Part I: Overview of the Bill
Purpose of the Bill
Economic and Social Importance of Modern Technology
1. The Government recognises the economic and social importance of facilitating the use of electronic technology. E-commerce, in particular, is playing an increasingly important role in transactions associated with the production, distribution and export of goods and services. This development is part of the overall rise in importance of the information economy, in which information and its manipulation are increasingly a significant part of economic activity.
2. Electronic government (e-government) is a closely related development and involves the use of information technology to facilitate interaction between government agencies, citizens and businesses.
3. In the next three years e-commerce and e-government are likely to play an increasingly important role in achieving the Government's goal of growing an inclusive innovative economy for the benefit of all New Zealanders.
Purpose of Bill
4. Specifically, the purpose of the Bill is to:
- remove certain legislative impediments currently preventing the use of electronic communications and record-keeping in some areas; and
- remove avoidable uncertainty surrounding the legal status of the use of electronic communications and related uses of modern technology.
5. The Bill will not remove the normal risks of business. Because electronic transactions are unfamiliar demand is often made for higher standards of proof and security than those applying in traditional paper-based transactions. Unfamiliarity can also lead to a risk being identified, such as the risk of fraud, as though it is unique to the electronic environment. In many cases, the same or greater level of risk can be present in the paper-based environment. The Bill cannot, and will not, remove these normal business risks.
The Bill Is Intended to Allow Choice, and Will Not Require Electronic Dealings
6. The proposed Bill is facilitative legislation. By removing legislative barriers and helping to clarify the legality of electronic transactions the Bill will give parties the choice of using electronic technology in certain circumstances. No one - citizens, businesses or government entities - will be forced to use electronic technology because of the introduction of this Bill.
7. Parties will continue to decide what is the most appropriate technology for their needs. Most private sector participants are likely to continue to use a mix of electronic and paper-based business methods. Some private sector parties may decide, as is currently the situation, only to use electronic technology, including only dealing with others electronically. Others may decide they will not deal electronically and will only use paper. The choice of technology used is just one of a number of operational decisions that parties need to undertake, and that will in turn be taken into account by third parties deciding whether to deal with them.
Rationale Behind the Form of the Proposed Bill
Background
8. The Bill is based on the recommendations of the Law Commission in its second report on electronic commerce published in 1999, and on the Model Law on Electronic Commerce issued by UNCITRAL (the United Nations Commission for International Trade Law) in 1996.
9. UNCITRAL prepared the Model Law to assist States to remove barriers to the use of electronic technology in commerce. A number of States have already enacted legislation based on the Model Law, including Australia, Canada and Singapore, as have several states in the USA. Others, including the UK, have legislation pending.
10. The New Zealand Law Commission has published two reports on e-commerce, following extensive consultation and research, which confirm the need for similar legislation in New Zealand. The Law Commission recommended legislation based on the Model Law, with certain modifications. It suggested that the New Zealand statute should be closely modelled on the Australian Bill which was then before the legislature, and which has since been enacted as the Electronic Transactions Act 1999 (Cth). (See e-commerce [link to Australian Goverment website])
Basic Concepts
11. The basic concept underlying the Model Law and the proposed Bill is functional equivalence. The Bill focuses on the function served by certain statutory requirements which assume the use of paper documents (e.g. for "writing", "signature" or the retention of records), and the tests that need to be satisfied in order for electronic technology to perform that function. Thus the functional equivalent of "writing" is an electronic record which is "accessible so as to be usable for subsequent reference". If an electronic record meets this test, the Bill will allow it to be accepted by the law as satisfying a requirement for "writing".
12. A related principle, which also underpins the Bill, is technology neutrality. The Bill will not be drafted to refer to particular technologies: to do so would risk the Bill becoming quickly outdated. Specifying particular technologies also risks distorting markets and deterring innovation. The focus of the Bill is on what the technology delivers, not on the technology itself.
Scope
13. The Law Commission's project focussed specifically on the need for legislation to facilitate e-commerce (as distinct from wider applications such as e-government). This was the basis of the Commission's consultation and subsequent recommendations. The legislation in Australia, Canada, Singapore and the UK is broader. It builds on the Model Law and applies its basic principles to all aspects of private and public sector activity, not just commercial activities. The proposed Bill follows the lead of these other countries in adopting a wide scope that includes all dealings and record-keeping requirements, whether or not commercial. This more general approach has been adopted:
- because the basic principles of the Model Law and the Law Commission's analysis are applicable to all statutory requirements to use paper;
- to avoid imposing unnecessary transaction costs on any sector of society. The benefits of the Bill should be available to all New Zealanders, not just those engaged in commercial activities;
- to avoid unnecessary discrimination between different persons subject to the same substantive requirements, when it comes to specifying the method of compliance;
- because any restriction of the Bill to commercial activities, however defined, would give rise to difficult questions about when it does or does not apply; and
- in order to achieve consistency with the approach of key trading partners, particularly Australia, and promote the objectives of CER.
14. The risk associated with the proposed approach of including all legislation in the scope of the Bill except for that specifically excluded, as noted above, is that the Bill might allow use of electronic technology where it is in fact inappropriate. Officials consider this risk can be adequately managed by:
- taking advantage of the work done in Australia and in other countries with similar legal systems to identify appropriate exclusions to be included in the Bill (e.g. wills, affidavits, negotiable instruments);
- making the Bill subject to express form and format requirements relating to use of electronic technology in other legislation (e.g. tax legislation);
- making provision for further exclusions, if problems are subsequently identified once the Bill is enacted; and
- ensuring that all departments give careful consideration to the legislation which they administer, to identify any special cases which should be specifically excluded from the scope of the Bill.
Content of Bill
How the Bill Will Work in General
15. It is proposed the Bill will take the form of overarching legislation which modifies certain requirements (e.g. for "writing", or "signature", or to retain records) in all other Acts and subordinate legislation. Where a statute imposes an obligation to communicate "in writing", for example, the Bill will allow that obligation to be met using electronic technology if:
- the technology used provides a functional equivalent to writing - i.e. it is accessible so as to be usable for subsequent reference; and
- the recipient has agreed (expressly or impliedly) to receive electronic communications, and to the format used.
16. Similarly, where a statute imposes an obligation to retain records, the Bill will allow that obligation to be performed by keeping an electronic record which meets specified "functional equivalence" requirements, whether the original transaction took place electronically or on paper.
17. The Bill will not force anyone - citizens, businesses or government entities - to use electronic technology in place of paper. It creates new choices - it does not remove any existing options for use of paper-based means of communication or record-keeping. All recipients of statutory communications will retain control of whether or not to accept those communications in electronic form, and of the formats in which they accept electronic equivalents to writing, signatures etc.
18. This differs from the Australian approach where Commonwealth government entities (but no one else) are compelled to accept electronic communications, signatures etc. This requirement is subject only to the ability of each government entity to specify technology and format requirements. It is not recommended that this approach be adopted at this stage as more work is needed to analyse what the consequences of this approach would be in the New Zealand context.
19. Where legislation already permits use of electronic technology, and makes specific provision for the format of electronic communications, the Bill will not override this. It only enables equivalents to paper to be substituted for paper-based requirements
Outline of the Contents of the Bill
20. Part II of this paper describes in some detail the proposed provisions of the Bill, and the reasons for particular proposals. In outline, the Bill will:
- provide that no transaction will be denied legal effect merely because it took place using electronic technology;
- allow information which must be provided "in writing" under a statute to be provided in electronic form, if the information is accessible so as to be usable for subsequent reference, and if the recipient has agreed to receive the information electronically using the method in question;
- enable statutory requirements for a signature to be satisfied by an electronic equivalent, if the electronic method used is sufficiently reliable for the relevant purpose;
- allow documents which are produced for the purposes of a statute to be produced in electronic form, subject to certain requirements designed to ensure the integrity of the electronic version. This would allow electronic methods to be used where, for example, a statute requires an original document to be produced;
- allow records to be made and kept in electronic form, both where the original transaction was electronic and where it was paper-based, subject to requirements designed to ensure the integrity and continued availability of the records;
- provide default rules in relation to the time and place of dispatch and receipt of electronic messages; and
- limit the liability of Internet Service providers (ISPs) (e.g. for defamation or breach of copyright) in respect of information which they store or transmit unless an ISP has actual knowledge of the existence of information which is actionable at civil law or gives rise to a criminal offence, and fails to remove it promptly after becoming aware of it.
Exclusions from the Scope of the Bill
21. In the vast majority of cases, statutory requirements to use paper-based methods of communication and record-keeping can be modified to allow electronic equivalents without difficulty. Doing so in these circumstances creates new opportunities, and reduces costs.
22. However there are some statutory requirements in respect of which it may not be appropriate to allow use of electronic technology. These will be excluded from the Bill. Based on the approach taken in other jurisdictions, it is currently proposed that the Bill will expressly exclude:
- wills;
- affidavits and statutory declarations; and
- negotiable instruments3.
23. Additional exclusions are found in overseas legislation. Listed below are those areas excluded overseas - we particularly seek your views on whether it is appropriate to exclude these, either in whole or part, from the Bill:
- provisions requiring the production of documents for immigration or citizenship purposes;
- provisions relating to the practice or procedure of any Court or tribunal, unless applicable rules or guidelines issued by the Court or tribunal expressly provide for the use of electronic technology;
- mandatory provisions in consumer legislation intended to ensure actual notice to consumers (e.g. of imminent repossession of goods purchased on credit); and
- provisions relating to dealings in land generally;
- provisions relating to documents of title.
24. The relevant departments and agencies are asked to comment on whether such exclusions are desirable.
25. Identifying any other statutory provisions which should be excluded from the Bill will require input from all government departments. The question is whether the provision imposes an obligation to use paper-based methods of communication, record-keeping etc for which electronic equivalents are clearly unsuitable even with the consent of participants in the relevant transaction. Electronic equivalents may be unsuitable for a number of reasons, as the examples given above illustrate:
- wills fall into this category because of their special characteristics such as the need for an extremely high degree of assurance about integrity, after the author has died and can no longer give evidence on that point, and the need to be confident that the will can be accessed and read a very long time after it was created, commonly 20-30 years;
- it may also be necessary to exclude electronic equivalents of documents which the law requires (or assumes) to be unique, in the absence of any widely used technologies for assuring uniqueness of an electronic version. This is the main rationale for excluding negotiable instruments from the Bill; and
- provisions intended to protect persons subject to a disadvantage, or with inadequate information or bargaining power, might be excluded on the grounds that even the need to obtain the recipient's express consent to use of electronic means is not a sufficient protection for those persons e.g. notice of intention to repossess.
26. There will also need to be a mechanism to enable additional statutory provisions to be excluded from the Bill after enactment, where difficulties are subsequently identified. In other jurisdictions this has been achieved by providing for exclusions through regulations. An effort should however be made to identify all significant exclusions at this stage, in order to include them in the Bill itself prior to its enactment, to avoid any unintended outcomes.
Aspects of the UNCITRAL Model Law not Reflected in the Proposed Bill
27. In accordance with the recommendations of the Law Commission, the Bill will not include the following provisions of the UNCITRAL Model Law:
- Article 9, concerning evidence of electronic dealings and records. The Law Commission's Evidence Code would, if enacted, remove the need for such a provision. (However issues in relation to the timing of legislation based on the Evidence Code may result in an interim provision being included in the Bill, drawing on the concepts in Article 9 and the Commission's work on evidence law - see below);
- Article 13, concerning attribution of data messages. The Law Commission intends to consider this issue in more detail in its third report;
- Article 14, concerning acknowledgement of receipt of electronic communications. The Commission considers, following the Australian approach, that this can be left to the common law and to any express contract between the parties to the communication; and
- Articles 16 and 17, in relation to documents concerned with the carriage of goods. The Commission considered that such provisions were probably unnecessary, and in any event premature pending further international developments.
Other Issues Not Addressed in this Bill
Bill Addresses a Subset of Electronic Transaction Issues
28. This Bill is one of a number of initiatives intended to provide an appropriate legal and regulatory framework for electronic commerce, and the use of modern technology generally. It addresses a particular set of issues, and is not intended to resolve all the legal questions raised by the increase in use of new technologies. Other relevant initiatives currently under way include:
- the Crimes Amendment Bill (No 6), which creates a number of new offences relating to computer misuse. The Bill is currently before Parliament;
- the Evidence Code proposed by the Law Commission - see below;
- work being done by the Inland Revenue Department on the taxation of electronic transactions, in particular GST issues;
- a major project on aspects of e-government, including legal issues raised by electronic dealings with government agencies. This Bill will remove legislative barriers to e-government but implementation of e-government initiatives requires significant further practical work which is being co-ordinated by the State Services Commission;
- proposals by the Privacy Commissioner for amendments to the Privacy Act to address issues raised by cross-border data flows, an issue prompted by increased use of electronic technology;
- proposals by the Ministry of Consumer Affairs in relation to a model code for consumer protection in electronic dealings. The Ministry is also working on issues relating to electronic transactions and consumer credit; and
- proposals by the Securities Commission for limited reforms to the Securities Act 1978 to clarify the Act's application to offers made to New Zealand investors from abroad, and to extend the Act to apply to offers made from New Zealand to investors in other countries.
29. In addition, consideration of a number of issues has been deferred until further analysis, including work in international fora, is completed. Areas of work deferred include:
- issues regarding "electronic signatures". The UNCITRAL Working Group on Electronic Commerce is currently finalising its Uniform Rules on Electronic Signatures. Once this work is complete consideration can be given to whether more detailed electronic signature legislation is required in New Zealand; and
- issues to do with conflict of laws. These issues are inherently difficult and complex, and are being addressed multilaterally through the work of the Hague Conference on International Private Law. The Hague Conference is working on a convention on jurisdiction and enforcement of judgements in civil and commercial matters. New Zealand has participated in recent sessions focusing on this work. It is hoped that the proposed convention will be finalised in 2001 at which point it will be appropriate to consider the content of the draft. Other aspects of New Zealand's private international law may also need to be modernised to provide an appropriate legal environment for increased volumes of cross-border transactions.
30. The Law Commission will address these and other issues in its third report on e-commerce, which it expects to publish late this year. It may be appropriate at this stage to introduce additional legislation to complement this Bill.
Evidence Law Issues
31. The use of electronic technology for communications and record-keeping raises a number of important practical issues in relation to the law of evidence. For example, it may be necessary to prove that a particular transaction took place, or that a record is reliable and accurate, or that an electronic signature does identify a person effectively. While there is no absolute barrier in New Zealand law to proof of such matters, the method of proof contemplated by the law is cumbersome and expensive. It is in principle necessary to prove the method of operation, reliability etc of each form of technology used and each computer using it, and to call relevant experts to give evidence on hardware and software issues, and on the way in which the technology is used by the relevant person. (The Ministry understands, however, that formal proof of this kind is rarely insisted on or provided in civil proceedings today, and that technical evidence law issues are more common in criminal proceedings.)
32. The Law Commission's recommendations in relation to an Electronic Transactions Bill proceeded on the basis that the Law Commission's proposed Evidence Code would be in force when the Bill was enacted. The Evidence Code is intended to replace most of the existing common law and statutory provisions on the admissibility and use of evidence in court proceedings. The Code will greatly simplify the proof of electronic transactions and records, because of its basic approach and the principles it implements.
33. Because the Law Commission assumed that the Code would be in force, it recommended that no provisions on evidence issues were required in the proposed Bill.
34. However there is no provision in this year's legislative program for enacting the Evidence Code. Nor, because of the Code's structure and basic approach, is it possible simply to borrow some provisions of the Code for incorporation in the Bill to address evidence issues raised by electronic technology. If the Bill is to be enacted this year, a decision needs to be made about how to treat the resulting evidence law issues. The options include:
- giving higher priority to the Code, so that it can be enacted at the same time as the Bill;
- not addressing evidence issues at all, and leaving matters to the current law until the Code is enacted; and
- including in the Bill some interim provisions intended to address the most significant issues that arise. As noted above, these could not simply be taken from the Code - new provisions would be required, taking into account the approach in the Code and the Model Law.
35. The options for addressing evidence issues are being considered by the relevant Ministries, and will be the subject of further work during the consultation period.
Business Practice and Case Law Will Need to Develop
36. It is important to note that the Bill once passed, in and of itself, will not place electronic transactions on the same footing as paper-based transactions. Electronic methods lack the richness of practical experience and associated conventions, and detailed legal guidance in caselaw and other texts, which exist for paper-based dealings.
37. The degree of certainty that is attached to paper-based transactions has evolved over time, and is not something that can be achieved through legislation alone.
38. Electronic transactions are relatively new and unfamiliar. It will take time for the market to work out how the requirements of the law can best be met using electronic methods, and for case law pertaining to electronic transactions to develop. But the principle of functional equivalence incorporated in the Bill will assist this process, as it will assist users and the Courts to identify relevant paper-based analogies.
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