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Electronic commerce expert groups report

Electronic Commerce: Building the Legal Framwork

Report of the Electronic Commerce Expert Group to the Attorney-General

31 March 1998

TABLE OF CONTENTS

EXECUTIVE SUMMARY
Overview
The Recommendations

CHAPTER 1. INTRODUCTION
The Report
Scoping Issues
Reader’s Guide to the Report

CHAPTER 2. LEGAL ISSUES
Introduction
UNCITRAL Model Law
Article 1. Sphere of application
Article 2. Definitions
Article 3. Interpretation
Article 4. Variation by agreement
Article 5. Legal recognition
Article 6. Writing
Article 7. Signature
Article 8. Original
Article 9. Evidence
Article 10. Retention of data messages
Article 11. Formation of contracts
Article 12. Recognition by parties
Article 13. Attribution
Article 14. Acknowledgement of receipt
Article 15. Time and place of dispatch and receipt
Articles 16 and 17. Carriage of Goods
Issues not dealt with by Model Law
Choice of Law

CHAPTER 3. ELECTRONIC SIGNATURES
Introduction
1. Electronic Signature Technology
2. Existing and Proposed Legislative Regimes
3. Conclusions

CHAPTER 4. RESOLUTION OF ISSUES
1. Summary of legal issues from Chapter 2
2. Options of resolution of Chapter 2 issues
3. Chapter 3 issues and conclusions
4. Form of legislation
5. Content of legislation

APPENDICES
1. Membership
2. Terms of Reference
3. UNCITRAL Model Law on Electronic Commerce
4. Glossary
5. Consultation
6. URL References

FOOTNOTES
Executive Summary Footnotes
Chapter 1 Footnotes
Chapter 2 Footnotes
Chapter 3 Footnotes
Chapter 4 Footnotes

EXECUTIVE SUMMARY

Overview

The rapid development of electronic commerce¹ is ushering in a new era of global communication and trade. Electronic commerce has implications for many facets of our economic and social life because it has the potential to fundamentally change the way commercial transactions, the business of government, the delivery of services and a host of other interactions are conducted, raising issues at the heart of policies directed at the regulation of traditional practices and procedures. Our interest in this Report is in how these changes will impact upon the law, both in Australia and internationally, and the extent to which Australian laws need to be updated to ensure that Australian business is given the opportunity to be at the forefront of electronic commerce internationally.

The need for legislation

In this Report we have identified a range of fundamental legal problems. Before considering particular solutions for those problems we identified broad policy options for the way in which these issues could be resolved. Our consideration of these options was based upon two important principles:

• achieving functional equivalence, which means that, as far as possible, paper based commerce and electronic commerce should be treated equally by the law; and
• the related principle of ensuring technology neutrality, which means that the law should not discriminate between forms of technology.

For the reasons given in Chapter 4 of this Report and summarised below, we have recommended the enactment of Commonwealth electronic commerce legislation. We believe we are recommending the minimum legislative requirements that will create a scheme of national application that reduces uncertainty about the use of electronic commerce and removes existing legal obstacles to its use, thereby resolving the particular problems we have identified. We have taken the view that Commonwealth legislation would be most effective in facilitating the implementation and conduct of electronic commerce in Australia.

A legislative electronic signature regime is not required

Consideration of the legal issues raised by electronic commerce is sometimes complicated by the discussion of electronic signatures, a term which is used to refer to a range of technologies intended to ensure the security and certainty of electronic commerce, and in particular one of these technologies, namely digital signatures. Many jurisdictions overseas have enacted or drafted legislation to facilitate the use of electronic signatures. We have analysed a number of these enacted or proposed legislative regimes in Chapter 3. These legislative regimes go beyond ensuring the legal effect of electronic signatures and their functional equivalence with paper based signatures.

It is our view that the enactment of legislation which creates a detailed legislative regime for electronic signatures needs to be considered with caution. There is the risk, particularly given the lack of any internationally uniform legislative approach, that an inappropriate legislative regime may be adopted without regard to market-oriented solutions. Given the pace of technological development and change in this area, it is more appropriate for the market to determine issues other than legal effect, such as the levels of security and reliability required for electronic signatures. Accordingly, we have recommended that legislation should deal simply with the legal effect of electronic signatures. While a number of articles in the Model Law deal with electronic signature issues that go beyond legal effect, it is our view that these issues should be left to the existing law in Australia. Whether the existing Australian law deals with these issues adequately or not, the same situation should apply to both paper based commerce and electronic commerce. At this stage we are not persuaded of the need to give a legislative advantage to electronic commerce not available to traditional means of communication. If a clear need to deal with these issues appears in the future the recommended legislation can be amended.

The next step

This Report should be regarded as the first step in a process of research, analysis and consultation that will culminate in appropriate and necessary legislation. We note that our Terms of Reference foreshadowed this process, as follows:

(5) As appropriate, the Attorney-General’s Department will refer the report to a more broadly constituted group for development of the necessary legislation. Wide consultations will take place with State, Territory and Commonwealth governments, government sector agencies, the private sector, EDI advisory bodies and consultants.

In our view this process should be commenced with a period of public consultation on the Report to gather domestic and international opinion on our recommendations and the development of legislation to give effect to them. This process will be assisted by making the Report as widely available as possible, including on the Internet.

The Recommendations

In summary, Chapter 1 of the Report contains the Introduction and Reader’s Guide (paras 1.24 - 1.29). The discussion of the legal issues in Chapter 2 is based upon the issues identified in the UNCITRAL Model Law on Electronic Commerce. Chapter 3 focuses upon electronic signatures. Chapter 4 contains our analysis of the issues previously identified and our recommendations. The recommendations are extracted here with a brief description of the relevant issues.

Options for resolution of Chapter 2 issues (paras 4.2.1 - 4.2.14)

Our recommendations in relation to the particular legal issues raised in Chapter 2 appear below (recommendation 5 and following). However, at the broad policy level we identified three options for resolving the legal issues raised in Chapter 2:

(a) encouraging parties to resolve the issues by contract;

(b) taking no action at this stage and leaving it up to the courts to determine how existing law will apply to new technologies; or

(c) enacting legislation to update the law.

While a contractual approach could be equated with minimising regulatory burdens upon government and business, any potential benefits are likely to be outweighed by the level of uncertainty created and the need for resolution of issues by the courts. Leaving disputes to the courts to resolve in individual cases will only achieve certainty in respect of particular factual situations after litigation, while solutions achieved through litigation are likely to be piecemeal and may not be able to be applied uniformly. In addition, the widespread scale and impact of the electronic environment will make it very difficult for the issues to be addressed on a case by case basis. It is our view that legislation would:

(a) directly remove legal impediments to the implementation of electronic commerce;

(b) ensure certainty as to the application of the law to electronic commerce and enhance business and consumer trust and confidence;

(c) minimise costs and litigation;

(d) be applied to a wide range of transactions, facilitating both related and un-related transactions;

(e) satisfy the objective of minimising regulatory burdens upon government and business by adopting a minimal approach and simply ensuring functional equivalence between paper-based and electronic transactions;

(f) provide a vehicle for the harmonisation of laws governing electronic commerce across Australia; and

(g) facilitate the cross-border recognition and enforcement of electronic transactions and signatures.

Chapter 3 - issues and conclusions (paras 4.3.1 - 4.3.5)

Chapter 3 considered the particular issue of electronic signatures. The chapter contains both an overview of the technology as well as an analysis of important enacted or proposed legislative regimes in a number of jurisdictions. As many jurisdictions have enacted such legislation, we considered it essential to examine this issue and determine whether electronic commerce legislation in Australia should deal in a similar degree of detail with electronic signatures. However, having considered the various legislative regimes set out in chapter 3, we recognise the strength of the argument against detailed electronic signature legislation. While at this stage we do not recommend a broader regime which deals with specific types of electronic signatures or establishes a framework for specific technologies, in our view what is required is a principled approach to the issue of electronic signatures. Article 7 of the Model Law provides an appropriate model for Australia to address the threshold issue of legal recognition of electronic signatures.

In our view international developments concerning electronic signatures should continue to be monitored and Australia should, where appropriate, be an active participant in these developments.

Form of legislation (paras 4.4.1 - 4.4.13)

We considered three possible options for legislative change.

While it would be possible to amend all provisions, at State, Territory and Commonwealth levels, which do not appear to apply to electronic commerce, the identification and implementation of these changes would be a very large task and require a major survey of existing legislation to identify relevant impediments. The sheer size of that task renders it inappropriate.

Alternatively, uniform State and Territory legislation could be enacted. However, this may take some time to achieve Australia-wide, resulting in a potential patchwork of regulation. There is the added possibility that a uniform regime might not be achieved if some jurisdictions were to choose to pursue different solutions. Given the relatively small size of the Australian market, the adoption of different legislative solutions in different States and Territories has the potential to hinder both the development of electronic commerce and the realisation of the benefits to be gained, both nationally and internationally, by contracting electronically.

It is our view that framework Commonwealth electronic commerce legislation, by which all other laws would be interpreted, should be enacted. A common national framework and regulatory scheme is required. The enactment of Commonwealth legislation would bring the benefit of a single solution to many of the legal issues raised by electronic commerce and a regime that applied to the whole of the Australian trading community as at a certain date. It would bring together all the changes needed to facilitate the development of electronic commerce and, if necessary, provide a vehicle for future updating of the law in response to technological development.

Content of legislation

(a) General issues (paras 4.5.1 - 4.5.34)

A number of general issues about the content of the recommended legislation need to be determined.

Technology neutrality

In our view legislation facilitating electronic commerce should be technologically neutral, that is to say, the legislation should not discriminate between forms of technology, including paper. However, we note that pure technological neutrality would imply significant limits on the scope of legislators or regulators to ascribe detailed legal consequences to electronic signature mechanisms, if those consequences depend upon assumptions about reliability or security which may be true of some, but not other, signature mechanisms. In our view flexibility and neutrality should take precedence over ascribing particular legal consequences at this stage.

Scope

The legislation should apply to data messages used in trade or commerce or with government.

Exceptions

We have not developed a definitive set of exceptions and it is our view that the issue of exceptions to the legislation needs to be considered further. Consideration should be given to both general and specific exceptions. A general exception could be in the form of a provision to the effect that the legislation would not apply where a contrary intention of the Parliament was apparent. However, it is our view that ideally, in the interests of greater certainty, there should not be a general exception. Specific exceptions could be related to particular instruments or transaction types - for example, wills, powers of attorney, negotiable instruments, trusts, title documents and some consumer transactions. It may be desirable to provide for a regulation making power to include other categories of exceptions to cover unforeseen cases. We do not express a view as to the best legislative mechanism to provide for exceptions.

Variation by agreement

A balance must be struck between the extent to which legislative provisions should be subject to variation by agreement between parties and the extent to which they should be mandatory. It is our view that any existing mandatory form requirements should be retained, and similarly that any existing ability to vary terms by agreement should be retained. To the extent that the issue is not dealt with by the existing law, the balance struck by the Model Law is acceptable. We note that the standards set by the proposed provisions discussed below will be minimum standards. Where the parties agree to set higher standards they should not be prohibited from doing so. However, to ensure that inappropriate or inadequate provisions are not imposed upon the weaker parties to a contract it is our view that where the parties agree to any variation of the standards reliance on the variation should be subject to a reasonableness test analogous to that set out in subsection 68A(3) of the Trade Practices Act 1974.

(b) Specific provisions

(i) Legal recognition (paras 4.5.36 - 4.5.37)

At present there is no law in Australia which either explicitly recognises or denies the general principle that information, records and signatures in an electronic form should be given legal effect. It is our view that, for the avoidance of doubt and to increase certainty, such a provision should be enacted. In our view article 12, which deals with data messages that are related to the performance of obligations, is a particularised application of article 5 and should not be dealt with separately.

(ii) Writing (paras 4.5.38 - 4.5.42)

The law in Australia includes a number of different form provisions which require a document to be in writing. In a number of instances, it is unlikely that an electronic form of document or signature would satisfy these requirements. It is our view that a data message should satisfy any requirements for information to be in writing.

(iii) Signature (paras 4.5.43 - 4.5.50)

The law in Australia includes a number of different form provisions for a signature or for documents to be signed. It is our view that legislation should give legal effect to electronic signatures, subject to certain minimum standards. The formulation proposed in article 7 - that as a threshold issue authentication technology must ensure author identity and content approval to achieve functional equivalence - goes sufficiently far enough in providing for the legal recognition of electronic signatures. However, bearing in mind Term of Reference 2(a) which requires us to minimise the regulatory burden on business and government, it is our view that legislation should not, at this stage, go any further (and recommendation 2 reflects this view).

(iv) Original (paras 4.5.51 - 4.5.54)

Article 8 of the Model Law focuses upon the integrity of information and the ability to present it where this is a requirement. There is no general provision in the law in Australia to allow a data message to satisfy requirements for an original. In our view it is important to ensure functional equivalence between data messages and paper documents in this respect. Accordingly, a provision allowing data messages to satisfy requirements for an original, subject to requirements about the integrity of the data message, should be enacted. We note that, in assessing integrity, article 8 requires that the information should be complete and unaltered and that the reliability of the assurance as to integrity should be assessed in the light of the purpose for which the information was generated and all relevant circumstances. These requirements form a satisfactory basis for determining information integrity.

(v) Evidence (para 4.5.55)

A number of Australian jurisdictions have adopted legislative provisions dealing with the admissibility and evidential weight of electronic documents/data messages. These provisions, however, are not uniform, although a number of States are considering adopting the uniform Evidence Act that has been enacted in the Commonwealth and NSW.

(vi) Retention of data messages (paras 4.5.56 - 4.5.59)

A uniform approach to retention and management of electronic records is lacking. Few laws simply allow the retention of information in an electronic form in all cases. It is our view that record retention requirements should apply equally to information in paper or electronic form. Record management systems should be standardised at a technical and policy level, based as far as possible on a common definition of what constitutes an electronic record and the criteria to be satisfied in terms of accessibility, integrity and identification.

Article 10 sets out the basic requirements for storage of information as data messages: accessibility; integrity; and retention of transmittal information so as to enable identification of the data message. In our view article 10 provides an appropriate basis for development of such provisions, subject to limitations where physical attributes are integral to the information being retained.

(vii) Formation and validity of contracts (paras 4.5.60 -4.5.62)

While there may be instances where it is not certain whether the particular elements required for the conclusion of a valid contract by means of data messages exist, the issue is ultimately one of fact. However, it is our view that leaving this issue to be determined by the courts on the facts of each particular case would lead to commercial uncertainty. Article 11 removes the uncertainties as to the validity of contracts concluded by electronic means. In our view a provision based on article 11 should be enacted to avoid uncertainty.

(viii) Attribution of data messages (paras 4.5.63 - 4.5.79)

Article 13 moves beyond the existing common law position in Australia that applies to paper-based transactions by presumptively allocating the risk of loss arising from unauthorised or altered messages to the apparent originator rather than the addressee. This does not remove any existing legislative obstacles; instead, it creates new legislative rules for the distribution of commercial risk between the originator and addressee of data messages in electronic commerce. It is our view that such a legislative allocation of commercial risks may involve incorrect guesses about efficient and fair business practices across a range of commercial contexts and may have serious unintended consequences. We have generally taken the view in this Report that legislation should not create rules which either prefer or disadvantage electronic commerce compared with paper-based commerce. The law should not seek to place addressees of electronically signed data messages in a better position than addressees of manually signed paper-based messages. Accordingly, at this stage legislated attribution rules should not go beyond restating the common law.

While we believe it is appropriate to allow the parties to agree to attribution rules, we are mindful of the need to protect weaker parties from having unfair attribution and risk allocation rules imposed on them through contract. In our view this problem can be dealt with by adopting a provision to the effect that parties can establish their own attribution and risk allocation rules by agreement but that a party cannot rely on agreed rules of attribution unless it is fair and reasonable to do so in all the circumstances (which is similar to subsection 68A(3) of the Trade Practices Act 1974). A non-exhaustive list of matters relevant to evaluating fairness and reasonableness should include:

• the reliability and security of any procedures which are used by the originator and addressee to authenticate the originator of the data message or to ensure that the content of the message received is the same as that which was sent; and
• the reliability and security of the access device used by the originator to operate such procedures.

(ix) Acknowledgment of receipt (paras 4.5.80 - 4.5.83)

We are not persuaded that special rules dealing with acknowledgments in the context of data messages are required at this time. We have taken the approach that legislation should only be considered to facilitate the implementation and conduct of electronic commerce in Australia and have therefore only recommended legislative intervention where necessary to avoid uncertainty or to remove obstacles to the use of electronic commerce. To the extent that existing legislation or common law deals with these issues, it is our view that the same situation should apply to electronic commerce.

(x) Time and place of dispatch and receipt of data message (paras 4.5.84 - 4.5.90)

There is some uncertainty as to how rules applying to dispatch and receipt of paper documents are applicable to data messages which in our view should be resolved by legislation. In relation to the time of dispatch of a data message the approach in article 15, which relies upon the data message entering an information system outside the control of the sender, should be followed.

However, with respect to time of receipt, it is our view that the series of rules set out in article 15 are too complicated. A simpler and preferable approach would be to rely upon the recipient’s ability to retrieve the information and, as a fall back position, upon the information coming to the attention of the recipient.

In respect of place, article 15 reflects the fact that the location of information systems is irrelevant to the use of electronic communications and adopts a more objective criteria, namely the place of business of the parties. This approach should be followed.

Where the originator and the addressee are in different time zones, the tests set out in article 15 have the potential to create the situation where a message may be deemed to have been received by the addressee before it was sent by the originator. Accordingly, all time should be referenced to Universal Time/Greenwich Mean Time.

(xi) Carriage of goods (para 4.5.91)

Uniform legislation dealing with the application of rights, such as title to sue, to electronic sea carriage documents has been developed and is currently being adopted by States and Territories.

(xii) International framework (para 4.5.92)

The global nature of today’s network environment challenges the abilities of national governments to address issues of electronic commerce on their own.

(xiii) Other issues (para 4.5.93)

1.1 Around the world electronic commerce is the subject of intense interest in many sectors - in government, business, service sectors, amongst consumers, and academics. Electronic commerce has expanded from the closed world of business to business transactions between known parties to encompass a complex web of different activities involving large numbers of individuals, many of whom will never meet each other. It has implications for many facets of economic and social life and its development is ushering in a new era of global communication and trade. It has the potential to fundamentally change the way commercial transactions, the business of government, the delivery of services and a host of other interactions are conducted, raising issues at the heart of policies directed at the regulation of traditional practices and procedures. Of greatest impact is the shrinking of the distance between producers and consumers, in an environment where geographical and political boundaries are no longer as significant as in the paper-based world. Our interest in this report is in how these changes will impact upon the law, both in Australia and internationally, and whether any laws need to be made or amended to ensure that Australian business is given the opportunity to be at the forefront of electronic commerce internationally.

1.2 While many of these changes provide a significant challenge to existing regulatory structures, and sometimes may be regarded as having a negative impact upon accepted rules and practices, electronic commerce will, at the same time, provide a host of opportunities. It will reduce the cost of transactions, reduce barriers to entry into business and in some cases remove the necessity for a physical presence in any particular market, as well as providing improved access to information to consumers.

1.3 There are many facts and figures cited about Internet usage, the types and patterns of domestic and international Internet commerce, about the growth of the Internet and its projected future. The conflicting information makes it difficult to assess accurately exactly where the Internet fits in terms of its overall impact on commerce and trade, to ascertain the magnitude of the problems being encountered with its use and to use that information to ensure that business decisions and policy responses by government are appropriate.

1.4 Although the electronic commerce market today may be relatively small in comparison to other types of commerce, nearly all analysts predict growth by a factor of ten by the year 2000,¹ but even then it will only be about the size of mail order catalogue sales in the United States today.² Some suggest that by 2000 the global value of goods and services transacted over the Internet will be around US$100 billion to US$150 billion per year (the current value is around US$3 billion per year), although it is difficult to predict how much of this increase is new or value added.³ Others suggest that the current extent of world wide Internet commerce is about US$500 million, with expected growth in the next three to four years to at least US$5 billion.⁴ Forrester Research expects business-to-business commerce to top US$8 billion in 1997, a tenfold increase over 1996, and predicts that it could reach US$327 billion by 2002.⁵ Optus has estimated the value of electronic commerce in Australia by 2000 will be A$2 billion.⁶

1.5 A recent survey by Nielsen Media Research⁷ indicates that some 58 million adults in the United States and Canada are now online, a 15% increase on estimates made 6 months ago. However, in Australia growth in Internet use is currently of the order of 2 to 5%, compared with 12% at the beginning of 1997. But while growth in user numbers may be declining, growth in Internet traffic is increasing, with existing users consolidating their usage patterns.⁸ Neilsen Media Research indicates that the number of people who had bought something over the Internet in the United States had increased 50% in the last 6 months of 1997, to nearly 10 million.⁹ In December 1997 Nielsen Netwatch Survey has reported that 900,000 Australians - 6% of the population aged 14 or over - had ordered goods on the Internet, compared with 2% in 1995. The main items being purchased were books, CDs, wine, computers and information technology products. In addition, 38% of Internet users had used the Internet to browse for potential purchases.¹⁰

1.6 While attention has focussed upon consumer sales, the biggest electronic commerce market currently involves business supplying products to other businesses, where individual transaction values exceed all estimates of the business-consumer market.¹¹ A recent Wall Street Journal survey¹² of American small business found that 81% are actively employing the latest telecommunications products and accessing the Internet. 87% of those surveyed use the Internet as an information resource, 74% for external communications, 62% for data exchange, 49% for marketing and advertising and 48% for corporate communications.

1.7 One of the principal difficulties in measuring Internet usage relates to the definition of electronic commerce and what is included for statistical purposes, and serves to underline the problem of collecting accurate and reliable information upon which government can base policy responses and business investment decisions. Despite the difficulties of precise measurement, there are general (and definite) indicators of increasing growth and usage. Care must be exercised, however, in generalising from those trends to conclude that usage is widespread in all sectors of the economy and that, by necessary implication, users are encountering problems of significant magnitude at this early stage.

1.8 Clearly the setting for electronic commerce is different to that which exists for paper exchanges. This raises a number of legal issues, and challenges, of both domestic and international significance. As Johnson and Post¹³ point out:

Cyberspace radically undermines the relationship between legally significant (online) phenomena and physical location. The rise of the global computer network is destroying the link between geographical location and (1) the power of the local government to assert control over online behaviour; (2) the effects of online behaviour on individuals or things; (3) the legitimacy of the efforts of a local sovereign to enforce rules applicable to global phenomena; and (4) the ability of physical location to give notice of which sets of rules apply.

1.9 An important issue, often raised in the context of ensuring that electronic commerce reaches its full potential, is how to build business and consumer confidence in the security of electronic transactions which occur on the Internet between parties that do not have a pre-existing relationship. While any lack of confidence may have its origin in a number of factors, some real and some imagined, it seems clear that trust and confidence are important parts of the growth of electronic commerce. There must be confidence that the infrastructure which already exists for paper exchanges can also be established for electronic exchanges, so that: services and networks are secure and reliable; transactions are safe and private; there are ways to prove the origin, receipt and integrity of information received; there are ways to identify the parties involved; and there are appropriate redress mechanisms available if something goes wrong.¹⁴

1.10 While the setting for electronic exchanges may be different, the belief that the technological revolution of necessity entails the need for a legal revolution of the same magnitude is unwarranted, a fact recognised in Australia by the Information Industries Taskforce Report.¹⁵ In a number of areas, little change to existing law is required and the necessary modification and adjustments are readily to hand. In some cases, modification has already occurred to facilitate electronic commerce, but the changes have been limited in scope, sometimes creating a need for both paper and electronic documents to be retained.¹⁶ In other areas, new laws and policies may need to be developed, but only after careful consideration and when it is clear just where technology is leading and how it will be used.

1.11 In some jurisdictions, the early adoption of legislation on digital signatures, for example, has not led to the increased take-up of new technology as anticipated.¹⁷ Rather, legislation has been bypassed because it has been regarded as not providing appropriate, market-oriented, non-regulatory solutions. Some of that legislation is now regarded as a better example of what not to do, than as a model which should be followed.¹⁸ A number of laws currently being drafted in the US have undergone significant changes in the course of the drafting process and more can be expected before they reach their final form.¹⁹ As lawyers’ understanding of the technology grows, and as the uses and applications of the technology develop, in concert with the development of appropriate business models, appreciation of the need for legislation and what is required in terms of its form and content have also changed.

1.12 It is clear that what needs to be avoided at this early stage is an undue rush to legislation where none is needed, or where the need for it has not yet been clearly demonstrated. This is particularly so in Australia where there have been, as yet, few cases decided in the courts dealing with the issues targeted as likely to cause problems in electronic commerce. In other words, it is difficult to judge the magnitude of legal problems being encountered, at least in terms of measuring them through recourse to traditional means of resolution through litigation, although it is clear that some action to remove obvious legal obstacles would certainly facilitate electronic commerce.

1.13 A number of tensions have emerged from the electronic commerce regulation debate. Daniel Greenwood, Deputy General Counsel for the Commonwealth of Massachusetts, sums up these tensions in this way:

A number of voices have sounded the alarm to be aware of the “wild west” of cyberspace. Some advocate enactment of an array of protective comprehensive statutes, tailored to meet the special host of issues presented by the new information technologies. It is doubtful that any particular suite of laws would be sufficient, or desirable as a legal response to the information age. It may be more accurate to say that nearly all fields of law will undergo a transition that reflects and shapes the underlying movement toward electronically based information and communication. When our civilisation transition [sic] to the industrial age, our legal system did not adapt by the mere addition of a new area of “industrial law”. Rather, nearly every area of law was transformed by, and helped to create, the new economic, social and political realities associated with the industrial revolution and our subsequent industrial civilisation. Similarly the pervasive information revolution will relegate many currently familiar concepts to irrelevant historical curiosities. The meaning of signature will certainly be among the definitions to evolve. Yet, the law has proven to be resilient and capable of undergoing dynamic reshaping over the centuries.²⁰

1.14 In addition to the tensions raised by the electronic commerce regulation debate which is occurring on a domestic basis, international considerations must also be taken into account.²¹ A number of international organisations are currently working on projects which have the potential to significantly influence the direction of domestic regulation in a number of areas relevant to electronic commerce.²² Australia is actively engaged in those projects. This international work should be carefully monitored to ensure that the Australian settings not only assist Australia's competitive advantage, but also keep Australia in conformity with international norms, while ensuring that the economic, social and cultural benefits of new technology are maximised.

The Report

1.15 Recognising the growing importance of electronic commerce and the need to consider legal infrastructure issues in order to facilitate its further development, in July 1997, the Attorney General, the Hon Daryl Williams, announced the establishment of an advisory group to consider the legal issues arising from the development of electronic commerce and to report to him on the form and scope of the appropriate arrangements for regulation, if any, of electronic commerce.²³ The Terms of Reference²⁴ indicate that the Report is intended to be the first step in this process and foreshadow that the Report may be referred to a more broadly constituted group for development of the necessary legislation.²⁵

1.16 Our task was to focus on a number of key objectives, including the need to increase the overall efficiency of electronic commerce transactions, the need to resolve the legal uncertainties which are often cited as an impediment to the adoption of electronic commerce, and the appropriate means of updating the law to take account of technological change. Our membership included representatives from industry associations, business, the legal profession and government. The membership and Terms of Reference appear at Appendices 1 and 2.

1.17 In preparing this report, we worked with a small secretariat including the Chair of the Group and a legal officer of the Attorney-General’s Department. Submissions were invited on the Terms of Reference and on an Issues Paper²⁶ which provided a summary of the matters to be included in our deliberations. A list of contributors can be found at Appendix 3.

1.18 Cognisant of the need to consider legal infrastructure issues in an international context, we reviewed developments in the regulation of electronic commerce in a number of overseas jurisdictions, both as they relate to adoption of the United Nations Commission on International Trade Law’s (UNCITRAL) Model Law on Electronic Commerce and to issues of electronic signatures. Where appropriate, relevant provisions are discussed in this report.

Scoping Issues

1.19 As our Terms of Reference were relatively broad, a number of decisions as to what this Report would cover were made. The focus of this Report is essentially upon trade and commerce.²⁷ The term trade and commerce is used in many Commonwealth Acts to delimit their scope of operation and we are adopting the same delimitation here.

1.20 The Report considers in particular the aspects of law that may need to be addressed to facilitate commercial contracting in an electronic environment. The UNCITRAL Model Law on Electronic Commerce uses the term “commercial” and guidance on the meaning of that term may be gained from the definition used in the Model Law.²⁸ To ensure consistency, this definition is identical to the definition used by UNCITRAL in the Model Law on International Commercial Arbitration.²⁹ The UNCITRAL definition of commercial is, however, very broad and covers a number of areas in which electronic commerce may raise particular issues. For reasons of time and resources, we have not been able to consider specific sectors covered in that definition and the particular issues raised by the greater use of electronic commerce. So, for example, we have not considered issues raised specifically in the financial sector, but rather have focussed upon broader generic issues of contract formation and statutory form requirements such as requirements for certain contracts to be in writing or signed. However, a number of these issues are being considered elsewhere in the Commonwealth.³⁰

1.21 Electronic commerce is a broad concept that covers any commercial transaction that is effected via electronic means and would include such means as facsimile, telex, EDI, Internet, and the telephone. For the purpose of this report the term is limited to those trade or commercial transactions involving computer to computer communications whether utilising an open or closed network.

1.22 A number of submissions to the ECEG have emphasised the importance to any consideration of electronic commerce legal issues of a range of other legal topics including security, privacy, copyright, law enforcement, credit reporting, financial and retail sectors and taxation. Since a number of these issues are being considered by other groups (see para. 20 above) they are not therefore addressed in this report, except where they may be relevant to the issues included in this report.

1.23 The consideration of electronic commerce is sometimes complicated by discussion of one of the methods intended to ensure the security and certainty of electronic commerce, namely electronic signatures. This report considers electronic signatures in Chapter 3 to assist in the determination of the appropriate legal framework for electronic commerce. However, the particular issue of the implementation of a public key authentication framework or infrastructure is being considered by the National Public Key Infrastructure Working Group which is due to report to Senator Alston at the end of March 1998 (see Chapter 3, paras 3.0.7-3.0.10).

Reader’s Guide to this Report

1.24 The Executive Summary extracts the recommendations of this Report. The remaining chapters of this Report summarise the legal issues, examine the issue of electronic signatures, and, after considering the issues and the options for further action, make a series of recommendations. While Chapters 2 and 3 contain detailed background information necessary for the discussion and resolution of the issues in Chapter 4, it is not necessary to read Chapters 2 and 3 to understand the recommendations. Readers who wish to quickly inform themselves of the reasoning behind, and the substance of, the Expert Group’s recommendations should turn straight to Chapter 4.

1.25 Chapter 2 - The Legal Issues, which is purely descriptive, follows the articles of the Model Law. Chapter 2 does not attempt to analyse the articles of the Model Law, nor does it consider the suitability or otherwise of the articles for adoption into Australian law. It is arranged as follows:

• citation of the article of the Model Law (in italics);
• summary of the explanation from the UNCITRAL Guide to Enactment to the Model Law for that article (set out in a box on the page);
• references to relevant provisions and commentary, if available, from other countries where there are draft or enacted provisions based on that article of the Model Law; and
• examination of the current law in Australia in so far as it is relevant to the article of the Model Law (this examination is indicated by a heavy line in the right margin of the page).

1.26 Chapter 2 concludes with a brief examination of the choice of law rules in Australia to the extent that they are relevant to electronic commerce.

1.27 Chapter 3 - Electronic Signature discusses electronic signature technology and reviews legislation on this topic in international jurisdictions. Chapter 3:

• provides a brief overview of signature technology;
• discusses existing and proposed digital signature legislation in a range of jurisdictions around the world; and
• draws conclusions on the need for specific electronic signature legislation.

1.28 Chapter 4 - Resolution of Issues identifies areas where the law in Australia may need to be updated to facilitate electronic commerce, discusses options for reform and makes a series of recommendations. The Chapter is arranged as follows:

• summary of legal issues identified in Chapters 2 and 3;
• options for resolution of the issues;
• chapter 3 issues and conclusions;
• scope of legislation;
• form of legislation;
• content of legislation, including the general issues of technology neutrality, scope of legislation, exceptions to legislation and variation by agreement, and the specific issues summarised at the start of the Chapter;

1.29 The report also contains a number of appendixes, which comprise the membership and terms of reference of the Expert Group, the UNCITRAL Model Law, a glossary, a list of submissions received and a list of useful references with Internet addresses.

Back to Table of Contents

INTRODUCTION

I. General background

2.0.1 The United Nations Commission on International Trade Law (UNCITRAL) completed work on the development of the Model Law on Electronic Commerce (Model Law) and the accompanying Guide to Enactment in 1996¹.

2.0.2 The purpose of the Model Law is to offer national legislators a set of internationally acceptable rules as to how a number of legal obstacles to the development of electronic commerce may be removed, and how a more secure legal environment may be created for electronic commerce. Work on the Model Law was undertaken in recognition of the fact that in most situations, national legislation is either “outdated” or “inadequate” on the negative basis that it does not contemplate electronic commerce, or on the basis that it positively restricts the use of electronic commerce by including requirements that do not easily translate into an electronic environment, for example by requiring “writing”, “signing” or “originals”.

2.0.3 The text was settled by UNCITRAL as a Model Law, rather than as a treaty or convention, in order to provide a template for national legislatures and serve as a guide for individuals using electronic commerce in drafting contracts to overcome any legal difficulties presented by electronic commerce. As such, there are a number of ways national legislatures could give effect to the Model Law. For example, it could be adopted in whole or in part²; it could provide the basis for new legislation; or provisions of existing national laws could be amended to reflect the principles set out in the Model Law. In preparing the Model Law, there was general agreement on the usefulness of providing additional information in a commentary which could assist States in enacting and applying the text. The Guide to Enactment was considered by the Working Group on electronic Commerce and its final form is a distillation of the views, suggestions and concerns of that Working Group.

2.0.4 At an international level the Model Law may be useful in certain cases as a tool for interpreting existing international conventions and other international instruments that create legal obstacles to the use of electronic commerce, for example by prescribing that certain documents or contractual clauses be made in written form. As between those States that are parties to such international instruments, the adoption of the Model Law as a rule of interpretation might provide the means to recognise the use of electronic commerce and obviate the need to negotiate a protocol to the international instrument involved.³

2.0.5 The Model Law is considered in this report because it provides a starting point for identification and discussion of areas where the law could be updated to take account of new technology, as well as setting out internationally settled provisions for dealing with those issues. It is not intended that this discussion be limited to the terms in which the Model Law is drafted.

2.0.6 In summary, the Model Law establishes rules that validate and recognise contracts formed through electronic means, sets default rules for contract formation and governance of electronic contract performance, defines the characteristics of a valid electronic writing and an original document, provides for the recognition of electronic signatures for legal and commercial purposes, and supports the admission of computer evidence in courts and arbitration proceedings.

II. Jurisdictions proposing to adopt provisions of the Model Law

2.0.7 The Model Law has informed the debate on electronic commerce legislation (as distinct to legislation dealing exclusively with electronic signatures) in a number of jurisdictions, particularly in the United States of America.⁴ Relevant provisions from this legislation and, where available, the associated commentary are included throughout this report as examples of how the Model Law provisions have been adopted, and the reasoning behind their inclusion. They may not provide good examples of the precise terms in which the provisions could be adopted and drafted in Australia as they need to be considered in conjunction with the laws of the jurisdictions from which they are taken. The Uniform Electronic Transactions Act, for example, which is being drafted by the US National Conference of Commissioners on Uniform State Laws, needs to be considered in conjunction with the United States Uniform Commercial Code which it is intended to supplement.

2.0.8 While few jurisdictions have adopted or adapted legislation dealing with the range of issues in the Model Law at this stage, a large number of jurisdictions have focussed on the particular aspect of electronic signatures and enacted laws dealing with that issue. However, now that jurisdictions have dealt with the immediate issue of electronic signatures, the wider issues dealt with in the Model Law are being considered in several jurisdictions.⁵

2.0.9 The following (draft or enacted) legislation has been referred to in the body of this Report where relevant (following Australian practice, draft legislation is referred to as a Bill). Of particular use is the draft Uniform Electronic Transactions Act (25 November 1997 draft) (Uniform Bill) being prepared by the US National Conference of Commissioners on Uniform State Laws (NCCUSL). The NCCUSL, which is comprised of commissions on uniform laws from each state, the District of Columbia, the Commonwealth of Puerto Rico, and the U.S. Virgin Islands, studies and reviews the law of the states to determine which areas of law should be uniform.⁶ The Uniform Bill⁷ has adapted articles 2(a) and (f), 4, 5, 6, 7, 8, 9, 10, 11, 14 and 15 of the Model Law.

2.0.10 Legislative developments in Illinois and Massachusetts are also of particular interest.⁸ The draft Illinois Electronic Commerce Security Act (15 December 1997 draft) (Illinois Bill)⁹ has adapted articles 2(a), 4, 5, 6, 7, 8, 9, 10 and 13 of the Model Law. Massachusetts has prepared the Electronic Records and Signatures Act (4 November 1997 draft) (Massachusetts Bill)¹⁰ which has adapted articles 5, 6, 7, 8, 9, and 10 of the Model Law.

2.0.11 In British Colombia a section on the use of data records has been inserted into the Offence Act, R.S.B.C. 1996, c. 338 by the Miscellaneous Statute Law Amendment Act (no.2) S.B.C. 1997 c.28, which was given the Royal Assent in July 1997.¹¹ The section adopts modified versions of articles 6, 7, and 8 of the Model Law, and also includes subsections dealing with the integrity of the data record and the use of data records to make statements under oath. A provision has also been inserted to allow the courts to make an order validating the service of documents where the documents have been served on a person electronically.

2.0.12 In addition to the above examples referred to in this Report, there are a number of other jurisdictions adopting provisions of the Model Law. For example, the Danish Government stated its intention to enact legislation on digital signatures and electronic documents in a document called ‘Electronic Commerce in Denmark - a national EDI plan’, published by the Ministry of Research and Information Technology in November 1996.¹² Initiative 6 of the plan states that during the Parliamentary session in 1996/1997, the Minister for Research and Information Technology would present a Bill on digital signatures and the legal status of electronic documents. When enacted, this Act would place electronic documents on an equal footing with paper documents, so that legislative requirements of "in writing" and/or "signature" would also be satisfied by "electronic documents" and "digital signature", removing uncertainties on the validity of electronic documents. Italian digital signature legislation was enacted in March 1997, and regulations were enacted by decree in November 1997. While we understand that this legislation adapts some of the articles of the Model Law, we are not aware of any publicly available English translation.¹³ Singapore¹⁴ has indicated that it will enact a commercial code based on the Model Law and legislation to provide for the recognition of digital signatures and a public key infrastructure.

III. The content of this Chapter

2.0.13 This Chapter, which is purely descriptive, follows the articles of the Model Law. The complete text of the Model Law is set out at Appendix 3.

2.0.14 This Chapter does not consider the suitability or otherwise of the articles for adoption into Australian law. This is left to Chapter 4, which identifies areas where the law in Australia may need to be updated to facilitate electronic commerce, discusses options for reform and makes a series of recommendations. This Chapter is arranged as follows:

• citation of the article of the Model Law (in italics);
• summary of the explanation for that article from the Model Law Guide to Enactment (surrounded by a box on the page);
• references to relevant provisions and commentary, if available, from other countries where there are draft or enacted provisions based on that article of the Model Law; and
• examination of the current law in Australia in so far as it is relevant to the article of the Model Law (this examination is indicated by a heavy line in the right margin of the page).

2.0.15 This Chapter concludes with a brief examination of the choice of law rules in Australia to the extent that they are relevant to electronic commerce.

This Law** applies to any kind of information in the form of a data message used in the context*** of commercial**** activities.

Notes

* The Commission suggests the following text for States that might wish to limit the applicability of this Law to international data messages:

“This Law applies to a data message as defined in paragraph (1) of article 2 where the data message relates to international commerce.”

** This Law does not override any rule of law intended for the protection of consumers.

*** The Commission suggests the following text for States that might wish to extend the applicability of this Law:

“This Law applies to any kind of information in the form of a data message, except in the following situations: [. . . ].”

**** The term “commercial” should be given a wide interpretation so as to cover matters arising from all relationships of a commercial nature, whether contractual or not. Relationships of a commercial nature include, but are not limited to, the following transactions: any trade transaction for the supply or exchange of goods or services; distribution agreement; commercial representation or agency; factoring; leasing; construction of works; consulting; engineering; licensing; investment; financing; banking; insurance; exploitation agreement or concession; joint venture and other forms of industrial or business cooperation; carriage of goods or passengers by air, sea, rail or road.

Provisions based upon Model Law Article 1

2.1.5 Uniform Electronic Transactions Act (25 November 1997 draft)

2.1.6 The commentary to this draft¹⁷ of the Uniform Bill and the Memoranda to this and previous drafts¹⁸ make it clear that this issue of scope is one of the most difficult to be considered by the Drafting Committee. The Committee has been concerned to strike the right balance between expanding the scope beyond contractual transactions, as in the Massachusetts¹⁹ and Illinois²⁰ models, and limiting the scope to purely contractual transactions which might impair the usefulness of the statute and create potential ambiguity as to its applicability to certain transactions. One example cited related to electronically maintained medical records relevant to litigation over coverage under an insurance contract.

2.1.7 The earlier 15 August draft of the Uniform Bill followed the Model Law provision and applied the Bill to commercial transactions, using the Model Law footnote on commercial activities. Certain transactions were then clearly excluded. The 25 November draft has been altered to include governmental transactions, which are broadly defined.²¹ This draft has also been altered to remove the specific exclusions previously set out in section 105.²² General exclusions from coverage are now set out in section 104.²³ State agencies are given specific authorisation in Part 5 to adopt regulations indicating the extent to which the Bill may apply, and the right of parties to vary their agreement to suit the needs of their transactions is preserved.

2.1.8 Massachusetts Electronic Records and Signatures Act (4 November 1997 draft)
 

Section 66. Scope

(a) Sections 65 to 72 shall apply to records generated, stored, processed, communicated, or used for any purpose by or with a public entity of the Commonwealth.

The provisions of sections 65 to 72 shall not apply:

(i) to the extent that their application would involve a construction of a rule of law that is clearly inconsistent with the manifest intent of the lawmaking body or repugnant to the context of the same rule of law, provided that the mere requirement that information be "in writing," "written," "printed," or "signed", or any other word that purports to specify or require a particular communications medium, shall not by itself be sufficient to establish such intent; or

(ii) to any record that serves as a unique and transferable physical token of rights and obligations including, without limitation, negotiable instruments and other instruments of title wherein possession of the instrument is deemed to confer title.

Section 108. Use of electronic records and electronic signatures by business entities

(a) A contract between business entities shall not be unenforceable, nor inadmissible in evidence, on the sole ground that the contract is evidenced by an electronic record or that it has been signed with an electronic signature. For purposes of this section, "contract" shall mean a contract for the sale of goods or services, for the sale or license of digital information, or for the lease of tangible personal property. The provisions of this subsection shall not apply to the extent that their application would involve a construction of a rule of law that is clearly inconsistent with the manifest intent of the lawmaking body or repugnant to the context of the same rule of law, provided that the mere requirement that information be "in writing," "written," "printed," or "signed", or any other word that purports to specify or require a particular communications medium, shall not by itself be sufficient to establish such intent.

(b) Nothing in this section shall be construed to prevent a party from establishing reasonable requirements with respect to the method executed or adopted by a party to sign a contract, absent agreement to the contrary.

(c) Nothing in this section shall be construed to mean that electronic records and electronic signatures do not satisfy legal requirements for a writing or a signed writing in transactions not covered by this section.

2.1.9 The Massachusetts Bill deals with scope in 2 parts as amendments to the General Law. The first part²⁴ which deal with electronic records, signatures, admissibility into evidence, originals and retention of electronic records is limited to records generated, stored, processed, communicated, or used for any purpose by or with a public entity of the Commonwealth, with the proviso that nothing in the provisions of the Bill should be construed to require any public entity of the Commonwealth to use or permit the use of electronic records or electronic signatures. The second part²⁵ covers the use of electronic records and signatures by business entities, but limits the application of provisions relating to general enforceability and admissibility into evidence to contracts for the sale of goods or services, for the sale or licence of digital information, or for the lease of tangible personal property. This second part also makes it clear that it is not to be construed to mean that electronic records and signatures do not satisfy legal requirements for writing or signature in transactions not covered by this part.

The Law in Australia

2.1.10 As noted in the footnotes to article 1 of the Model Law, this article is to apply to all commercial transactions, broadly defined. While this does not necessarily exclude consumer transactions, the article makes clear that it is not intended to override any laws for the protection of consumers. Consumer protection laws exist in all Australian jurisdictions.

2.1.11 In addition to this article dealing with the general scope of the Model Law, a number of other articles²⁶ in the Model Law provide for particular exceptions from their requirements. The law in relation to any areas that should be subject to exceptions is considered in relation to each of those articles, where appropriate. Our recommendations on scope, including the exceptions, is discussed further in Chapter 4 (see para. 4.5.13 and following).

2.1.12 While some legislation allows electronic transactions between government agencies and the public,²⁷ no Commonwealth, State or Territory laws of general application deal with all of the matters discussed in this Report. However, the Commonwealth Government is examining a range of issues raised by the development of electronic commerce. The Prime Minister’s Industry Statement in December 1997²⁸ committed the Commonwealth Government to policy leadership to encourage Australians to embrace the information age and provided a policy framework for such action.
 

For the purposes of this Law:

(a) “Data message” means information generated, sent, received or stored by electronic, optical or similar means including, but not limited to, electronic data interchange (EDI), electronic mail, telegram, telex or telecopy;

(b) “Electronic data interchange (EDI)” means the electronic transfer from computer to computer of information using an agreed standard to structure the information;

(c) “Originator” of a data message means a person by whom, or on whose behalf, the data message purports to have been sent or generated prior to storage, if any, but it does not include a person acting as an intermediary with respect to that data message;

(d) “Addressee” of a data message means a person who is intended by the originator to receive the data message, but does not include a person acting as an intermediary with respect to that data message;

(e) “Intermediary”, with respect to a particular data message, means a person who, on behalf of another person, sends, receives or stores that data message or provides other services with respect to that data message;

(f) “Information system” means a system for generating, sending, receiving, storing or otherwise processing data messages.
 

Provisions based upon Model Law Article 2

2.2.8 Uniform Electronic Transactions Act (25 November 1997 draft)

Section 102. Definitions

2.2.9 Section 102 defines the following terms: agreement; authenticate; automated transaction; computer program; conspicuous; consumer; contract; electronic; electronic agent; electronic record; electronic signature; good faith; information; information system; manifest of assent; merchant; notify; opportunity to review; organisation; person; receive; record; rule of law; security procedure; signature; state agency; transferable record; and writing.

2.2.10 Illinois Electronic Commerce Security Act (15 December 1997 draft)

Section 103. Definitions

2.2.11 Section 103 defines the following terms: asymmetric cryptosystem; certificate; certification authority; certification practice statement; correspond; digital signature; electronic record; electronic signature; hash function; information; key pair; operational period of certificate; person; private key; public key; record; repository; revoke a certificate; rule of law; secretary; security procedure; signed or signature; state agency; subscriber; suspend a certificate; trustworthy system; valid certificate; and verify a digital signature.

The Law in Australia

2.2.12 Certain terms relevant to electronic commerce have been defined in various statutes in relation to particular applications.³¹ However, we are not aware of any definitions comprehensively dealing with definitions relevant to electronic commerce, and in particular those definitions referred to in Article 2 of the Model Law, that have been enacted in Australia.
 
 

(1) In the interpretation of this Law, regard is to be had to its international origin and to the need to promote uniformity in its application and the observance of good faith.

(2) Questions concerning matters governed by this Law which are not expressly settled in it are to be settled in conformity with the general principles on which this law is based.

Provisions based upon Model Law Article 3

2.3.3 Uniform Electronic Transactions Act (25 November1997 draft)

Section 106. Application and Construction

This [Act] must be liberally construed and applied consistently with commercially reasonable practices under the circumstances and to promote its underlying purposes and policies.

2.3.4 The underlying purposes and policies of the Bill are stated to be:³³

(a) to facilitate and promote commerce and governmental transactions by validating and authorising the use of electronic records and electronic signatures;

(b) to eliminate barriers to electronic commerce and governmental transactions resulting from uncertainties relating to writing and signature requirements;

(c) to simplify, clarify and modernise the law governing commerce and governmental transactions through the use of electronic means;

(d) to permit the continued expansion of commercial and governmental electronic practices through custom, usage and agreement of the parties;

(e) to promote uniformity of the law among the states (and worldwide) relating to the use of electronic and similar technological means of effecting and performing commercial and governmental transactions;

(f) to promote public confidence in the validity, integrity and reliability of electronic commerce and governmental transactions; and

(g) to promote the development of the legal business infrastructure necessary to implement electronic commerce and governmental transactions.

2.3.5 Illinois Electronic Commerce Security Act (15 December 1997 draft)

Section 102. Purposes And Construction.
This Act shall be construed consistently with what is commercially reasonable under the circumstances and to effectuate the following purposes:
(1) Facilitate electronic communications by means of reliable electronic records

(2) Facilitate and promote electronic commerce, by eliminating barriers resulting from uncertainties over writing and signature requirements, and promoting the development of the legal and business infrastructure necessary to implement secure electronic commerce

(3) Facilitate electronic filing of documents with state and local government agencies, and promote efficient delivery of government services by means of reliable electronic records

(4) Minimize the incidence of forged electronic records, intentional and unintentional alteration of records, and fraud in electronic commerce

(5) Help to establish uniformity of rules, regulations, and standards regarding the authentication and integrity of electronic records

(6) Promote public confidence in the integrity and reliability of electronic records and electronic commerce.

2.3.6 The commentary³⁴ states that the focus of this legislation is on enabling electronic commerce. This involves removing actual and perceived barriers to electronic commerce and implementing provisions that will help to provide a legal environment designed to promote and facilitate electronic commerce. This legislation seeks to remove barriers by eliminating: (1) concerns over whether an electronic record meets writing and signature requirements, (2) barriers to the admissibility of records based on the medium on which they exist, and (3) concerns regarding whether recordkeeping requirements can be met by saving records in electronic form. To promote electronic commerce the legislation provides for recognition of “secure” electronic records and electronic signatures which provide enhanced evidentiary presumptions designed to give legal assurances to persons engaged in electronic commerce that their transaction documents will be provable and enforceable.³⁵

2.3.7 The legislation seeks to promote electronic commerce in both the public and private sectors. To that end, it authorises state and local government agencies to deliver government services, accept the filing of documents, and otherwise communicate electronically both with the public and other agencies.

2.3.8 Massachusetts Electronic Records and Signatures Act (4 November 1997 draft)

Section 2. Purposes and construction
The provisions of this Act shall be construed:

(a) to facilitate and promote electronic commerce and online government by clarifying the legal status of electronic records and electronic signatures in the context of writing and signing requirements imposed by law;

(b) to permit and encourage the continued expansion of electronic commerce and online government through the operation of free market forces rather than proscriptive legislation;

(c) to promote public confidence in the validity, integrity and reliability of electronic commerce and online government; and

(d to promote the development of the legal and business infrastructure necessary to support and encourage electronic commerce and online government.

The Law in Australia

2.3.9 Legislation which has a purpose clause inserted in it would be interpreted according to that clause. In the absence of such a clause, the issue of the interpretation of any law enacted in Australia, such as one based upon the Model Law, would be settled by reference to existing principles of statutory interpretation. These principles would allow reference to certain extrinsic materials that may explain the policy and general principles of the legislation, such as the legislation’s explanatory memorandum and second reading speech.³⁶ However, principles of interpretation are only called into play if legislation is not clear on its face.
 

(1) As between parties involved in generating, sending, receiving, storing or otherwise processing data messages, and except as otherwise provided, the provisions of chapter III may be varied by agreement.

(2) Paragraph (1) does not affect any right that may exist to modify by agreement any rule of law referred to in chapter II.

Provisions based upon Model Law Article 4

2.4.3 Uniform Electronic Transactions Act (25 November draft)

Section 105. Variation by Agreement
(a) As between parties involved in generating, sending, receiving, storing or otherwise processing or using electronic records or electronic signatures, the provisions of this [Act] may be varied by agreement, except:

(1) the obligations of good faith, reasonableness, diligence and care prescribed by this [Act] may not be disclaimed by agreement but the parties may by agreement determine the standards by which the performance of such obligations is to be measured if such standards are not manifestly reasonable; and

(2) the rules in Section 110 regarding allocations of loss where no security procedure or commercially unreasonable security procedures are used in a transaction.

(b) the presence in certain provisions of this [Act] of the words “unless otherwise agreed” or words of similar import does not imply that the effect of other provisions may not be varied by agreement under subsection (a).

(c) This [Act] does not require that records or signatures be generated, stored, sent, received or otherwise processed or used by electronic means or in electronic form.

2.4.4 The provision recognises the importance of preserving the ability of the parties to establish their own requirements concerning the methods of generating, storing and communicating with each other, especially since the purpose of the Bill is to validate and effectuate the use of electronic media in commercial and governmental transactions. It does recognise, however, the importance of mandating certain fundamental principles, including obligations of good faith, reasonableness, diligence and care and the allocation of loss provisions where less than commercially reasonable security procedures are used.

2.4.5 Illinois Electronic Commerce Security Act (15 December 1997 draft)
 

Section 103. Variation by Agreement
As between parties involved in generating, sending, receiving, storing or otherwise processing electronic records the provisions of this Act may be varied by agreement of the parties, except the provisions of Sections 306(b), 308, 503, 504, 505, and 904.

Section 207. Electronic Use Not Required

Nothing in this Act shall be construed to:

(1) Require any person to create, store, transmit, accept, or otherwise use or communicate information, records, or signatures by electronic means or in electronic form, or

(2) Prohibit any person engaging in a transaction from establishing reasonable requirements regarding the medium on which it will accept records or the method and type of symbol or security procedure it will accept as a signature.

2.4.6 Exceptions to section 103 are the criminal provisions of the Bill and those relating to consumer transactions. The draft points to two inherent limitations to the right to vary by agreement:

(i) such variations cannot affect the rights of third parties; and

(ii) other legislation, such as Federal law, may affect the rights of the parties to vary existing rules.

2.4.7 Subsection 207(2) makes it clear that the recipient of a record remains free to specify its requirements for both writing and signature if that should be deemed appropriate.

The Law in Australia

2.4.8 Article 4 of the Model Law allows the variation, by agreement between the parties, of the articles in Part I, Chapter II (which deals with rules of form) and Chapter III (which deals with the communication of data messages). The law in relation these matters is discussed below under each relevant article. In general, parties to a contract are free to determine the terms of that contract, subject to certain statutory restrictions, such as for example legislation like the Trade Practices Act 1974, and legislation that generally relates to issues of form.
 

Information shall not be denied legal effect, validity or enforceability solely on the grounds that it is in the form of a data message.

Provisions based upon Model Law Article 5

2.5.2 Uniform Electronic Transactions Act (25 November 1997 draft)
 

Section 201. Legal recognition of electronic records
(a) A record may not be denied legal effect, validity or enforceability solely because it is in the form of an electronic record.

(b) If a rule of law requires a record to be in writing, or provides consequences if it is not, an electronic record satisfies that rule.

(c) a person may establish reasonable requirements regarding the type of records which will be acceptable to it.

2.5.3 The commentary³⁹ notes that subsection (a) establishes the fundamental premise of the Bill that the form in which a record is generated, presented, communicated and stored cannot be the only reason to deny that record legal recognition.

2.5.4 Illinois Electronic Commerce Security Act (15 December 1997 draft)
 

Section 201. Legal Recognition
Information, records and signatures shall not be denied legal effect, validity, or enforceability solely on the grounds that they are in electronic form.

2.5.5 The commentary⁴⁰ to this provision is based upon the relevant part of the Guide to Enactment of the Model Law, discussed above at paragraph 2.5.1 above.

2.5.6 Massachusetts Electronic Records and Signatures Act (4 November 1997 draft)
 

Section 67. Electronic Records

A record may not be denied legal effect, validity, or enforceability solely because it is in the form of an electronic record. If a rule of law requires a record to be in writing, or provides consequences if it is not, an electronic record satisfies that rule of law.
 

2.5.7 Section 68 on electronic signatures also includes a statement of the general principle in respect of electronic signatures.

The Law in Australia

2.5.8 At present there is no law in Australia which either explicitly recognises or denies the general principle that information, records and signatures in an electronic form should not be denied legal effect. Some laws indirectly deny legal effect to electronic information, records and signatures because they impose certain requirements that cannot be immediately satisfied by the new technology. In other cases, laws have been updated to take account of changes in technology. These matters are discussed in detail in relation to Articles 6 to 10, below.

(1) Where the law requires information to be in writing, that requirement is met by a data message if the information contained therein is accessible so as to be usable for subsequent reference.

(2) Paragraph (1) applies whether the requirement therein is in the form of an obligation or whether the law simply provides consequences for the information not being in writing.
(3) The provisions of this article do not apply to the following [...].

Provisions based upon Model Law Article 6

2.6.6 Uniform Electronic Transactions Act (25 November 1997 draft)

Section 201. Legal recognition of electronic records

(a) A record may not be denied legal effect, validity or enforceability solely because it is in the form of an electronic record.

(b) If a rule of law requires a record to be in writing, or provides consequences if it is not, an electronic record satisfies that rule.

(c) A person may establish reasonable requirements regarding the type of records which will be acceptable to it.

2.6.7 The commentary⁴³ notes that subsection (a) establishes the fundamental premise of the Bill that the form in which a record is generated, presented, communicated and stored may not be the only reason to deny that record legal recognition. Subsection (b) is intended to validate and effectuate electronic records⁴⁴ as the equivalent of writing, subject to all of the rules applicable to the efficacy of writing, except as such other rules are modified by the more specific provisions of this Bill. Where no legal requirement of a writing is implicated, electronic records are subject to the same proof issues as any other evidence.

2.6.8 The draft gives effect to the provisions of articles 5 and 6 of the Model Law. Section 201(b) is simply a particularised form of (a) and does not deal specifically with the Model Law requirements of accessibility and subsequent reference, although the definition of “record” does require that the information be “retrievable in perceivable form”.⁴⁵

2.6.9 This draft of the Bill includes all exceptions within section 104,⁴⁶ rather than dealing with paragraph (3) of the Model Law text under individual provisions.

2.6.10 Illinois Electronic Commerce Security Act (15 December 1997 draft)

Section 202. Electronic Records
(a) Where a rule of law requires information to be “written”, “in writing”, or provides for certain consequences if it is not, an electronic record satisfies that rule of law.

(b) The provisions of this section shall not apply:

(1) when its application would involve a construction of a rule of law that is clearly inconsistent with the manifest intent of the lawmaking body or repugnant to the context of the same rule of law, provided that the mere requirement that information be “in writing, “written”, or “printed” shall not by itself be sufficient to establish such intent;

(2) to any rule of law governing the creation or execution of a will or trust, living will, or healthcare power of attorney; and

(3) to any record that serves as a unique and transferable physical token of rights and obligations including, without limitation, negotiable instruments and other instruments of title wherein possession of the instrument is deemed to confer title.

2.6.11 The commentary⁴⁷ to the draft notes that there are many cases where a statute or regulation requires that certain documents be “in writing”, such as the statute of frauds, and repeats the purposes for which writings may be required as set out in the UNCITRAL Guide to Enactment for article 6.⁴⁸ The essence of the requirement for writing is that the communication can be reduced to a tangible form and can be made accessible.⁴⁹ The commentary also notes that there are a number of definitions of “writing” which are not limited to ink on paper and a number of decisions have been made in that jurisdiction in which the courts have already found a variety of electronic forms of documents to be writings under the statute of frauds.⁵⁰

2.6.12 The purpose of section 202 is to clarify existing law by specifically stating that an electronic record⁵¹ meets any requirement that information be retained or presented “in writing”. Because an electronic record, by definition, must be fixed in a tangible medium and retrievable in perceivable form, it clearly meets the foregoing requirement. The commentary also notes that whether or not the record is “signed” has no bearing on whether it meets a requirement that it be in writing. Also, while section 202 makes it clear that an electronic record meets statutory and regulatory “writing” requirements, it does not attempt to address the sufficiency or reliability of an electronic record for any specific purpose.

2.6.13 The exceptions in the Illinois draft largely follow the provision of section 104 of the Uniform Bill, except paragraph (3). The commentary notes that the types of documents excluded by paragraph (3) are excluded because there is no way to create a unique electronic record of them. Since all electronic records can be perfectly copied, there is no discernible difference between the “original” and a copy. The exclusion is not intended to apply to certain forms of electronic records that can be used as substitutes for transactions normally requiring an original document when conducted using paper, provided that the electronic document can be used in a manner that does not require a unique original electronic document. Examples cited include those transactions where the legal validity of the electronic record is not established solely by reference to possession of the document, but also (or alternatively) by reference to a central data base or repository that tracks the validity of such documents and/or ownership.

2.6.14 Massachusetts Electronic Records and Signatures Act (17 April 1997 draft)

Section 67. Electronic Records⁵²
A record ma y not be denied legal effect, validity, or enforceability solely because it is in the form of an electronic record. If a rule of law requires a record to be in writing, or provides consequences if it is not, an electronic record satisfies that rule of law.

Under section 66, section 67 applies to records generated, stored, processed, communicated, or used for any purpose by or with a public entity of the Commonwealth. It does not apply:

(i) to the extent that [its] application would involve a construction of a rule of law that is clearly inconsistent with the manifest intent of the law making body or repugnant to the context of the same rule of law, provided that the mere requirement that information be “in writing”, “written”, “printed”, or “signed”, or any other word that purports to specify or require a particular communication medium, shall not by itself be sufficient to establish such intent; or

(ii) to any record that serves as a unique and transferable physical token of rights and obligations including, without limitation, negotiable instruments and other instruments of title wherein possession of the instrument is deemed to confer title.

2.6.15 British Columbia, Canada - Offence Act R.S.B.C. 1996, c. 338.

10.1(2) If a rule of law, custom or practice requires information to be recorded or presented in writing, the requirement is deemed to be satisfied if the information is recorded or presented in a format that enables the information to be subsequently displayed or immediately accessible in visible form.

The Law in Australia

2.6.16 At common law there is no general requirement for writing under the law of contract. This approach is followed in some legislation such as sale of goods legislation. Section 8 of the Sale of Goods Act 1923 (NSW), for example, provides that:

a contract of sale may be made in writing . . . or by word of mouth, or partly in writing and partly by word of mouth, or may be implied from the conduct of the parties.

2.6.17 There is legislation however, which requires that certain transactions, both contractual and non-contractual, be either acknowledged in writing or signed, or be both in writing and signed. Some of these requirements derive from the UK Statute of Frauds⁵³ concerning the transfer of interests in land; some relate to especially solemn transactions, such as wills⁵⁴ and affidavits;⁵⁵ and some to consumer protection policies of ensuring that consumers have a hard copy of important documents and/or are forced by a writing requirement to stop and think before binding themselves to a particular transaction.

2.6.18 Some of the contracts which are required by legislation to be in a prescribed form in order to be legally effective include hire purchase contracts, bills of exchange, cheques, promissory notes, contracts of marine insurance, mortgages,⁵⁶ undertakings to pay another person’s debt,⁵⁷ assignments of copyright and patents,⁵⁸ contracts for the sale of goods above a certain minimum value and transfers of interests in land.

2.6.19 In addition to State legislation, there is Commonwealth legislation affecting contracts made within all jurisdictions in Australia and which require a “writing” in certain circumstances. For example, s. 63A of the Trade Practices Act 1974 (Cth) prohibits the sending of a credit card or debit card to a person except in pursuance of a request in writing by the person who will be liable for the use of the card.

2.6.20 What constitutes a “writing” varies between jurisdictions. For example, section 25 of the Commonwealth Acts Interpretation Act 1901 provides that “writing includes any mode of representing or reproducing words, figures, drawings or symbols in a visible form”. Section 38 of the Victorian Interpretation of Legislation Act 1984 provides that writing includes “all modes of representing or reproducing words, figures or symbols in a visible form and expressions referring to writing shall be construed accordingly.” The Northern Territory Interpretation Act 1978 provides in section 26 that “words, expressions and provisions referring to writing shall be construed as including references to any mode of representing or reproducing words, figures or symbols in a visible form whether or not an optical, electronic, mechanical or other means or process must be used before they can be perceived.” The South Australian Acts Interpretation Act 1915 provides in section 4 that "writing" includes “any visible form in which words may be reproduced or represented.”

2.6.21 In terms of the recognition of technology other than paper-based transactions, Australian law adopts a number of different approaches. In some instances there is a requirement for a prescribed, paper-based form to be followed in order for a particular transaction to be legally effective, a indicated in paragraph 2.0.18 above. In other cases, wider definitions which allow the possibility of “writings” being something other than paper-based have been adopted.

2.6.22 Some recent Australian legislation has been explicitly drafted to leave open the possibility of electronic contracts and notices. The Consumer Credit Code 1994 (Qld), which applies in all States and Territories, provides the default rule that a credit contract must be in writing, but section 13 provides that the regulations may authorise other ways of making a credit contract that do not involve a written document.

International Law - Form Requirements

2.6.23 A number of treaties and other international instruments contain form requirements. Two examples which are important to commercial and trade law are considered here.

The United Nations Convention on Contracts for the International Sale of Goods 1980

2.6.24 The United Nations Convention on Contracts for the International Sale of Goods 1980 (the Convention) was implemented by all Australian jurisdictions in 1986-87.⁵⁹ It applies to international commercial contracts of sale between traders and business people, and not consumer goods,⁶⁰ and to contracts of sale where the buyer and the seller have their places of business in different countries, each of which is a Contracting State or where the rules of private international law refer to the law of a Contracting State as the governing law of the contract.⁶¹

2.6.25 The Convention expressly provides that no writing or other formalities are required for an enforceable contract.⁶² However, that rule, and related provisions dispensing with writing requirements in reference to modification of agreements, offers, acceptances and notices, is expressly made subject to the right of a Contracting State to opt out of the abolition of writing requirements if domestic law does require writing.⁶³ Agreement by the parties cannot change the effect of such an election when made by a Contracting State. Australia has not elected to opt out of this provision.

2.6.26 Article 13 provides that for the purposes of the Convention, “writing” includes telegram and telex.

2.6.27 A similar approach is adopted in the Unidroit Principles of International Commercial Contracts.⁶⁴ A contract is not required to be concluded or evidenced in writing and may be proved by any means, including witnesses.⁶⁵ Writing is defined along the lines of the UNCITRAL Model Law on Electronic Commerce to mean "any mode of communication that preserves a record of the information contained therein and is capable of being reproduced in tangible form."⁶⁶

2.6.28 The UNCITRAL Model Law on International Commercial Arbitration, which is given effect in Australia by the International Arbitration Act 1974, provides that the requirement of a written form of arbitration agreement is fulfilled if the arbitration agreement is contained in a "document signed by the parties ... or in telex, telegrams or other means of telecommunications which provide a record of the agreement ...”.⁶⁷

The Convention on the Recognition and Enforcement of Foreign Arbitral Awards

2.6.29 The Convention on the Recognition and Enforcement of Foreign Arbitral Awards (the New York Convention)⁶⁸, deals not only with the form of the arbitration agreement to be recognised, but also the arbitral award. In respect of arbitration agreements, it requires recognition of "an agreement in writing", and specifies that an agreement includes a clause in a contract or arbitration agreement "signed by the parties or contained in an exchange of letters or telegrams".⁶⁹ While some commentators suggest that it is not clear whether the signature requirement is satisfied in the case of an exchange of letters or telegrams,⁷⁰ a number of cases support the interpretation that where the contract is concluded by way of exchanges in writing which don't include signatures, the exchange of corresponding intentions, because of the nature of the medium in use, itself constitutes mutuality or consent, taking over the function of a signature.⁷¹

2.6.30 On the issue of how the writing requirement would be interpreted, it is clear that the alternative of letters and telegram was added to the Convention in order to facilitate what was acceptable international practice at the time of its conclusion.⁷² The questi