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Year 2000 Information Disclosure Bill 1999
Bills Digest No. 114 1998-99
This Digest was prepared for debate. It reflects the legislation as introduced and does not canvass subsequent amendments. This Digest does not have any official legal stat us. Other sources should be consulted to determine the subsequent official status of the Bill.
Year 2000 Information Disclosure Bill 1999
To encourage the voluntary disclo sure and exchange of information about Year 2000 computer problems and remediation efforts by providing protection from civil liability for Year 2000 disclosure statements.
The Year 2000 problem, also known as the ‘Millennium Bug’, arises from the fact that in the early days of computing a programming convention developed where the date function used a 2-digit-year (YY) format, instead of a 4-digit (YYYY) format, (for example 99 for 1999). Initially, this practice was regarded as a necessity because of the high cost of computer storage and memory. The two-digit date convention assumes that the century is '19' and as a consequence come 1 January 2000, the '00' will be interpreted as 1900 rather than 2000. (There are other critical dates that may cause problems aside from 01-01-00. These include 9-9-99 and 29/02/00).(1) It is feared that this will cause computing systems and computer chips in equipment to malfunction leading to breakdown in the delivery of a range of goods and services possibly including critical infrastructure such as telecommunications, transportation and the financial system.
Solving the Year 2000 problem has proven to be time-consuming and expensive. In addition, it is reported that preparations for the Year 2000 are being hampered by a concern that statements relating to Year 2000 computer problems would open the maker to legal liability in the event that the statement proved to be inaccurate. Lawyers have been particularly concerned about the impact of section 52 of the Trade Practices Act, perhaps the most litigated section on Australia’s statute books. Section 52 prohibits corporations from engaging in conduct that is misleading and deceptive. In order to recover damages under this section it is sufficient to show that loss has flowed from its breach - no lack of good faith need be shown. This strict liability rule has led some lawyers to advise their clients to limit their disclosure on Year 2000 matters.
Recently released ABS statistics(2) show that awareness of the Year 2000 problem among Australian Business is high (90 per cent) however only 60 per cent of businesses are undertaking work to address the problem. While almost all large businesses are addressing Year 2000 issues, small and medium enterprises (SMEs) are not devoting appropriate resources to the problem. Around 20 per cent of businesses intending to carry out Year 2000 remedial work have yet to determine the scope of their potential Year 2000 problems.
These statistics bear out the need to disseminate more information on the readiness of systems to cope with the Millennium Bug and solutions to Year 2000 problem. The Bill is designed to encourage larger business to share their solutions to Year 2000 problems with SMEs. Disclosure on the compliance of systems by suppliers may also reduce the cost of contingency planning by consumers of those services. The rights of consumers to take action in the event of a Year 2000 product or service failure are maintained.
In October 1998, the United States Congress passed the ‘Year 2000 Information and Readiness Disclosure Act’. The legislation is also known as the ‘Good Samaritan’ Act because it encourages companies to share information on Year 2000 readiness and continge ncy plans. The Act limits the extent to which Year 2000 statements can be used against their maker in all civil litigation.
In December 1998, Federal, State and Territorial Ministers with responsibility for Year 2000 issues met with private sector represen tatives including delegates from the banking, electricity and telecommunications industries to examine ways to improve Australia’s preparedness for the Millennium Bug. At that meeting, State and Territory governments indicated support for ‘Good Samaritan’ legislation modelled on the US precedent. The State and Territorial Ministers stated that they would introduce similar legislation in their jurisdictions as soon as possible. Complementary legislation is necessary because of constitutional limitations on the Commonwealth’s power.
Clause 3 provides that the commencement of legislation will be the day after it receives Royal Assent so as to ensure that it does not have retrospective operation. Clause 4 importantly provides a definition of the term ‘statement’. This definition excludes statements that are not made to the public or a section of the public and includes those that are a distinct part of statement. The propose is to ensure that the part of a document that is eligible for the limited liability provided by the Bill is clearly identified.
This Part defines the statements that will be eligible for protection from civil liability: Original Year 2000 statements and Republis hed Year 2000 statements.
Clause 8 defines an original Year 2000 statement. The definition is extensive, covering statements that relate to the detection, prevention, remediation or consequences of Year 2000 processing problems. In addition, it also covers statements relating to Year 2000 contingency planning and risk management. The statement must also provide that it is a Year 2000 disclosure statement for the purposes of the Act and that a person may be protected by the Act from liability in relation to the statement.
An important distinction between the Bill and the US legislation upon which it is modelled is that the Bill has no retrospective application. The Bill covers statements made between the commencement of the section and before July 1 2001. In contrast, the US Act enabled statements made after January 1 1996 and before the passage of the Act to be retrospectively designated as a “Year 2000 Readiness Disclosures”.(3) Another point of difference is that under the US legislation oral statements are eligible for protection, in contrast the Bill only captures written statements.
Republished Year 2000 statements are defined in Clause 9 . Republications, retransmissions or reproductions of an original year 2000 statement will only be eligible for the Bill’s protection if done in full. This definition extends the protection offered by the Bill to situations such as those where a retailer photocopies a manufacturer’s original Year 2000 statement and distributes it to customers.
The key operative provisions of the Bill are contained in clauses 10(1) and 10 (2) . Clause 10(1) gives protection for Year 2000 statements that would otherwise expose the maker to civil liability. Clause 10(2) provides that Year 2000 statements are not admissible as evidence in litigation against the maker of the statement.
The protection provided by the Bill is limited. Clause 11 contains an array of exemptions from clause 10 . These categories include Year 2000 disclosures that are:
- known to be false or misleading or are made recklessly, or
- made in connection with the formation of a contract, for example, through a warranty, or
- made pursuant to a requirement of a contract or under a law of the Commonwealth, a State or Territory,(4) or
- made to induce consumers to acquire goods or services.
Clause 12 signals the constitutional basis for the protection from civil liability bestowed by Clause 10 . The Bill chiefly relies on the Commonwealth’s corporations power however it also invokes powers in relation to: interstate and international trade and commerce; postal, telegraphic, telephonic and other like services; territories; and the rights and liabilities of the Commonwealth and any authority of the Commonwealth.
Clause 13 contains a device designed to mitigate recourse to litigation. It provides that the protection from civil liability cannot be invoked unless the person claiming it has given the plaintiff a statement asserting the good faith of its disclosure. The statement must establish the basis for the argument that the Year 2000 disclosure statement was not made in the knowledge that it was false and misleading and was not made recklessly. This statement cannot be used in evidence except for determining whether the requirement for a statement has been complied with.
Clause 14 deals with the evidentiary requirements for establishing that the exception contained in clause 11(1)(a) applies. A plaintiff can activate this exception against a corporation by showing that a director, employee or agent of the corporation, acting within their actual or apparent authority, knew that the Year 2000 statement was false or misleading or was reckless.
Where a plaintiff seeks to invoke the false or misleading exception against a person other than a corporation, it is sufficient to show that their employee or agent, acting within their actual or apparent authority, knew or was reckless as to whether the Year 2000 statement was false or misleading.
Clause 1 5 establishes a presumption that Year 2000 disclosure statements do not amend a contract unless there is an express provision in the contract that they are to have that effect.
Clause 16 restricts the application of clause 15 to contracts that may be the subject of Commonwealth power under the Constitution.
Section 45 of the Trade Practices Act prohibits contracts, arrangements or understandings which have the effect of restricting competition. Some lawy ers have expressed concern that firms engaged in joint activities with the objective of tackling Year 2000 processing problems would expose themselves to liability for breaching the Act. Clause 17 exempts such conduct from the application of section 45. The clause will not protect boycotts or other exclusionary dealings but only applies to the disclosure and exchange of Year 2000 information.
Clause 18 states that there is no intent to exclude the application of complementary State and Territorial legislation on Year 2000 disclosure
Clause 19 acknowledges that the Commonwealth does not possess any power in relation to State Banking and State Insurance where that business does not extend beyond the limits of the State in question. The Bill will have no application to those businesses.
Clause 20 allows the Governor-General to make regulations necessary to give effect to the Bill.
The Bill appears consistent with the Government's programs to foster industry action on the millennium bug. Im portantly, while disclosure is promoted, the rights of consumers to take action in the event of a Year 2000 product or service failure are maintained. States and Territories have provided unanimous support for the proposed disclosure legislation and have indicated a willingness to enact complementary legislation so as to capture disclosures made by entities not subject to Commonwealth Power - for example, State Government Agencies.
Legal criticism of the Bill has focused on three issues.
- The protection from civil liability provided by the Bill may mean that corporations take less care to make statements accurate. While the volume of information disclosed on Year 2000 issues may increase, the quality of that information may not.
- Consumers may suffer because they will be unable to claim damages for negligent misstatement or breach of the Trade Practices Act but instead must show that the company making the Year 2000 statement did not do so in good faith. The legislation will not necessarily reduce the amount of litigation on Year 2000 issues because the Bill will simply shift the focus of the legal debate from negligence to recklessness.(5)
- The Bill does not address the question of professional liability. It provides no protection for firms that conduct Year 2000 compliance audits.(6) Some have argued that business is imperilled by the lack of professional indemnity cover for Year 2000 related work.(7)
While the Bill curtails the rights of consumers, this must be offset against the value of increased disclosure to the public in preventing the breakdown of systems and mitigating contingency costs. There is concern that if the Bill is not passe d disclosure of information on Year 2000 readiness will be stifled. The effect may be that the contingency planning costs may be unnecessarily imposed due to lack of information about the preparedness of systems.
1. In older computer code date f ields were sometimes used to provide special functionality. To use less memory 9/9/99 was often entered as a test date and meant "save this data item forever" or "remove this data item after 30 days". In addition, there are systems and applications that do not recognise the year 2000 as a leap year. This will cause all dates following February 29, 2000 to be offset incorrectly by one day. See NSW Govt Y2K homepage for other dates.
2. Australian Bureau of Statistics, The Year 2000 Problem , Australia, Preliminary. Catalogue No.8151.0, February 1999.
3. To gain the protection of the Act, a statement had to be so designated within 45 days of the legislation’s enactment.
4. For example statements made under the continuous disclosure requirements of the Corporations Law or the ASX’s listing rules will not be protected.
5. See Stan Beer, “Good Samaritan Law Flawed, Experts Say”, Australian Financial Review, December 22 1998.
6. Statements following from such audits are made in the fulfilment of a contractual obligation and therefore excepted from protection by Clause 11(2)(a).
7. See Emma Connors,“Good Samaritan Bill Ready For Vote”, Australian Financial Review, February 9 1999.
16 February 1999
Bills Digest Service
Inf ormation and Research Services
This paper has been prepared for general distribution to Senators and Members of the Australian Parliament. While great care is taken to ensure that the paper is accurate and balanced, the paper is written using information publicly available at the time of production. The views expressed are those of the author and should not be attributed to the Information and Research Services (IRS). Advice on legislation or legal policy issues contained in this paper is provided for use in parliamentary debate and for related parliamentary purposes. This paper is not professional legal opinion. Readers are reminded that the paper is not an official parliamentary or Australian government document. IRS staff are available to discuss the paper's contents with Senators and Members and their staff but not with members of the public.