Canada: Celebrating The 10th Anniversary Of E-Commerce Law

This year marks the 10th anniversary of Ontario's Electronic Commerce Act (ECA), and the equivalent legislation in most of Canada's common law provinces and territories. It's a good time to take stock of the progress the ECA represents, and to consider some of the remaining challenges in doing business online in a legally effective manner.

Legal Uncertainty Before the ECA

It is worth recounting the legal uncertainties that abounded in the 1990s for organizations wanting to do business over the fledgling electronic networks then sprouting in Canada and around the world. While the widespread use of the Internet — then called the Information SuperHighway — was still a few years away, network technologies such as Electronic Data Interchange (EDI) were becoming indispensible to facilitating business-to-business commercial communication.

EDI involves companies sending commercial messages between them — for example, ordering inventory — solely through the use of computers and network technologies. Often there would be no human participation in these EDI messages. Yet these EDI-based contracts became central to concepts such as just-in-time product ordering and manufacturing.

For example, an auto assembly plant does business with a car parts manufacturer. Instead of ordering parts by paper or fax, the manufacturer's computer automatically tells the parts-maker's computer when the assembly plant needs some more parts. The parts are then shipped overnight and used the next day, saving both companies significant inventory financing charges.

One major legal cloud hanging over EDI-based messages before the ECA was the provision in many provincial sale of goods statutes that required contracts for the sale of goods to be "in writing" and "signed." Questions arose about whether computer-generated messages — often without any human intervention — could satisfy the sales statutes. Companies, and especially their external auditors, were nervous about the lack of legal certainty.

The following scenario illustrates well the difficulties prevalent at the time. The audit firm of a large company was demanding a legal opinion that the electronic ordering system used by the company and its distributors did in fact produce legally effective purchase orders. The issue mattered because the company produced capital equipment with long manufacturing time leads, so the orders had to be enforceable. But the legal environment at the time was too uncertain to give absolute comfort.

Saint Gregory Slays the Uncertainty Dragon

Canadian organizations today enjoy a much more certain legal environment in which to conduct their electronic commercial affairs, largely because of the indefatigable law reform efforts of John Gregory, the chief architect of the Ontario government's e-commerce law reform program. Gregory stick-handled into effect a range of new laws that today bring much-needed certainty to commercial transactions orchestrated over the Internet and other networks (including the still-used EDI).

The process began by effecting the repeal of the writing requirement in the Ontario Sale of Goods Act. This provision had long outlived its usefulness; in fact, it was a barnacle on the hull of modern commerce. The Ontario Government is to be commended for lopping it off so quickly and completely.

Judicial Saints Help Bless the New Electronic Era

Gregory was not alone in his pioneering efforts at making the commercial world a safer place for electronically concluded transactions. The judiciary was doing its part too.

An Ontario court made the important decision in 1999 that a contract can be concluded on a computer when the user clicked an "I Agree" button at the end of the set of terms and conditions displayed on the computer screen. The fact that not all the terms displayed on a single screen did not present an insurmountable hurdle: the court merely equated the multiple-screen, computer-based experience to the multiple-page paper contract. Sensible legal analysis was brought to bear by the judiciary.

It continued a few years later when another court in Ontario upheld a process whereby equity rights holders were being asked, by means of an e-mail message, to log into a website in order to review important shareholder meeting material, and then to cast their vote through the same online site. The court carefully reviewed the various features of this online process, compared them to the traditional paper-based process of shareholder communication, and concluded that in fact the new electronic method was superior to the paper-based predecessor process. Again, a solid judicial step in the right direction.

John Gregory's ECA Crusade

While episodic court decisions were heading in the right direction, still needed was quick, national law reform to implement a facilitative legal environment for e-commerce. Gregory saw the opening when the United Nations sculpted a model law for just this purpose.

Together with like-minded colleagues at other governments across Canada, Gregory brought the UN model law to Canada by translating into a Canadian template. Except for one holdout, and for Québec using a different statutory construct to achieve essentially the same result, all Canadian provinces and territories, and the federal government, then enacted e-commerce laws around the start of the new millennium.

Making Electronic Information Legally Effective

The ECA implements a series of legal principles that are very helpful to facilitating e-commerce. None is more important than the bedrock non-discrimination rule articulated in the ECA, namely that information is not ineffective merely because it is in electronic form.

That the principle is articulated in a double-negative manner makes sense, as the ECA can't, of course, provide that every electronic communication is legally effective. The doctrines of mistake, duress, capacity to contract and the like still operate in the online world. So the ECA simply provides that an electronic message will not be denied legal effect just because it is in electronic form.

The ECA also has a series of "functional equivalency rules" that stipulate how legal rules in other statutes surrounding the "writing requirement" can be discharged in the electronic world. Essentially, the ECA says that "Where a rule of law requires a writing or an original signature, here's how you do it electronically."

For example, when a certain statute provides that a notice must be provided to someone in writing, the ECA says this can be done electronically if the electronic information is accessible by the recipient and capable of being retained by them. Therefore, e-mail generally works, but merely posting the information to a website generally does not.

The ECA also very helpfully provides that a legal requirement that a document be "signed" is satisfied by an "electronic signature." In turn, an electronic signature is defined as any electronic information that a person creates or adopts in order to sign a document that is in, attached to or associated with the document. This allows a PIN and other online mechanisms to be used as signatures, including the type-written "signature" at the end of an e-mail.

Proceeding Electronically With Caution

The ECA is not perfect. It can only be used when both parties have consented to use electronic communications. Although it does accommodate implied consent, the law still favours paper: no consent is required to use paper-based messages.

As well, the ECA alone doesn't solve all of the riddles involved in doing online commerce in a legally effective manner. There are still holes: one territory still has not implemented an ECA-type law, one province has not enacted the full provisions of the model Canadian law, and another has an overly complicated electronic signature definition that is not in line with the rest of the provincial e-commerce laws. These holes are unfortunate, and it's high time to fix them. They cause embarrassment when a client asks for a legal opinion about an ECA-type issue on a Canada-wide basis (and many do). We simply need to finish properly the law reform effort started 10 years ago.

The other cautionary note is that while the ECA also makes it clear that offers, acceptances and other material contract formation matters can be expressed by means of electronic information, organizations must still ensure that the way they design and implement their websites and other online user experiences do actually create effective offers and acceptances. There is a growing body of jurisprudence where companies are failing to do so: not because the underlying messages are legally ineffective (the ECA solved that problem), but simply because the messages exchanged didn't properly constitute a consensus of the parties as to the key contract terms.

For example, in a number of cases the exchange of e-mail messages has failed to conclude an enforceable contract. There is no legal problem with each e-mail message itself; it is simply that the plethora of e-mail traffic between the parties failed to convince a court that the parties ever agreed to anything. In short, Gregory's law reform effort was done well, but it's up to organizations to use the law effectively.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

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