 631 and Attorney General v. Odell, [1906] 2 Ch. 47. There was also an important text, Brickdale and Sheldon, The Land Transfer Acts, 1875 and 1897, Stevens, 1899 and 1905. These, of course, still help us to interpret the Ontario Land Titles Act.

    The Ontario Land Titles Act works by giving, to a person, some kinds of interest in land, at certain times, free from some kinds of interest, and by compensating if either it corrects a mistake by returning an interest that it’s wrongly taken away, or doesn’t correct a mistake that wrongly took an interest away. The Act also controls the priority of interests. There are exceptions to the above.

    Subject to the above, the Act allows any interest in land to exist or be created in any way that the law allows, as if there were no Act. Section 68(2) shows that, subject to cases where the Act gives an interest, any person having an interest may create interests in the same way as if the land weren’t registered.

    The decision of the English Court of Appeal in Capital and Counties Bank, Limited v. Rhodes confirmed this for the equivalent section in the English Land Transfer Act 1875. Cozens-Hardy L.J., with whom the other two judges agreed (one with a doubt), said:

    Notwithstanding that the land has become registered land, it may still be dealt with by deeds having the same operation and effect as they would have if the land were unregistered … Conveyancing may proceed just as if the Acts of 1875 and 1897 had not been passed. Self-interest and the desire for security will doubtless induce persons, whether purchasers or mortgagees or lessees, to make use of the registers. But the legal operation and effect of common law assurances will remain untouched by the want of registration.

    The equivalent English section 49 differed from section 68(2) in one way that might seem important. It said that any person, “whether the registered proprietor or not,” having an interest might create interests. This was one reason for the court’s decision, but the other reasons and logic show that the court would have made the same decision without those words.

    Therefore, subject to cases where the Act gives an interest, we can create interests without having to register them. In this way, the Ontario land titles system may differ from a Torrens system. For example, we can usually safely close a transaction in Ontario, without waiting until it’s actually registered.

    The Ontario Land Titles Act tries to simplify registration by providing a simple form for a registered disposition (which can lead to the Act giving an interest), and by trying to ensure that a person uses only that form. The main purpose is to make it simpler for the government to operate the land titles system. Because the Ontario electronic land registration system tries to have computers make entries in the register automatically, that system could acutely raise the issue of forms.

    Despite the above, section 82 of the Ontario Land Titles Act allows the system to register a dealing not in a form, as if it had been in the form, and sections 93(5) and (9) confirm this for charges. The system must act judicially in deciding whether to register a dealing not in a form.

    In Capital and Counties Bank, Limited v. Rhodes, the court commented that a departure from a form was “attended with some risk.” This was only a comment, gave no reason and conflicted with good authors’ comments (Brickdale and Sheldon above). Section 82 and the sections referred to below show that it’s intended that the register reflect reality. If the Act were to say that a registered owner could create a kind of interest only if it was registered, it would have to be draconian, because the law naturally tends to treat a failure to create a legal interest as creating an equitable interest.

    In any event, the purposes of the Act are to show the holder of an interest that that the Act can give as the registered owner, and to guarantee the interest. If a person holds an interest that that the Act can give, but the register doesn’t show the person as the registered owner, it would tend to defeat those purposes. Therefore, many sections allow the system to change the register to bring it into line with reality.

    The English Court of Appeal in Capital and Counties Bank, Limited v. Rhodes confirmed this in a comment on some of those sections, for which the Ontario Land Titles Act has equivalents. Cozens-Hardy L.J., with whom the other two judges agreed, said:

    If it be urged that there is no express provision enabling a person claiming under or through an unregistered conveyance to procure himself to be registered as proprietor, I think the answer is supplied by ss. 93, 95, and 96 of the Act of 1875. If the registered proprietor refuses to do what is right, the Court has full power direct the register to be rectified in such manner as it thinks just … I cannot doubt that the sections above referred to suffice to enable the court, in all cases for which no express provision is made … to cause the register of proprietors be rectified, so as to confer the statutory benefits of registration upon any person who, in the opinion of the Court, is entitled to claim those benefits.

    One Ontario section that makes “express provision” for the register to be changed to bring it into line with reality is section 75 (amendment of register).

    In this light, it’s impossible for the system to refuse to register an interest that we’ve validly created, on the ground that we haven’t used a form. This is so despite provisions in or under the Ontario Land Titles Act or the Ontario Land Registration Reform Act that may seem to show otherwise.

    For example, where sections 20 and 29 show that an electronic document “submitted for registration” must be in a form and completed in a way approved by the director, they must apply to the way in which we submit the document, not the way in which that document created the interest. And, where section 19 says that documents must be “registered in an electronic format alone,” it must apply to the way in which we file the document for registration, not the way in which that document created the interest.

    The regulations on forms are confused and seem not to have regard to the Acts. For example, a regulation under the Ontario Land Registration Reform Act purports to give the director of titles power to “approve” a form that sections 1, 86, 93, 101 and 105 of the Ontario Land Titles Act say must be “prescribed” by regulation.

    The Ontario electronic land registration system in fact allows us to make an “Application General.” This sensibly allows the system to register an interest in the proper way, however we created the interest. If an electronic document prepared outside the system contains a transfer or charge, the application general should lead to the database reflecting it as a transfer or charge (registering it as an “application” would also corrupt the database). People will naturally, in all but a few cases, use the forms of transfer, charge and discharge in the system. It’s unlikely that a person will ever call upon the system to register a transfer, charge or discharge in another electronic form. Anyway, the system must be capable of making a judgment on the effect of an event (unless it refers the judgment to a lawyer or court), because many changes to an interest aren’t through a transfer, charge or discharge.

    It’s understandable that a government always likes people to use a form, especially in electronic communications. But it’s inevitable that a good land titles system can only encourage people to use a form, not force them.

    What should Ontario do?

    John Gregory’s article suggests that we consider whether make the Ontario Electronic Commerce Act, 2000 apply to real estate. John doesn’t say what he thinks we should do, and he asks us to say what we think. But his survey perhaps suggests that we needn’t fear letting an electronic document create an interest in land.

    I think that Ontario should make the Ontario Electronic Commerce Act, 2000 apply to an electronic document that creates an interest in land.

    As said, Ontario may have intended section 31 to make us use the Ontario electronic land registration system for any electronic document that created an interest in land. If it had, we could have used an electronic document to create an interest in land only if we registered the interest in the Ontario electronic land registration system. We couldn’t accept this.

    The main purpose of writing or a handwritten signature must be to ensure that we have good proof of an act that creates an interest in land. Today, most of us would readily accept that an electronic document would usually be better proof than both word of mouth and writing on paper with a handwritten signature. We live in a world of cards, passwords and cloud computing.

    No doubt, writing and a handwritten signature served other purposes, like encouraging people to be more careful when creating an interest in land, or protecting people from fraud. Today, most of us would see other laws or requirements as better suited for these purposes. We live in a world of due diligence, disclosure, cooling-off and consumer protection. For example, on a sale of a used home, a buyer may not expect the “buyer beware” rule. But we wouldn’t think that requiring signed evidence of a word of mouth contract could reliably protect the buyer from the buyer beware rule.

    As to the requirements of the Ontario Electronic Commerce Act, 2000, it uses “functional equivalency rules.” Although it describes the functions without referring to paper or a handwritten signature, the functions are those that paper with a handwritten signature should meet. In the world we live in, it might seem odd to assume that an electronic document is good proof if it’s only as good as paper with a handwritten signature. The way in which the Act describes the functions is rather vague and, as technology advances, we probably couldn’t even give useful examples of specific ways to meet the rules. As John says, the Act is minimalist and technology-neutral.

    None of the Acts seems to deal with a need for a witness or (with a limited exception in section 24 of the Ontario Land Registration Reform Act) a need for a document to be sworn or declared, both of which can be common concerns in real estate dealings. Nor do the Acts cover the process in the Ontario electronic land registration system by which an electronic document that’s “signed for completeness” can be “unsigned” until it’s “signed for release,” which submits it for registration.

    Nor do the Acts cover how a “user” of the system (usually a lawyer) signs for a party. Section 40(4) of Ontario Regulation 19/99 purports to cover this, and it has led some to say that the user isn’t an agent, but is merely the party’s “pen.” The system can generate an “Authorization and Direction” and the law society asks lawyers to use this to get instructions to sign, perhaps assuming that this will be on a paper copy with a handwritten signature. Friedmann Equity Developments Inc. v. Final Note Ltd., [2000] 1 S.C.R. 842 may show that any authority to sign a document that, but for section 13, would have had to be under seal, might have to be under seal, unless the signing is purely ministerial. Although the law may allow a person to rely on apparent agency, that may not apply to a power of attorney and may not cover a person that’s only a successor in title.

    We won’t solve all problems by making the Ontario Electronic Commerce Act, 2000 apply to an electronic document that creates an interest in land, but it would be a good first step. It might lead to other solutions, but ancient laws make these difficult.

    If Ontario does anything, how should it do so?

    Ontario did a good job in bringing in the Ontario electronic land registration system. But, as suggested, Ontario has a discouraging history for laws on real estate. We’ve invested a lot of public money and effort in the Ontario electronic land registration system, but we haven’t built it on a good and modern land titles system.

    Added to this, the government’s recent sale for $1 billion to Teranet of the right, for 50 years, to operate the Ontario electronic land registration system, promises to stifle progress for a long time. (The costs will also have to be high enough to allow Teranet’s owners, a municipal employees’ pension fund, to recoup their $1 billion over the 50 years, plus a good yield.)

    The last substantial changes to real estate law were in Bill 152 in 2006, dealing mainly with fraud. A sudden public crisis, our history, a pending appeal (in Lawrence v. Maple Trust Company, 2007 ONCA 74 (CanLII)) and a general decline in parliamentary procedure made it hard for those involved at the time. But the bill contained such bad examples of land registration policy and law that it calls for the cautions to anyone involved in changing Ontario’s laws on real estate. Know how the Ontario Land Titles Act works and how a modern land titles law should work. Know the Ontario Act’s faults and what’s needed to fix them. Do these things now and don’t put them off until a crisis. Actively protect and improve the land titles system. Don’t make saving public money a main purpose. Know that compensation is essential to back up the guarantees of title and that paying compensation can even show that we’re operating the system efficiently. Use the best legal talent. Publish a policy, with reasons, and a draft law well before a change (perhaps in green and white papers). Work hard to draw good public input, give time for it and consider it carefully. Don’t think of the public, people claiming compensation, other institutions or critics as adversaries. Don’t be content only to meet with “stakeholders” (aptly so called, because they’re looking after their own interests). Don’t plan to put changes in an “omnibus” bill. Avoid having to make material changes to a bill only days before it’s passed. Don’t assume that building confidence or defending the system is all that’s needed, even if the system needs repair. Know that ignoring the above can cause a lasting loss of trust. (The public’s ready acceptance of title insurance may be a massive vote of no confidence in what’s a good system, even if it needs improvement.) Be assured that doing these things will show courage, wisdom and vision.

  2. John Wood calls in his comment for a more fundamental reform of land law and registration policy than I had had in mind. He does say that one could safely repeal the real estate exception in the Electronic Commerce Act without attending to the broader reform.

    His description of the Land Titles Act does relate to one concern I heard expressed from a western province about the prospect of the repeal on a uniform basis: would the repeal cause harm in a province with a Torrens system of land titles, even though it might work in a registry system?

    I do not understand why having the electronic commerce statute apply to the creation of interests in land would have a differential effect. The statute would not affect any rules the province had in effect about land registration procedures or the effect of registration. Do you think it would make a difference which land title/registry system operated?

    Would it matter if a province’s Torrens system had a provision like the one that John Wood mentions in Ontario, that allows an application to register an interest in land created electronically in a form not normally authorized for registration? In other words, would it encourage the creation of interests of land that would then disrupt the functioning of the title system?

    Or would it just add a useful flexibility to transfers and clear the way for creative uses of land title information?

    It is relevant to the original question that Prince Edward Island (in 2004) and Newfoundland and Labrador (in 2009) have repealed the exception for land transfers in their e-commerce legislation, though they originally adopted it. The repeal in both cases aimed to facilitate the working of new electronic registration systems. So half the provinces (BC, AB, SK, ON, NS) now make an exception for real estate and half do not. (As noted in the original article, Manitoba does not have general purpose ‘functional equivalent of writing’ legislation in effect, for real estate or other kinds of document.) The two territories with e-commerce legislation retain the exception.

    May a jurisdiction (Uniform-law-speak for ‘province or territory’) safely repeal the land transfer exception from its e-commerce legislation regardless of the status or operation of electronic land registration in that jurisdiction?

  3. John Gregory started in May by asking us whether we should allow an electronic document to be valid for real estate under, for example, the Ontario Electronic Commerce Act, 2000.

    In his later comment in June, he asked whether doing so would disrupt a Torrens land titles system. He sensed that it would not.

    At the risk of provoking Torrens lawyers, I’d say that a Torrens land titles system shouldn’t disrupt a general land law, including one validating electronic transactions.

    It’s easy for a land titles system to make its own rules for electronic documents. Where a system’s own interest governs, rather than good land titles policy, the system will obstruct progress. We need to recognize this and look behind any rationale about progress “disrupting” a land titles system or (to use Torrens words) about preserving the “integrity” of the system.

    Ontario

    In Ontario, section 21 of the Ontario Land Registration Reform Act allows any electronic document to create an interest in land, without any conditions. Section 31 of the Ontario Electronic Commerce Act, 2000 prevents that Act from applying to such a document. Therefore, if an electronic document relates to land, but doesn’t create an interest in the land, the Ontario Electronic Commerce Act, 2000 validates it, if it meets the “functional equivalency” tests in that Act. But, as John Gregory says, case law may show that an electronic document could be valid even if there’d been no Act. The Ontario Land Titles Act and Land Registration Reform Act also allow an interest created by any valid document to be registered.

    This seems untidy, and other laws on formalities for real estate dealings are old and untidy.

    A modest fix in Ontario might be to repeal both sections 21 and 31 referred to above. Then, every electronic real estate document would be valid where it met the functional equivalency tests in the Ontario Electronic Commerce Act, 2000 (or where case law showed that it would have been valid even if there’d been no Act).

    Any fix in Ontario raises issues of land titles policy and, for a long time, we’ve had a discouraging history for land titles laws in Ontario. Even a modest fix might be too risky, and we might well just leave the law on electronic real estate documents as it now is.

    My comment in May discussed these issues.

    Torrens system

    If I correctly understand how a pure Torrens land titles system works, validating electronic real estate transactions couldn’t disrupt the system. But, if so, the Torrens system shouldn’t work that way.

    Every land registration system must deal with how far to go in forcing people to use the system and to comply with its requirements.

    People will naturally use the system to get its benefits. These are that the system guarantees some interests and their priority, and gives priority to other interests. People will naturally comply with the system’s requirements because they’re convenient.

    Despite that, systems feel that they need to induce people to use the system and to comply with their requirements by saying that, if people don’t, they don’t get a valid interest or priority. This interferes with people’s rights under the general law—at its worst, a petty registration requirement can determine whether a person gets an interest.

    I understand that a pure Torrens land titles system shows that a person doesn’t get some kinds of interest in land unless the interest is registered. This seems in practice to have caused serious inconvenience.

    In Ontario and (I assume) British Columbia, a disposition of an interest that the land titles system can give takes effect on closing. A buyer or lender files the transfer or mortgage for registration on closing, but usually doesn’t wait until the system actually completes the registration before releasing the money. This is so even though the system can guarantee the new interest only when it actually completes the registration. It’s also so even though the system only then protects the priority of the new interest. But, when the system completes a registration, it has effect as of when the document was filed.

    In Alberta, Manitoba and Saskatchewan, I understand that a buyer or lender usually prefers to wait until the system actually completes the registration before releasing the money. This leads to serious inconvenience.

    I understand that a Western Law Societies Conveyancing Protocol tries, among other things, to overcome the above inconvenience, but only for most home transfers and mortgages. The protocol is different in each jurisdiction, but that in Manitoba seems typical. The protocol allows a lawyer to pay the price or loan without waiting until the transfer or mortgage is actually registered. Instead, if the transfer or mortgage can’t be registered, the law society’s insurance covers loss to the buyer or lender.
    The protocol in Alberta suggests that its purpose is, among other things, “to preserve the integrity” of the Torrens system.

    Perhaps it should be rare for the system not to register a transfer or mortgage, making the issue marginal in practice. But the protocol suggests that people rightly treat the issue as fundamental.

    We know that a system often won’t register a transfer or mortgage because of some mistake in preparing the document. That might be a reason for a lawyer not to pay the price or loan without waiting until the system actually registered a transfer or mortgage. But it shouldn’t justify the system preventing a person from getting an interest that would otherwise be valid.

    Differences between laws may not be the only cause of differences in practice. Alberta, Manitoba and Saskatchewan also seem to have a culture of registration that goes beyond fear of the power of the system.

    A land titles system should try to reflect valid interests under the general law, rather than create a closed system in which formality can so easily override substance. If we decide that an electronic document should be valid for real estate, a land titles system shouldn’t disrupt that. No land titles system should be able to bar progress by saying that an electronic document can’t give an interest, or that the system won’t register the interest, or that the system won’t guarantee the interest or priority.

    A Torrens lawyer may feel that this would undermine “the integrity” of the Torrens system. But there are ways for a system to deal with this and, in practice, a good system rarely needs to use these ways. Thus, in practice, instead of suffering the serious inconvenience reflected in the Western Protocol in 100% of transactions, the land titles system might have to deal with issues in only, say, less than 1% of transactions.

    Some other systems

    The Model Land Recording and Registration Act for the Provinces and Territories of Canada, drafted by a Joint Land Titles Committee in July 1993, supports the above. It wisely accepted that a dealing should give an interest, even if the dealing wasn’t registered. This led to Proposals for a Land Recording and Registration Act for Alberta in October 1993. Those said: “The draft Act’s interest recording and title registration system floats on the general law … it is the general law which determines what interests exist and what their incidents are.” Later, they said: “LRRA 4.5(l)(a) provides that an interest is effective from the time of the transaction upon which it is based. It therefore reverses the first part of LTA 56.”

    England recently revised its land titles laws in the English Land Registration Act 2002, but wrongly went in the opposite direction. Section 27 seems to show, for example, that a transfer or charge doesn’t operate at law until the system actually registers it (but can give an equitable interest). Under electronic registration, it seems that the Act will be even more severe. For example, section 93 seems to show, that a transfer or charge will have no effect at all until the system actually registers it. The law commission reports that led to the Act don’t seem to comment fully on this policy. One report, Land Registration for the Twenty-First Century, suggests that this makes the register as complete and accurate a record of information relevant to the title as possible. No land titles system works by guaranteeing to everyone that it’s at all times complete and accurate.

    A 2010 New Zealand Law Commission report, A New Land Transfer Act, seems rightly to accept that any interest can exist without registration and that the register should be able to show it.

  4. The Uniform Law Conference voted at its meeting in Winnipeg last week to remove the exception for land transfers from the Uniform Electronic Commerce Act. The written submission to the Conference on this point should be online in the next few weeks. Since I wrote it, it bears some resemblance to my original Slaw column, above, though it made a recommendation.

    The apparent concern about taking this action in a Torrens system was based on a misunderstanding of some informal and second-hand comments. Those in the ULCC more familiar with Torrens systems than I do not have concerns about the impact of removing the land transfer exception.

    That is a separate question from the one raised by John Wood in this thread about having the land title register reflect unregistered interests.

  5. A couple of updates: In May 2011, the Northwest Territories adopted its Electronic Transactions Act SNWT 2011 c. 13, so all three territories have the Uniform Act, essentially, along with the common law provinces.

    The New Brunswick Court of Queen’s Bench held this summer in Girouard v Druet 2011 NBQB 204 that an exchange of emails constituted a binding contract for the sale of land. The email exchange satisfied the N.B. Statute of Frauds because of the Interpretation Act as well as the Electronic Transactions Act, which in that province does not exclude land transfers. The Court of Appeal has granted leave to appeal.