Legislative/Legal Challenges

On the legal/legislative side, a prime concern of any owner who receives an electronically generated bond is that the bond be as valid and legally enforceable as any paper generated equivalent. Addressing this key issue of enforceability is the primary purpose of the various electronic commerce laws passed by federal and provincial jurisdictions across the country. In 2000, Parliament passed the Personal Information Protection & Electronic Documents Act (PIPEDA). This is an umbrella legislation which established a template for provincial and territorial jurisdictions to follow; all of which passed their own electronic commerce legislation within two years of PIPEDA receiving Royal Asset. 

It’s important to remember that PIPEDA, like its related provincial and territorial statutes is “enabling” legislation that doesn’t impose a daunting regimen of restrictions. The purpose here is to create a legal environment that facilitates the use of electronic documents and promotes consumer trust in electronic commerce. 

One particular challenge that is unique to the surety industry is the issue of seals. From a legal perspective, a bond is not a true contract and must be validated by affixing the seals of executing parties. While PIPEDA and the provincial statutes all include clear provisions that set out what constitutes a valid and enforceable electronic signature, all but two (Ontario and Nunavut) are silent on the crucial issue of electronic seals. 

Fortunately, the Supreme Court of Canada has provided valuable guidance, however inadvertently, to sureties and brokers in their efforts to meet this challenge. In Friedmann Equity Developments Inc. v. Final Note Ltd. (2000 SCC 34SAC), the High Court ruled that for any document, electronic or otherwise, to be deemed as sealed, “…the application of the seal must be conscious and deliberate act” which establishes that the issuer intended to execute the instrument under seal.

When creating an e-bond, it’s fairly easy meet this condition by building the requirement for such a “deliberate and conscious act” right into the issuing process. For example, by clicking “YES” in a dialogue box, the bond issuer could establish the intent that the document is in fact issued under seal. The concept of a “deemed seal” is more fully described in the document; Exploring Electronic Pathways Together and in SAC’s Position Paper 020 – Seals on Surety Bonds.