Electronic Signatures May Be Superior in Commercial Transactions

Due to social distancing measures during the pandemic, almost all documents during this time were signed digitally, as opposed to traditional (“wet signatures”) methods.

Well before the pandemic, electronic signatures have been considered legally valid. Ontario, Alberta and B.C. have had statutes in place for over two decades recognizing the validity of electronic signatures, based on the Uniform Electronic Commerce Act of Canada (“UECA”) model legislation.

However, there is still some variability between provincial legislation on how electronic signatures are used. Ontario‘s statute allows for these to satisfy any legal requirement, as long as it is reliable for the purposes of identifying the person. PEI’s statute requires an electronic signature to be uniquely linked to the signatory, and created using means that only the signatory can maintain under their control, in a way that tracks any changes.

The Personal Information Protection and Electronic Documents Act (PIPEDA) also contains a definition and provision for electronic signatures, even requiring it in certain circumstances (ss. 36, 39, 42, 44, 45, 46).

A number of federal regulations prior to PIPEDA also allow for electronic signatures, such as the Electronic Payments Regulations and Payments and Settlements Requisitioning Regulations,  under the Financial Administration Act, or after PIPEDA was enacted, such as the Secure Electronic Signature Regulations. These latter regulations require a form of asymmetric cryptography, public key infrastructure (PKI) to manage verification, and prescribe specific asymmetric algorithms and issuing Certification Authority (CA).

A recent trial around a failed residential real estate deal in Ahmad v. Ashask suggests that in some circumstances an electronic signature may provide and contain additional information that is useful to the court, and can therefore be superior than traditional methods.

The Plaintiffs sought specific performance for an Agreement of Purchase and Sale, initially made on June 27, 2020. A number of sign backs and counteroffers amended the Irrevocability Clause, and the Agreement of Purchase and Sale was finally accepted on June 30, 2020, with a closing on September 29, 2020, conditional on financing and inspection.

On September 22, 2020, the Plaintiff’s real estate counsel sent a requisition letter, and the Defendants responded by requesting an extension due to a newly discovered lien on the property by the Canada Revenue Agency (“CRA”).

The Plaintiffs agreed to accommodate this request, and an Amendment to the Agreement of Purchase and Sale was prepared on September 24, 2020 with a new closing date of November 30, 2020. This offer was irrevocable until 11pm. The Plaintiffs signed the document at “10100 p.m.” by pen, even though all other documents relating to the deal were signed electronically using a time stamped digital signature.

The real estate deal never closed, with the Defendant’s counsel noting on November 16, 2020 that there was a problem with the closing. The Defendants claimed they were unware of the financing and inspection conditions, did not agree to the amending agreement, the agreement was void, and was not accepted by the Plaintiffs before September 24, 2020 at 11p.m. They argued that the Plaintiffs back-dated the amending agreement, to make it look like they accepted the new closing date in a timely manner.

Justice Di Luca reviewed the competing evidence, including some contradictory affidavits, and concluded,

[90] Having considered the arguments in context with the evidence, I am readily satisfied that the parties entered into a valid agreement of purchase and sale. I am also satisfied that the conditions were waived in a timely fashion. I am further satisfied that as the initial closing date approached, it was the defendants who sought an extension of the of the closing date as they were not in a position to close given their discovery of the CRA liens on title to the home. I accept the evidence that the amendment to the agreement of the purchase and sale was executed in a timely fashion.

[91] I find that the defendants openly and intentionally repudiated the Agreement of Purchase and Sale. While in the ordinary course, a measure of damages would be appropriate, in the circumstances of this case, I am satisfied that specific performance is appropriate.

One of the main issues leading to this conclusion was the validity of the Initial Agreement of Purchase and Sale, including the timing of the acceptance by the Plaintiffs,

[115] The “Confirmation of Acceptance” portion of the document suggests that the acceptance of this final offer was made by the plaintiffs at 2:15 p.m. on June 30, 2020. However, while “2:15 pm” is the time typed onto the form, the electronic timestamps for the signatures applied by the plaintiffs are 3:46:36 p.m. and 3:47:51 p.m., respectively. Given the evidence about how the electronic signatures work, I find that the “Confirmation of Acceptance” was not signed at 2:15 p.m., but rather was signed electronically at the time indicated in the digital timestamp. While I do not have direct evidence on when the acceptance would have been communicated to the defendants or their agents, I infer it would have been shortly after the electronic signatures were applied.

The defendants accepted a deposit after this, which signaled acceptance of a counteroffer as a valid agreement. Even if the amendment was not accepted, this created a valid agreement at the outset.

Justice Di Luca found that this document was signed in person, because the Plaintiffs were anxious to get the deal done,

[141] I also accept that the document was signed before 11:00 p.m. on September 24, 2020. I acknowledge that it would have been preferable for the plaintiffs to use an electronic signature instead of merely signing in ink. The electronic signature would have provided a time stamp…

The amending agreement was not delivered until a later point of time, which itself was not in accordance that any notice be in writing and delivered personally or electronically, this simply meant that the closing date of September 29, 2020 remained in effect. In applying and granting the test from Semelhago v. Paramadevan for specific performance, Justice Di Luca concluded the property was unique, damages would likely be inadequate, and the conduct of the parties favoured the Plaintiffs.

Although there are ways to forge or back-date electronic signatures as well, it can be technically more challenging or difficult for parties to do so, and there are tools that can be used to guard against this practice.

The use of electronic signatures should therefore enjoy greater and widespread use following the pandemic. To foster this practice, more consistency across jurisdictions as to how electronic signatures should be used would be of assistance.