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Electronic Transactions Amendment Bill 2011

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2010-2011

 

 

 

 

 

 

 

THE PARLIAMENT OF THE COMMONWEALTH OF AUSTRALIA

 

 

 

 

 

 

 

THE HOUSE OF REPRESENTATIVES

 

 

 

 

 

 

 

ELECTRONIC TRANSACTIONS AMENDMENT BILL 2011

 

 

 

 

 

 

 

EXPLANATORY MEMORANDUM

 

 

 

 

 

 

 

 

(Circulated by authority of the Attorney-General,

the Hon Robert McClelland MP)



Abbreviations used in the Explanatory Memorandum

 

Act                              Electronic Transactions Act 1999

 

Bill                              Electronic Transactions Amendment Bill 2011

 

Convention                 United Nations Convention on the Use of Electronic Communications in International Contracts 2005

 

Model Law                 The Model Law on Electronic Commerce 1996

 

Regulations                 Electronic Transactions Regulations 2000

 

UNCITRAL               The United Nations Commission on International Trade Law

 

                                                 



ELECTRONIC TRANSACTIONS AMENDMENT BILL 2011

 

OUTLINE

 

Electronic Transactions Act 1999

 

The Electronic Transactions Act 1999 (the Act) implements the United Nations Commission on International Trade Law (UNCITRAL) Model Law on Electronic Commerce 1996 (the Model Law).  The Model Law provides a set of internationally accepted rules to remove legal obstacles and provide a more secure environment for electronic commerce.  To achieve national uniformity, the States and Territories also passed Electronic Transactions Acts consistent with the Commonwealth Act.

 

The Act implements three key outcomes of the Model Law - legal validity of electronic transactions, non-discriminatory treatment of different electronic methods, and party autonomy to agree to alternative terms and conditions.  Essentially, the Act provides that transactions taking place under a law of the jurisdiction will not be invalid simply because they are completed electronically.  The 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, the Electronic Transactions Regulations 2000 (the Regulations) exclude certain documents and transactions from the application of the Act.

 

The Act is directed at removing impediments to the use of electronic communications in general (whether in transactions with government, business or consumers).  Although the Act does recognise electronic transactions principally for the purpose of an individual’s dealings with the Government, it also applies to private dealings.

 

Electronic Transactions Amendment Bill 2011

 

The Electronic Transactions Amendment Bill 2011 (the Bill) was developed following consideration of the proposal to accede to the United Nations Convention on the Use of Electronic Communications in International Contracts 2005 (the Convention) by the Standing Committee of Attorneys-General.

 

The Convention was adopted by the United Nations General Assembly on 23 November 2005.  It 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.  It aims to enhance legal certainty and commercial predictability but does not otherwise purport to vary or create contract law.   The Convention updates the Model Law in light of the further knowledge and developments in electronic commerce, and provides for contracts, to give legal certainty in international trade, filling the gaps created since the Model Law was developed in 1996.

 

Implementation of the Convention does not require significant changes to Australia’s electronic transactions laws. 

The Bill presents the Commonwealth version of the model amendment provisions developed by the Parliamentary Counsels’ Committee.  The amendments to the Act will update the Commonwealth electronic transactions regime to align with the Convention, with a view to accession once the model amendment provisions are enacted in all jurisdictions.  The Bill also applies the changes proposed by the Convention in the context of international contracts, to the general electronic transactions regime as these changes serve to update the regime for all electronic transactions.  For example, 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.  The Bill applies these same default rules in determining the time of dispatch and receipt in relation to all electronic communications.

 

The Bill clarifies the traditional rules on contract formation to address the needs of electronic commerce, including the recognition of automated message systems, clarification of an invitation to treat, rules to determine the location of the parties, updating the electronic signature provisions and default rules for time and place of dispatch and receipt.  The amendments are machinery in nature and intentionally do not unduly disturb or affect settled contract law or domestic practice.

 

Departures from the Convention

 

Personal, family or household contracts are excluded from the Convention rules.  The rationale for this exclusion was that the Convention does not address matters providing protection for consumers in contracts (for example, 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 such as the measures contained in the Competition and Consumer Act 2010 .  The Act currently applies to all transactions, including private and consumer transactions, and does not override 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 Act.

 

Application of the amendments to personal, family and household contracts despite the Convention’s exclusion was discussed in a public consultation paper and the Government specifically requested views on the issue.  However, no comments were offered, so Ministers agreed that the exclusion was unnecessary in Australian law.

 

The Convention also provides for the exclusion of negotiable instruments, documents of title and similar documents because the potential consequences of unauthorised duplication make it necessary to develop mechanisms to ensure the singularity of those instruments.  Generally, any transferable instrument that entitles the bearer or beneficiary to claim the delivery of goods or the payment of a sum of money is a complex transaction and warrants rules of specific application.  The Regulations already provide for the exclusion of these transactions from the application of the Act.

 

These transactions have been excluded because their complexity warranted rules of specific application.  It is preferable for these transactions to be regulated by their existing legal frameworks.  Transactions related to certain financial service markets are governed by well-defined regulatory and contractual rules and industry standards which address the issues relating to electronic commerce, and provide for effective worldwide functioning. 

 

The Act is not intended to apply to international transactions and specifically refers to transactions ‘for the purposes of a law of the Commonwealth’.  However, the Bill contains a new Part 2A which is applicable to international contracts.  Other than Part 2A, the Act will continue to apply to domestic transactions only.

 

Other Amendments

 

The Act makes provision for the exclusion of certain transactions from its application.  These exclusions are contained in the Regulations and provide for documents such as passports and statutory declarations to be in paper-based form only.  The Act contains a number of separate provisions to enable exclusions to individual sections of the Act to be provided for in the Regulations.  The Bill inserts one main regulation-making power for the entire Act to provide a simplified structure for exceptions.

 

Financial impact statement

 

There is no direct financial impact on Government revenue from this Bill.

 



ELECTRONIC TRANSACTIONS AMENDMENT BILL 2011

 

NOTES ON CLAUSES

 

Clause 1: Short title

 

1.                   Clause 1 is a formal provision specifying the short title of the Bill.  It provides that when the Bill is enacted, it is to be cited as the Electronic Transactions Amendment Act 2011.

 

Clause 2: Commencement

 

2.                   This clause provides that Schedule 1 commences on the 28 th day after it receives Royal Assent.  Whilst the Act will be part of a national, uniform legislative scheme, it also works independently.  Therefore, there is no requirement that the commencement coincide with the commencement of the State and Territory amendments .

 

Clause 3: Schedules

 

3.                   This is a formal clause that enables the Schedules to amend the Act.  It provides that each Act that is specified in a Schedule is amended or repealed as set out in the applicable items in the Schedule, and that any other item in a Schedule has effect according to its terms.  The Bill contains only one Schedule.

 

SCHEDULE 1 - AMENDMENTS

 

Electronic Transactions Act 1999

 

Item 1: At the end of section 4

 

4.                   This item amends the simplified outline to insert a new bullet point at the end of section 4 describing the provisions applying to the use of electronic communications in contracts in Part 2A.  The section gives readers an overview of the content of the Act.

 

Item 2: Subsection 5(1)

 

5.                   This item inserts a definition of ‘addressee’ in subsection 5(1) of the Act in accordance with the Convention .  The definition of ‘originator’ and ‘addressee’ clarify that the Act deals with the relationship between originator and addressee, but not the relationship concerning any intermediary such as servers or web hosts.

 

6.                   The definition provides that an ‘addressee’ is the person with whom the originator intends to communicate by transmitting the 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.

 



Item 3: Subsection 5(1)

 

7.                   This item inserts a definition of ‘automated message system’ in subsection 5(1) of the Act consistent with the Convention, but with slightly different wording.

 

8.                    The use of automated message systems forms part of present day business practices.  Item 21 (new section 15C) 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.  Item 21 also contains a safeguard in certain circumstances where there has been an ‘input error’.

 

9.                   The definition 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.

 

10.               The definition differs slightly from the Convention.  The Convention 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’.

 

Item 4: Subsection 5(1)

 

11.               This item inserts a definition of ‘originator’ in subsection 5(1) of the Act in accordance with the Convention.  The definition of ‘originator’ and ‘addressee’ clarify that the Act deals with the relationship between originator and addressee, but not the relationship concerning any intermediary such as servers or web hosts.

 

12.               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 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’ inserted at item 2, 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.

 

Item 5: Subsection 5(1)

 

13.               This item inserts a definition of ‘performance’ in subsection 5(1) of the Act to provide that the performance of a contract includes the non-performance of a contract.  The 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. 

 

Item 6: Subsection 5(1) (definition of place of business )

 

14.               This item repeals and replaces the definition of ‘place of business’.  The new definition provides that a place of business includes business entities, government, government authorities and non-profit bodies.  The revised definition clarifies that the Act is intended to apply to transactions of a commercial and trade-related nature, rather than only being directed at facilitating dealings with Government.

 

15.               This amendment aligns the domestic electronic transactions regime with the Convention.

 

Item 7: Subsection 5(1) (definition of transaction )

16.               This item repeals and replaces the definition of ‘transaction’ in subsection 5(1) of the Act to clarify that the scope of the Act encapsulates a wide range of exchanges of information including dealings connected to the formation and performance of a contract.

 

17.               The Act is applicable to both requirements and permissions under a law to give information in writing.  Whilst the broad and inclusive definition of ‘transaction’ is intended to include laws requiring a contract to be in writing, this item confirms the intention by reference to various exchanges of information relating to contract formation, whether the exchanges occur at the stage of negotiations, during the performance, or after a contract has been performed.  

 

18.               This amendment aligns the domestic electronic transactions regime with the Convention.

 

Item 8: At the end of Part 1

 

19.               The power to provide for exemptions to the operation of the Act has existed since the Act was established.  However, this item, along with items 9, 10, 15, 16, 17, 18 and 20, transfer the numerous provisions creating the powers to make the exemptions, into two simplified sections.  These items do not alter the policy or operation of the Act.

 

20.               In general, appropriate exemptions are made where the purpose or intention of a requirement, permission or Commonwealth law cannot be satisfied by the use of electronic communications.  For example, exemptions are made in circumstances where there is a high risk of document fraud (visas, cheques), where a government agency does not have the technology or procedures in place to ensure the secure transmission of information, or where it is important to ensure that there is only one, paper-based document (passports). 

 

21.               New section 7A provides that the Regulations may exempt specified transactions, requirements, permissions, communications or other matters, or specified Commonwealth laws, from any or all of the provisions of the Act.  The new section replaces the numerous, separate provisions in Division 2 of Part 2 of the Act that provided individual powers to make regulations to exempt certain dealings from each specific section.  New section 7A creates a simplified structure by providing one regulation-making power in respect to exemptions from any, or all, of the provisions contained in the Act.

 

22.               New subsection 7B(1) provides an exemption from the operation of the provisions in Part 2A and Division 2 of Part 2 of the Act for the practice and procedure of a court or tribunal.  The purpose of the new section is to replicate the exclusion contained in subsection 13(4) which is repealed by item 18 of the Bill.  The exemption is maintained to provide that the provisions in Part 2A and Division 2 of Part 2 cannot be relied upon to allow a person to use electronic communications to satisfy any requirements or permissions solely in relation to the practice and procedure of courts and tribunals.  It is more appropriate to provide for the use of electronic communications as part of the practice and procedure of a court or tribunal elsewhere, such as within the rules of court.

 

23.               As provided in the repealed provision, this item clarifies that the ‘practice and procedure’ of courts and tribunals includes all matters in relation to which rules of court may be made.  This is intended to cover actions taken in preparation for litigation in a court, even though litigation may never actually commence.

 

24.               New subsection 7B(2) provides that Part 2A and Division 2 of Part 2 do not affect the operation of evidence laws.  The purpose of the new section is to replicate the exclusion contained in subsection 13(5) which is repealed by item 18 of the Bill.  This exemption is maintained in its general nature to complement the policy of not affecting the operation of litigation in courts and tribunals.  However, it is intended that the laws of evidence, including the Evidence Act 1995 , can be used to show that information or documents were provided electronically in accordance with the provisions of the Act.

 

25.               It is important to note that the exemptions provided by new sections 7A and 7B are not intended to apply to rules of substantive law that a court or tribunal is considering when determining a matter.  The exemptions do not mean that a person is compelled to use paper documents if they will need to evidence matters in court at some future time, but are intended to apply solely to the practice and procedural requirements of litigation in courts or tribunals.

 

Item 9: Subsections 8(3) and (4)

 

26.               This item repeals subsections 8(3) and 8(4) of the Act.  New section 7A inserted by item 8 of the Bill provides that the Regulations may exempt specified transactions, requirements, permissions, communications or other matters, or specified Commonwealth laws, from any or all of the provisions of the Act.  The new section replaces the numerous, separate provisions in Division 2 of Part 2, such as existing subsections 8(3) and 8(4), that provided individual powers to make regulations to exempt certain dealings from each specific section.  Item 8 creates a simplified structure by providing one regulation-making power in respect to exemptions from any, or all, of the provisions contained in Part 2A and Division 2 of Part 2 of the Act.

 



Item 10: Section 9 (note)

 

27.               This item repeals a note stating that exemptions to section 9 of the Act are contained in section 13 of the Act.  This amendment is consequential to items 8 and 18 which create a simplified structure for exemptions, and repeal section 13 of the Act.  Repealing the note also corrects the inaccurate direction to section 13 alone, as exemptions to section 9 are also contained in the Regulations. 

 

Item 11: Paragraph 10(1)(a)

 

28.               The 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. 

 

29.               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.

 

30.               Item 11 amends paragraph 10(1)(a) of the 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. 

 

31.               There are instances where the law requires a signature that does not have the function of indicating the signatory’s ‘approval’ of the information contained in the electronic communication.  For example, the execution of a 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.

 

32.               This item aligns the domestic electronic transactions regime 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. 

 

33.               Item 13 amends paragraph 10(2)(c) of the Act in similar terms.

 

Item 12: Paragraph 10(1)(b)

 

34.               Paragraph 10(1)(b) of the Act provides 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 in the communication, and the availability and cost of using alternative methods of identification. 

 

35.               Item 12 repeals paragraph 10(1)(b) of the Act and substitutes a new paragraph to this ‘reliability test’ for determining whether the method used was as ‘reliable as was appropriate’ by adding reference to ‘in light of all of the circumstances including any relevant agreement’.  This item also validates a signature method regardless of its reliability in principle, in circumstances where the method used is proven in fact to have identified the signatory, and indicated the signatory’s intention in respect of the information contained in the electronic communication, by itself or together with further evidence.

 

36.               This item 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.

 

37.               This item 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.  Such a result would be particularly unfortunate as it would allow a party to escape its obligations by asserting that its 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. 

 

38.               This amendment aligns the domestic electronic transactions regime with the Convention.

 

Item 13: Paragraph 10(2)(c)

 

39.               Subsection 10(2) of the Act makes it clear that the signature provisions do not affect the operation of any other Commonwealth legislation.

 

40.               Item 13 complements item 11 to provide that the Act does not affect the operation of any other Commonwealth law that specifies the particular method of electronic signature to be used to identify the originator of a communication, and to indicate the originator’s ‘intention’, rather than ‘approval’, of the information communicated.

 

41.               This item aligns the domestic electronic transactions regime 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. 

 

Item 14: After subsection 10(2)

 

42.               This item inserts a new subsection 10(3) to align the domestic electronic transactions regime with Article 9 of the Convention to clarify that where the Act applies to a law requiring a signature, it includes a law that provides a consequence for the absence of a signature.

 

Item 15: Section 10 (note)

 

43.               This item repeals a note stating that exemptions to section 10 of the Act are contained in section 13 of the Act.  This amendment is consequential to items 8 and 18 which create a simplified structure for exemptions, and repeal section 13 of the Act.  Repealing the note also corrects the inaccurate direction to section 13 alone, as exemptions to section 10 are also contained in the Regulations. 

 

Item 16: Section 11 (note)

 

44.               This item repeals a note stating that exemptions to section 11 of the Act are contained in section 13 of the Act.  This amendment is consequential to items 8 and 18 which create a simplified structure for exemptions, and repeal section 13 of the Act.  Repealing the note also corrects the inaccurate direction to section 13 alone, as exemptions to section 11 are also contained in the Regulations. 

 

Item 17: Section 12 (note)

 

45.               This item repeals a note stating that exemptions to section 12 of the Act are contained in section 13 of the Act.  This amendment is consequential to items 8 and 18 which create a simplified structure for exemptions, and repeal section 13 of the Act.  Repealing the note also corrects the inaccurate direction to section 13 alone, as exemptions to section 12 are also contained in the Regulations. 

 

Item 18: Section 13

 

46.               This item repeals section 13 which is one of the regulation-making powers contained in the Act.  Item 8 replaces the current regulation-making provisions to provide a simplified structure for making exemptions to the application of the Act.  This item does not alter the policy or operation of the Act.

 

Item 19: Section 14

 

47.               Section 14 of the Act contains default rules to determine the time and place of dispatch and receipt of an electronic communication that apply in the absence of any alternative agreement on these matters. 

 

48.               This item repeals existing section 14 and substitutes a new section providing the default rules with minor changes to the provisions to accord with the Convention.  These minor changes update the Model Law based on a greater knowledge of the internet and the use of electronic communications obtained since the Model Law was finalised in 1996.  All amendments retain the proviso that in all cases, parties can agree to alternative terms to determine the time and place of dispatch and receipt of electronic communications.

 

49.               For the purposes of contract law, the time of the dispatch and the receipt of an electronic communication are significant to the issue of contractual acceptance.  It is important to note that proposed section 14 does not intend to provide a rule on the time of contract formation when using electronic communications, but refines the default rules for determining the time of dispatch and receipt only.  This then enables the application of well-established common law rules to determine the issues concerning contract formation.

 

50.               To determine the precise time of dispatch and receipt of an electronic communication with sufficient reliability and integrity, consideration may be given to Australia’s realisation of the Coordinated Universal Time (UTC (AUS)) maintained by the National Measurement Institute, as required by the National Measurement Act 1960 .  The UTC (AUS) is Australia's ultimate legal reference for the time of day.

 

Proposed section 14 - Time of dispatch

 

51.               The proposed new section replaces the provisions concerning the default rules establishing the time of dispatch of an electronic communication to align the Act with Article 10 of the Convention.

 

52.               Both the Model Law and the Convention contain a formula to determine the time of dispatch of an electronic communication which involves the notion of a communication leaving the control of the originator’s information system.  The Model Law is directed at the time an electronic communication enters the information system of an addressee, whereas the Convention is directed at the time it leaves the information system of the originator.  There is likely to be little difference in practice, but for example, an e-mail communication whilst often virtually instantaneous, can be lost or delayed by security measures such as firewalls and filters. 

 

53.               The new paragraph 14(1)(a) adopts the Convention rule to be clear that dispatch occurs at the time an electronic communication leaves the information system of the originator.  

 

54.               The new paragraph 14(1)(b) provides that where an electronic communication does not leave the information system of the originator, the time of dispatch is deemed to be when the communication is received by the addressee.  This provision anticipates the exchange of electronic communications within the same information system.

 

55.               The provision does not make a distinction between an information system that is, or is not, under the control of the user such as where the parties are using web-based e-mail or Software as a Service (SAAS) models.

 

56.               In relation to contracts, the general rule under the common law is that, unless an offer stipulates a particular mode of acceptance, a contract is formed when acceptance is communicated to the offeror.  An exception to this general rule is the ‘postal acceptance’ rule, where acceptance is effective immediately after a properly pre-paid and addressed letter is posted.  However, the application of the postal acceptance rule to electronic communications may be confined to situations where it can be inferred an offeror intended acceptance to be communicated upon dispatch of an electronic communication.

 

57.               Lastly, new subsection 14(2) confirms that the default rules for determining the time of dispatch are not affected if the information system supporting an electronic address is in a different location from where the electronic communication is sent, which could be in a different location or jurisdiction.  This is consistent with new subsection 14B(3) concerning the determination of the place of dispatch or receipt of an electronic communication.

 

Proposed section 14A - Time of receipt

 

58.               New section 14A replaces the provisions concerning the default rules establishing the time of receipt of an electronic communication to align the Act with Article 10 of the Convention.

 

59.               New subsection 14A(1) provides that the time of receipt of an electronic communication is the time when it becomes ‘capable of being retrieved’ by the addressee at a designated electronic address, or when sent to another electronic address, the time of receipt is the time when the electronic communication is both ‘capable of being retrieved’, and the addressee has become aware that the electronic communication has been sent to that electronic address.

 

60.               Whether or not an electronic communication has been sent to a non-designated address is a factual matter that could be proven by objective evidence, such as a record of notice, or an automatic delivery message. 

 

61.               The Convention introduces the concept of an electronic communication being ‘capable of being retrieved’.  New subsection 14A(2) clarifies that an electronic communication is presumed to be capable of being retrieved by the addressee when it reaches the addressee’s electronic address.  However, it is important to note that this is a presumption only.  It does not go so far as to say that the presumption equates to knowledge.  The question of whether an electronic communication has been ‘communicated’ would remain to be determined under the common law, depending on the particular facts. 

 

62.               The rule determining receipt of an electronic communication is stated as an example as to why personal, family or household contracts are excluded from the scope of the Convention.  The explanatory notes provide that the presumption of receipt occurring upon an electronic communication reaching an addressee’s electronic address is not appropriate in the context of consumers.  Receipt of an electronic communication often communicates acceptance for the purpose of contract formation, and the rationale for the exclusion in this context is that it requires private individuals to conform to the same standards of diligence as entities or persons engaged in commercial activities.  Consumers may not regularly check their e-mail, or could be unable to distinguish readily between legitimate commercial messages and unsolicited mail or spam and as such, the Convention states that the rule is not appropriate for personal, family or household contracts.

 

63.               However, the rules of dispatch and receipt were not previously excluded from application to personal, family or household dealings, including contracts.  In the absence of these rules, the question of how the time of dispatch and receipt are to be determined in relation to consumer contracts would be left open.  This would be a significant omission as consumers are increasingly undertaking transactions online over the internet.  Therefore, this new section is also intended to apply to personal, family or household dealings, including contracts, and would not override, but merely supplement, other existing laws offering protection to consumers.

 

64.               Lastly, new subsection 14A(3) confirms that the default rules for determining the time of receipt are not affected if the information system supporting an electronic address is in a different location from where the electronic communication is received, which could be in a different location or jurisdiction.  This is consistent with new subsection 14B(3) concerning the determination of the place of dispatch or receipt of an electronic communication.

 

Proposed section 14B - Place of dispatch and receipt

 

65.               This new section replaces the provisions concerning the default rules establishing the place of dispatch and receipt of an electronic communication to align the Act with Articles 6 and 10 of the Convention.  New subsection 14B(1) replicates the existing provision to provide that the place of dispatch and receipt of electronic communications is the place where the originator or addressee has its place of business.

 

66.               As a result of businesses adopting technological advances, business practices may involve various parts of a transaction taking place in different locations and possibly different jurisdictions.  Consequently, it can be difficult to define the ‘place of business’.  For example, the global reach of electronic commerce means that an order could be placed from a person's home or work, and received by a salesperson at an office location.  The vendor may maintain several warehouses at different locations and different goods might be shipped to fulfil the single purchase order.  The transaction may also involve direct debit from a credit card, and the payment is likely to be affected in yet another location.

 

67.               New section 14B aligns the domestic electronic transactions regime with the Convention to provide default rules to enable parties to ascertain the place of business of their counterpart.  This facilitates a determination as to the international or domestic character of a transaction, including the jurisdiction of contract formation.

 

68.               It is important to note that the new section 14B does not impose a duty on parties to disclose their place of business, but establishes a set of rebuttable presumptions in favour of a party’s indication of its place of business.

 

69.               New paragraph 14B(2)(a) provides that a party’s place of business is assumed to be the location indicated by the party, unless another party demonstrates that they do not in fact have a place of business at that location .  Where a party has not indicated a place of business , new paragraph 14B(2)(b) provides that if there is one place of business, that will be assumed to be the place of business.  In circumstances where a party has made no indication and there are multiple places of business, new paragraphs 14B(2)(c) and (d) provide that the place of business will be either the place that has the closest relationship to the transaction, or the principle place of business.  In determining the place of business with the closest relationship to the transaction, this provision provides that consideration is to be given to the circumstances known, or contemplated, by the parties at any time before or after the transaction.

70.               New paragraph 14B(2)(e) provides that if a party does not have a place of business, for the purposes of determining the place of dispatch and receipt of an electronic communication, the place of business is assumed to be their habitual residence.  This provision does not apply to legal entities since it is generally understood that only natural persons are capable of having a ‘habitual residence’.

 

71.               New subsections 14B(3) and (4) clarify that the location of an information system can be one, but not necessarily the most significant, factor to consider in determining the place of business.  Further, peripheral information related to electronic messages such as Internet Protocol addresses and domain names provide little conclusive value for determining the physical location of the parties and as such, the intention of new subsections 14B(3) and (4) is to require cautious consideration of these elements.  The provisions recognise that there should be a reasonable connection between a party and what is deemed to be their place of business. 

 

72.               Item 6 repeals and replaces the definition of ‘place of business’ to clarify that the Act is intended to apply to transactions of a commercial and trade-related nature, rather than only being directed at facilitating dealings with Government.

 

Item 20: Subsections 15(3) and (4)

 

73.               This item repeals subsections 15(3) and 15(4) of the Act.  New section 7A inserted at item 8 provides that the Regulations may exempt specified transactions, requirements, permissions, communications or other matters, or specified Commonwealth laws, from any or all of the provisions of the Act.  The new section replaces the numerous, separate provisions in Division 2 of Part 2, such as the existing subsections 15(3) and 15(4), that provided individual powers to make regulations to exempt certain dealings from each specific section.  Item 8 creates a simplified structure by providing one regulation-making power in respect to exemptions from any, or all, of the provisions contained in Part 2A and Division 2 of Part 2.

 

Item 21: After Part 2

 

74.               This item inserts a new Part 2A into the Act which provides additional provisions applying to contracts involving electronic communications.

 

75.               New Part 2A operates in general terms, whereas the provisions contained in Part 2 of the Act apply by reference to the expression ‘for the purposes of a law of the Commonwealth’.  The intention is that the new Part 2A is applicable to both domestic contracts and contracts with an international aspect.  However, Part 2 of the Act will remain applicable to transactions undertaken pursuant to a law of the Commonwealth. 

 

76.               This item relies on paragraph 51(v) of the Constitution (the postal, telegraphic, telephonic, and other like services power) to give effect to the Convention on a national basis.  Other heads of power may, subject to the application of relevant limitations on the Commonwealth legislative power, provide complete or partial support for the Commonwealth to give effect to the Convention.

 

77.               These amendments align the electronic transactions regime with the Convention, preserving the rights of parties to agree to their own alternative arrangements.  The Convention acknowledges that in practice, solutions to the legal difficulties raised by the use of electronic communications are often the subject of contractual terms.

 

Proposed section 15A - Application and operation of this Part

 

78.               The Convention is directed at clarifying uncertainties in the use of electronic communications in connection to the formation and performance of contracts involving parties in different jurisdictions.  As such, the Convention rules are only concerned with, and applicable to, international contracts.  However, the proposed new provisions contained in new Part 2A also apply the Convention rules to the use of electronic communications related to the formation and performance of domestic contracts to avoid having different regimes under the domestic law.

 

79.               New subsection 15A(1) provides that the new Part 2A applies to contracts where either some, or all, parties are located within Australia or elsewhere, and whether the contract is for business purposes, for personal or household purposes, or for other purposes. 

 

80.               The explicit intention to extend the provisions to international contracts is embodied in paragraph 15A(1)(a) which applies the new Part 2A in circumstances where the location of the parties may be outside Australia.  It is not the intention to extend the provisions so far as to purport to cover contracts involving all parties being outside Australia and having no connection to Australia.  However, in such circumstances there is nothing to prevent parties agreeing that the law of another jurisdiction should govern the contract given the preservation of the principle of ‘party autonomy’.   

 

81.               New paragraph 15A(1)(b) clarifies the intent to depart from the Convention by including personal and household contracts within the scope of new Part 2A.  As discussed at item 19 (new section 14A) and new section 15D below, the Act does not override the protection provided by other consumer protection laws and therefore, it is not necessary to exclude such contracts from the scope of the Act.

 

82.               New subsection 15A(2) confirms that the new Part 2A is not intended to cover the field for the purposes of section 109 of the Commonwealth of Australia Constitution Act as it is not intended that the Commonwealth provisions override State and Territory legislation if an equivalent provision is contained in the relevant State or Territory’s legislation.  This provision preserves the co-operative nature of the electronic transactions scheme, but does enable the Commonwealth provisions to apply to a contract where the proper law of the contract is (or on formation would be) the law of a State or Territory, and that State or Territory does not have a law in conformity with the Commonwealth provisions.  This subsection ensures Australia’s compliance with the Convention in circumstances where a State or Territory either has not enacted the new provisions, or for some reason amends them in an inconsistent manner in the future.

 



Proposed section 15B - Invitation to treat regarding contracts

 

83.               New section 15B provides that a proposal to form a contract, other than a proposal addressed to specific persons, is considered to be merely an invitation to make offers, unless the contrary intention is clearly indicated by the person making the proposal.

 

84.               This provision reflects the common law distinction between an offer, where the offeror has indicated a willingness to be bound, and an invitation to treat, where a statement invites the making of offers or further negotiations.  The distinction turns on the intent of the invitor.  In the absence of a clear intention to be bound by an offer, the invitor is not bound until the price offered by a customer is accepted.

 

85.               The intention of this provision is to transpose the common law notion of an invitation to treat into an electronic environment to confirm that a trader who advertises goods or services on the internet, or through other generally accessible communication systems or open networks, is considered to be inviting those who access the site to make offers, unless there is a clear indication by the trader of an intention to be bound.  

 

86.               The internet enables information to be sent, or viewed, by virtually an unlimited number of people.  Subsection 15B(2) provides that proposals using interactive applications for the placement of orders may also be considered an invitation to treat.  Although interactive applications appear to provide for contracts to be concluded almost instantaneously, an advertisement or proposal to the world at large does not indicate the invitor’s intention to be bound, given the unlikelihood of fulfilling purchase orders received by an unlimited amount of people.

 

Proposed section 15C - Use of automated message system for contract formation - non-intervention of natural person

 

87.               The use of automated message systems forms part of present day business practices.  New section 15C confirms that the absence of human intervention on behalf of one, or all, parties to a contract does not itself preclude valid contract formation.  This provision does not enable an automated message system to interfere with agreement to terms of a contract, it merely confirms that an automated message system can agree to form a contract.

 

88.               Item 3 of the Bill inserts a definition of ‘automated message system’ in subsection 5(1) of the Act.  The intention of this provision is to acknowledge that whilst a number of reasons may otherwise render a contract invalid, the sole fact that automated message systems were used in the contract formation and no natural person reviewed or intervened, does not deny the resulting contract legal effectiveness, validity or enforceability.  However, the person or entity using the automated message system is ultimately responsible for the actions of the automated message system.    

 

Proposed section 15D - Error in electronic communications regarding contracts

 

89.               Unlike transactions involving human intervention, transacting with an automated message system reduces the opportunity to detect or correct an error.  New section 15D contains a safeguard providing a right to withdraw the portion of an electronic communication containing an error in certain circumstances.  The particular circumstances that must apply in order to give rise to the right to withdraw the error are intended to address the notion of ‘unjust enrichment’ and limit abuses by parties acting in bad faith.   

 

90.               Where an ‘input error’ is made (e.g. where a person enters the wrong quantity of goods on an order form) the safeguard enables the withdrawal of the portion of the electronic communication containing the error, only where the error is made by a natural person in an exchange with an automated message system, and an opportunity to correct the error is not provided.  Further, the right to withdraw the portion of the electronic communication containing the error is only available if the person notifies the other party of the error as soon as possible after having learned of the error and, he/she has not used or received any material benefit or value from the goods or services. 

 

91.               The intention of the safeguard is to encourage parties to build in an opportunity to correct input errors when using automated message systems, such as including a confirmation screen that provides an opportunity to correct any information before the electronic communication is sent.  In addition, subsection 15D(3) clarifies that the safeguard is not intended to give parties an opportunity to repudiate disadvantageous contracts or to avoid what would otherwise be valid legal commitments. 

 

92.               This safeguard is noted as an example as to why personal, family or household contracts are excluded from the scope of the Convention.  The explanatory notes provide that the rationale for the exclusion is because the Convention does not address matters providing protection for consumers.  However, in Australia there is adequate legislative protection for consumers and given the protective policy underlying the safeguard, the new section 15D is intended to apply to personal, family or household dealings, including contracts, and would not override, but merely supplement, other existing consumer protection measures such as the Electronic Funds Transfer Code of Conduct.

 

93.               New subsection 15D(4) and the note below it clarify that while the safeguard intends to preserve the effects of the contract as much as possible, it does not intend to assert any undue influence with well-established notions of contract law.  The conditions for withdrawal or avoidance of electronic communications affected by errors that occur in any other context than those provided for in section 15D are to be determined by other applicable legislation and the common law.

 

Proposed section 15E - Application of Act in relation to contracts

 

94.               New subsection 15E(1) clarifies that the provisions contained in Part 2 of the Act are also applicable to contracts involving the use of electronic communications.  Part 2 contains provisions that are relevant to contracts, but are prefaced with the words ‘for the purposes of a law of the Commonwealth’.  In order to remove any doubt as to whether ‘a law of the Commonwealth’ would extend to the common law, subsection 15E(1) specifies that the provisions of Part 2 also apply to contracts.  This confirms that, for example, the default rules concerning the time of dispatch and receipt are applicable in determining the time of dispatch and receipt of an electronic communication relating to a contract.  This subsection complements the new definition of ‘transaction’ inserted by item 7, that clarifies that a transaction under Part 2 includes electronic communications related to a contract.   

 

95.               New subsection 15E(2) is intended to clarify the applicable law in circumstances where different provisions and/or jurisdictions could potentially operate in the same field.

 

96.               Paragraph 15E(2)(a) provides that Part 2A does not apply to a contract if Part 2 is applicable.  The intention of this paragraph is to provide that an electronic communication related to a contract that is communicated ‘for the purposes of a law of the Commonwealth’, that is, within the scope of Part 2, will not be governed by the provisions in Part 2A.  For example, the relevant provisions of Part 2 will apply to an electronic communication related to a contract governed by a Commonwealth law.  This is intended to provide for only a singular provision to be applicable.

 

97.               Paragraph 15E(2)(b) provides that Part 2A does not apply where the law of a State or Territory is the proper law of the relevant contract, and that State or Territory has provisions in place that are substantially the same as Part 2 of the Act.

 

98.               The intention of this paragraph is to provide that an electronic communication related to a contract that is established under the law of a State or Territory, that is, any contract governed by State or Territory legislation (including the common law), will not be governed by the provisions in Part 2A of the Act.  For example, a contract for the sale of goods in a particular State will be governed by the Part 2 equivalent of that State’s electronic transactions legislation even in circumstances where that State has not enacted provisions similar to Part 2A to provide for contracts.  In these circumstances, the Commonwealth does not intend to override the State’s legislation.  The intention is to preserve the co-operative nature of the electronic transactions scheme. 

 

Proposed section 15F - No interference with powers and functions of another jurisdiction

 

99.               New section 15F is intended to address the constitutional limitations of the Commonwealth’s power to deal with the States and Territories and the interpretation of their legislation. 

 

100.           This section confirms that the new Part 2A will not apply to the extent that it may interfere with the exercise of the powers or the functions or duties of the States and Territories.  Should any of the provisions in Part 2A be applicable to a State or Territory contract as a consequence of the application of new section 15E, the Commonwealth provisions will not apply to the extent that they would purport to satisfy a certain requirement under a State or Territory’s law.  For example, if section 15E is invoked, the requirements for a valid contract for the sale of goods in a particular State cannot be fulfilled by relying on the Commonwealth’s provisions.

 



Item 22: At the end of Part 3

 

101.           This is a machinery item to support the transition to new provisions. 

 

102.           Subsection 17(1) preserves the Regulations in place as if the new regulation-making power provided by item 8, had been in force at the time the Regulations were made.  This does not prevent the amendment or repeal of any of the Regulations in the future.

 

103.           Subsection 17(2) provides that the new provisions inserted by item 21 (proposed new sections 15B, 15C and 15D) extend to proposals, actions, statements, declarations, demands, notices or requests, including offers and the acceptance of offers made before the provisions commence.  However, these provisions do not have retrospective application in respect of a contract formed prior to the commencement of the provisions.  The intention of subsection 17(3) is to provide for consistent rules and procedures to apply to an entire contract.