Electronic Transactions (Victoria) Amendment Bill 2011
Introduction Print
EXPLANATORY MEMORANDUM
571083
30/8/2011
General
Background
The Electronic Transactions (Victoria) Act 2000
The Electronic Transactions (Victoria) Act 2000(the Principal Act) implements the United Nations Commission on International Trade Law (UNCITRAL) Model Law of Electronic Commerce 1996 (the Model Law). The Model Law provides a set of internationally accepted rules to remove legal obstacles to provide a more secure environment for electronic commerce. To achieve national uniformity, the Commonwealth and the other States and Territories of the Commonwealth have also passed electronic transactions legislation that is consistent with the Principal Act.
The Principal Act implements three key outcomes of the Model Law: legal validity of electronic transactions, non-discriminatory treatment of different methods, and party autonomy to agree to alternative terms and conditions.
The Principal Act essentially provides that transactions taking place under a law of the jurisdiction will not be invalid simply because they are completed electronically. The Principal Act allows business and government to fulfil, in electronic form, any of the following requirements: giving information in writing, providing a handwritten signature, producing a document in material form, and recording or retaining information. However, certain transactions, and requirements and permissions relating to transactions, may be excluded from the application of the Principal Act if prescribed in theElectronic Transactions (Victoria) Regulations 2000(the Regulations).
The Principal Act is broadly directed at removing impediments to the use of electronic communications in general (whether in transactions with government, business or consumers). Although the Principal Act recognises electronic transactions principally for the purpose of an individual's dealings with Government, it also applies to private dealings. This includes cases where statutes regulate the form of a contract (e.g. sale of goods legislation) and where a contract is governed by the common law.
The Electronic Transactions (Victoria) Amendment Bill 2011
The Electronic Transactions Amendment Bill 2011 (the Bill) was developed following consideration by the Standing Committee of Attorneys-General of the proposal to accede to the United Nations Convention on the Use of Electronic Communications in International Contracts 2005 (theConvention).
The Convention was adopted by the UNGeneralAssembly on 23 November 2005. The Convention builds on the Model Law with the purpose of facilitating international trade by offering practical solutions for issues arising out of the use of electronic communications in the formation or performance of contracts between parties located in different countries. Theobjective of the Convention isto enhance legal certainty and commercial predictability. It does not otherwise purport to vary or create contract law. The Convention updates the Model Law in light of further knowledge and developments in electronic commerce, and provides for contracts to give legal certainty in international trade. The explanatory notes to the Convention discuss the Model Law in detail, specifically referring to the provisions to be updated following the consideration of common, accepted practices. The Convention addresses gaps arising since the Model Law was developed in 1996 and introduces some refinements in approach to the Model Law provisions.
Implementation of the Convention does not require significant changes to the electronic transactions laws. The Bill is the Victorian version of the model amendment provisions developed by the Parliamentary Counsel's Committee. The Bill amends the Principal Act to update the electronic transactions regime to align with the Convention, with a view to acceding to the Convention when the amendments are enacted in each jurisdiction.
Implementation of the Convention is intended to—
- modernise Australia's law on e-commerce so that it reflects internationally recognised legal standards; and
- enhance cross-border online commerce; and
- increase certainty for international trade by electronic means and thereby encourage further growth of electronic contracting; and
- confirm Australia's commitment to facilitating electronic communications in international trade transactions as reflected in Free Trade Agreements.
The Bill applies the changes proposed by the Convention in the context of international contracts to the general electronic transactions regime, as thesechanges serve to update the regime for all electronic transactions. Forexample, the Convention provides default rules for determining the time of dispatch and receipt of an electronic communication in connection with the formation and performance of a contract (Article 10). The Bill applies these same default rules in determining the time of dispatch and receipt in relation to all electronic transactions.
Similarly, the Convention provides default rules for determining the location of the parties (Article 6). The Bill applies theses same default rules in determining the location of the parties in relation to all electronic transactions.
Parties to a contract may, however, agree to contractual terms that vary the default rules, consistent with the preservation of party autonomy in respect of these matters under Article 3 of the Convention.
Departure from the Convention
The Convention does not apply to electronic communications relating to personal, family or household contracts. The rationale for this exclusion was that the Convention does not address matters providing protection for consumers in contracts (for example, by specifying conditions under which a consumer will be presumed to have agreed to terms and conditions).
However, in Australia there is legislative protection for consumers. Thisincludes trade practices legislation (applicable to contracts for sale of goods and services to a "consumer" and concerned with unfair conduct), consumer credit legislation (providing relief from certain unjust contracts, mortgages or guarantees in respect of the provision of consumer credit) and financial services legislation. Other laws such as insurance contracts legislation include provisions which may have a protective effect for consumers, but also provide for enforcement of terms and conditions against consumers.
The Principal Act currently applies to all transactions, including private and consumer transactions, entered into for the purposes of a law of Victoria. Itdoes not override the protection provided by other consumer protection laws. Therefore it is considered appropriate to depart from the Convention on this issue and encompass personal, family and household contracts within the scope of the Principal Act.
The matter of applying the amendments to consumer contracts despite the Convention's exclusion was discussed in a public consultation paper and comments were requested on this issue. However, no comments were made on this issue and Ministers agreed that these contracts would not be excluded from the scope of the amendments.
Therefore, the scope of the Principal Act will now extend the Convention rules to personal, family and household contracts.
The Principal Act is not intended to apply to international transactions and specifically refers to transactions "for the purposes of a law of this jurisdiction". However, the Bill contains a new Part 2A which is applicable to international contracts. Other than Part 2A, the Principal Act will continue to apply to domestic transactions only.
Clause Notes
Clause 1sets out the purposes of the Bill which are to amend the Principal Act—
- to clarify the circumstances in which a requirement for asignature will be taken to have been met in relation to an electronic communication; and
- to substitute the provisions relating to the determination of time and place of dispatch and receipt of electronic communications; and
- to provide for contracts that involve electronic communications; and
- to make other miscellaneous amendments.
Clause 2provides that the Bill is to commence operation on a day or days to be proclaimed or, if a provision does not come into operation before 11 October 2012, it comes into operation on that day.
Clause 3provides that theElectronic Transactions (Victoria) Act 2000iscalledthe Principal Act.
Clause4amendssection 3 of the Principal Act by inserting a number of new definitions. The newly defined terms are—
addressee—The definitions of originator and addressee clarify that the Principal Act deals with the relationship between originator and addressee, but not the relationship concerning any intermediary such as servers or web hosts.
The definition of addressee provides that an addressee is the person with whom the originator intends to communicate by transmitting electronic communication, as opposed to any person that may receive, forward or copy the communication during the course of transmission. It is to be interpreted to cover natural persons, corporate bodies and other legal entities.
The definition is consistent with the definition of the term in the Convention.
automated message system—The use of automated message systems forms part of present day business practices. Newsection 14C (inserted by clause 12 of the Bill) confirms that the absence of human intervention does not preclude contract formation, and whilst a number of reasons may otherwise render a contract invalid, the sole fact that an automated message system formed the contract will not deprive the contract of legal effectiveness, validity or enforceability. New section 14D (inserted by clause 12 of the Bill) also contains a safeguard where there has been an "input error".
The definition of automated message system clarifies that an automated message system differs from an information system in that its primary use is to facilitate exchanges leading to contract formation. The intention of the definition is to cover transactions that lack human intervention on either one, or both, sides of the transaction. For example, if a party orders goods via a website, the order may be taken and confirmed by the vendor's automated message service.
The definition differs slightly from the Convention. TheConvention provides that automated message systems "initiate an action or respond to data messages or performances". There was doubt raised during consultation as to the meaning of "or performances" and in the absence of any practical examples, the Commonwealth, States and Territories agreed that the definition should slightly depart from the Convention and omit the words "or performances".
originator—The definitions of originator and addressee are introduced to clarify that the Principal Act deals with the relationship between originator and addressee, but not the relationship concerning an intermediary such as servers or web hosts.
The definition provides that an originator is the person that sent or generated the communication, even if the communication was transmitted by another person. The intention of the definition is to eliminate the possibility that a recipient who merely stores a data message might be regarded as an originator. This definition contrasts with the definition of addressee, as it focuses on the intent of the action. It is to be interpreted to cover both natural persons, corporate bodies and other legal entities.
performance—The new definition of performance provides that the performance of a contract also includes non-performance of the contract. The Principal Act is intended to apply to communications that are made at the time when no contract, and possibly not even the negotiation of a contract, has come into being.
Clause 4 also substitutes the following existing definitions—
place of business—The new definition of place of business provides that a place of business includes business entities, government, government authorities and non-profit bodies. Therevised definition clarifies that the Principal Act is intended to apply to transactions of a commercial and trade-related nature, rather than only being directed at facilitating dealings with government.
This amendment aligns the domestic electronic transactions regime with the Convention.
transaction—The new definition of transaction clarifies that the scope of the Principal Act encapsulates a wider range of exchanges of information including dealings in connection with the formation and performance of a contract. The Principal Act is applicable to both requirements and permissions under a law togive information in writing. Whilst the broad and inclusive definition of transaction is intended to include laws requiring a contract to be in writing, the new definition confirms the intention by reference to various exchanges of information relating to contract formation, whether the exchanges occur at thestage of negotiations, during the performance, or after a contract has been performed.
This amendment aligns the domestic electronic transactions regime with the Convention.
Clause 5amends the outline in section 5 of the Principal Act to include a description of the provisions applying to the use of electronic communications in contracts in new Part 2A.
Subclause (2) makes a minor consequential amendment.
Clause 6inserts new section 6A into the Principal Act.
The power to provide for exemptions to the operation of the Principal Act has existed since the Principal Act was established. These exemptions are contained in the Regulations.
In general, appropriate exemptions are made where the purpose or intention of a requirement, permission or Victorian law cannot be satisfied by the use of electronic communications.
New section 6A provides that Regulations may exempt specified transactions, requirements, permissions, communications or other matters, or specified Victorian laws, from any or all of the provisions of the Principal Act.
New section 6A replaces the numerous, separate provisions in Division 2 of Part 2 of the Principal Act that provided individual powers to make regulations to exempt certain dealings from each specific section.
This new section creates a simplified structure by providing one regulation-making power in respect of exemptions from any, or all, of the provisions contained in the Principal Act.
Clause 7provides for the repeal of section 7(3) and 7(4) of the Principal Act. New section 6A (inserted by clause 6 of the Bill) provides that the Regulations may exempt specified transactions, requirements, permissions, communications or other matters, or specified Victorian laws, from any or all of the provisions of the Principal Act.
New section 6A replaces the numerous, separate provisions inDivision 2 of Part 2 of the Principal Act, such as existing section 7(3) and (4), that provided individual powers to make regulations to exempt certain dealings from each specific section.
The note at the foot of section 8(5) of the Principal Act referring the reader to section 12 has been removed administratively. Thisadministrative amendment is made as a consequence of clause 6 of the Bill, which inserts a new regulation making power (new section 6A of the Principal Act), and clauses 7, 9 and 11 of the Bill, which repeal sections 7(3) and (4), 12 and 14(3) and (4) of the Principal Act. The notes do not form part of the Principal Act because of the application of section 3(2) of the Principal Act and further, because they were inserted before the commencement of section 36(3A) of the Interpretation of Legislation Act 2000.
Clause 8amends section 9 of the Principal Act.
The Principal Act provides for the legal recognition of electronic signatures (irrespective of the method used) by establishing general conditions under which an electronic signature is regarded as authenticated with sufficient credibility and enforceability.
Signatures are used to perform a number of functions, such as identifying a person's personal involvement in the act of signing a document, associating a person with the content of a document, associating a person with the content of a document written by someone else, or endorsing authorship of a text. These basic functions of a signature are achieved in electronic form by using a method that identifies the originator of an electronic communication, and indicates the originator's intention in respect of the information contained therein.
Clause 8 amends section 9(1)(a) of the Principal Act to provide that an electronic signature must be capable of indicating the signatory's "intention" in respect of the information contained in the electronic communication, rather than the signatory's "approval" of the information contained in the electronic communication.
There are instances where the law requires a signature that does not have the function of indicating the signatory's "approval" ofthe information contained in the electronic communication. For example, the execution of particular document may need to be witnessed. In these circumstances, the witness' signature does not (and is not intended to) indicate the signatory's approval of the contents of the document. It merely identifies the signatory as a witness to the execution of the document.
This item aligns the Principal Act with the Convention by confirming that the notion of "signature" does not necessarily imply a party's approval of the entire content of the communication to which the signature is attached.
Section 9(1)(b) of the Principal Act currentlyprovides a flexible approach to the requirements of a valid electronic signature by providing that the method used should be "as reliable as was appropriate for the purpose for which the information was communicated". This enables a range of legal, technical and commercial factors to be considered when determining whether the method used is appropriate, including the nature of the activity taking place, the frequency of activity between the parties, the value and importance of the information contained inthe communication, and the availability and cost of using alternative methods of identification.
Clause 8 substitutes section 9(1)(b) of the Principal Act with a new paragraph to this "reliability test" for determining whether the method used was as "reliable as was appropriate" by adding reference to "in the light of all of the circumstances, including any relevant agreement". This new paragraph also validates a signature method regardless of its reliability principle, in circumstances where the method used is proven in fact to have identified the signatory, and indicated the signatory's intention inrespect of theinformation contained in the electronic communication, by itself or together with further evidence.
This new paragraph is intended to ensure that a court considers a number of factors in ascertaining whether the electronic signature used was sufficient to identify the signatory. In accordance with the principle of "party autonomy", it is open to the parties to agree to use simpler signature methods.
This new paragraph prevents a party from invoking the "reliability test" to repudiate a signature in circumstances where the identity of the party and their intentions can be proved. Sucha result would be particularly unfortunate as it would allow a party to escape the party's obligations by asserting that the party's signature, or the other party's signature, was unreliable even if there is no dispute about the identity of the person signing, or the fact of the signing.