Bruce McWilliam is a lawyer at the Toronto law firm of McMillan Binch and a member of the firm’s KNOWlaw Group

Ontario has recently joined a growing number of jurisdictions that have enacted legislation specifically recognizing electronic transactions. Elsewhere in Canada, British Columbia, Saskatchewan, Manitoba and Quebec have introduced and in some cases passed similar laws. Also, the u.s. has passed legislation containing a number of similar provisions.

The focus of these laws is generally to confirm that contract law still applies in cyberspace. Electronic agreements will be given the same legal status as written agreements, as long as certain criteria are met. However, a number of issues still remain to be resolved.

The Electronic Commerce Act (Ontario) became law on Oct. 16. It is largely based on the Uniform Law Conference of Canada’s Uniform Electronic Commerce Act, which in turn is based on the United Nations Commission on International Trade Law’s Model Law on Electronic Commerce.

This column will focus on the Ontario legislation, but since it is to a large extent similar to the laws being enacted by other jurisdictions, many of the same issues arise nationally and internationally.

The context of the

new legislation

Electronic contracting issues have already been litigated to some extent in Canada and elsewhere, most notably in the context of ‘click-wrap’ agreements (i.e. online agreements entered into by a consumer by clicking an ‘I agree’ button or otherwise acknowledging acceptance of the terms displayed online).

Courts have generally given effect to contracts formed electronically. To some extent, the new legislation confirms and expands on the cases to date, but a number of unanswered questions remain.

To understand the limitations of the new legislation, we need to look to the larger context. Because the use of electronic documents and agreements extends across provincial and national borders, electronic commerce requires national and international legal rules that are as similar as possible. However, achieving uniformity requires broad consensus, which often limits the scope of what a uniform law will address.

What the new law does

The most significant accomplishment of the new legislation is that it ensures that agreements will not be found invalid or unenforceable simply because they are in electronic form.

Whether electronic agreements are enforceable will depend on whether they are ‘functionally equivalent’ to the corresponding written agreements. Although functional equivalence depends somewhat on the use to which the electronic document is put, three principal considerations emerge: accessibility for subsequent reference, ability to retain the document, and integrity of the information.

All of these considerations apply to the text of a document or agreement; however, it is another thing altogether to be bound by those terms.

The signature, that time-honored symbol of assent to contractual terms, may prove to be the most difficult aspect of a written agreement to replicate in the online world. In addressing this issue, the new legislation allows an electronic signature to satisfy a requirement that a document be signed or endorsed. This provision is subject to the requirement that the signature must be reliable in its association with the document and in its identification of the signor.

What constitutes reliability for these purposes isn’t specified, although this may be addressed in regulations still to be made. The result is that the law is flexible enough to accommodate new technologies, although it leaves some questions open to potential litigation.

The legislation deals with several specific areas that use electronic transactions. For example, public bodies are authorized to use electronic documents and information as long as they are not prohibited by law from doing so, and subject to any existing legal requirements for their use. Also, the legislation allows documents concerning the carriage of goods to be provided in electronic form where the law otherwise requires them to be in writing.

The new law’s other major accomplishment is that it begins to sketch out some of the basic rules of contracting in the online world. For example, the law acknowledges that clicking on an icon can constitute the ‘offer’ or ‘acceptance’ of a contract – critical elements required to form a valid agreement, thereby affirming the decision of the Ontario Superior Court in Rudder v. Microsoft Corp.

In addition, the legislation contemplates automation of the contracting process by giving legal recognition to contracts formed through one or more electronic agents. However, a contract entered into by an individual and an electronic agent that contains a mistake is ‘voidable’ if the individual has not acquired a material benefit and had no opportunity to correct the error.

Finally, the new law defines rules for determining the time and place of sending and receipt of electronic messages (although it’s still possible to contract around these provisions).

What the new law doesn’t do

The legislation is almost as significant for what it does not do.

For one thing, it does not compel the use of electronic agreements by any public or private party. Furthermore, a public body may not require others to use electronic documents or agreements. Instead, the legislation provides assurances to those who do want to use electronic agreements that their agreements will be given some measure of legal protection.

The legislation also excludes certain types of documents. Negotiable instruments, wills, powers of attorney, land transfer documents are all excluded from the ambit of the legislation. Additional classes of documents may also be excluded by future regulations.

Another significant feature is the fact that the law does not apply to use of ‘biometric information’ (i.e. information derived from an individual’s unique personal characteristics, other than a representation of his or her photograph or signature), unless the parties consent to the use of such information or the law requires use of such information. This provision operates in conjunction with other limiting provisions which state that the legislation does not overrule existing law related to electronic documents, particularly legislation to protect individual privacy rights and access to information.

Finally, there are fairly wide regulation making powers, including the ability to mandate reliability and information technology standards for digital signatures.

What it means to you

In the end, the new legislation is a fairly modest first step towards greater certainty in electronic contracting.

The law codifies what the courts likely would eventually have done, and more importantly, conforms Ontario’s legal regime to that of other provinces and countries.

Still, the law leaves open many security and technology questions. This appears to be an intentional omission, as the Legislature apparently preferred to leave the law flexible enough to deal with new technologies and commercial practices. So, the regulation making power will likely lead to a number of interesting developments in this area in the near term. Depending on how successful the current legislation is, we can also expect future legislation dealing specifically with the documents which are now specifically excluded.

Businesses moving to embrace the new economy can be confident that, except in particular situations, most deals done electronically will be respected. But, just as in the case of hard copy documents, you still need to think carefully about what is contained in your electronic contracts.

(this article contains general comments only. It is not intended to be exhaustive and should not be considered as advice in any particular situation.) *