MICHAEL GEIST
Thursday, July 13, 2000
The slow pace of legislative change has often required judges to adapt existing laws to new technologies.
An Ontario judge recently faced this issue when Newbridge Networks, as part of its recent takeover by Alcatel, decided to use a novel electronic notice and voting procedure for the more than 4,000 officers, directors, and employees who held stock options in the company.
In reviewing the case, the judge provided the legal and business communities with some helpful advice for addressing future technological challenges.
Voicing his concern about proposed statutory amendments that are tied to current technological developments, Mr. Justice James Farley of the Ontario Superior Court warned against this practice, advocating instead that changes focus on the concepts and policies that underlie the statute. "Technology," the judge admonished, "should be the handmaiden of the law and not vice versa."
The Newbridge plan involved electronic notification of the voting process, sent via e-mail. Option holders could also vote electronically by e-mailing their vote to the company.
The Canada Business Corporations Act (CBCA), the governing corporate law statute, does not address the issue of electronic notice and voting. Accordingly, it fell to Justice Farley to examine the proposed procedure and to determine whether it complied with the law.
He approved the procedure, ruling that it was both reliable and secure. In fact, he reasoned, on balance, the electronic procedure was actually safer and more reliable than traditional notification systems such as posted mail.
He based his analysis on the password integrity that was built into the system, and on the fact that notification of non-delivery of notices is instantaneous, since undeliverable e-mails are immediately redirected back to the sender.
The judge also commented on the legal affect of both paper-based and electronic signatures. He noted that electronic signatures are often easier to verify than their paper-based counterparts.
Although the CBCA does not address the issue of electronic notice and voting, the federal government has proposed statutory amendments that would permit the use of electronic documents subject to the recipient's consent.
These proposed changes follow amendments to corporate laws at the provincial level. In March, Ontario amended its Business Corporations Act to allow electronic documents and the use of electronic signatures.
Justice Farley examined both the proposed and actual changes to the acts, and expressed concern that they narrowly focus on "the present state of technology."
Although the law does not specifically permit electronic notice and voting, the Newbridge procedure was approved, since it provided the functional equivalent of receiving notice through the mail with the necessary built-in integrity.
Justice Farley's common sense approach should be emulated as others attempt to adapt traditional laws to the Internet. Although new laws may be needed to address certain challenges, many existing laws are sufficiently robust to accommodate the Internet and new technologies. If the electronic approach provides equivalent protections and adequately addresses the policy concerns underlying the legislation, "old law" may be perfectly suited to deal with new issues.
Based on this analysis, not every electronic notice and voting process would pass legal muster. Care must be taken to avoid excluding people before rushing to embrace technological solutions. For example, the Newbridge procedure used so-called push technology, which ensured that e-mails were directed to the option holders. Others, however, might be tempted to simply post notice information on a corporate Web site, a far cry from the equivalent distribution of paper-based notice by mail.
Technology presents companies and their shareholders with great opportunities to embrace new communications vehicles. Until corporate law catches up to those possibilities, it is encouraging to see that Canada's judges stand ready to help the move toward more modern methods of corporate governance.
Michael Geist is a law professor at the University of Ottawa Faculty of Law specializing in Internet and electronic-commerce law. He can be reached at mgeist@uottawa.ca and on the Web at http://www.lawbytes.com.
