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2 Guiding principles

22 TO BE SUCCESSFUL, any reform of the law to take account of the needs of electronic commerce must be developed in a principled and systematic way. The needs of the commercial community must be taken into account, especially the need for predictability in commercial law. It is also important to distinguish between problems which require a statutory solution and those which are best left to the market or the common law to solve. In broad terms the Commission agrees with recommendations made by the Australian Electronic Commerce Expert Group in Electronic Commerce: Building the Legal Framework. The Expert Group’s objectives were summarised as follows:

These objectives are broadly the same as those identified in the Law Commission’s guiding principles as defined in the paper presented to the the Asia Pacific Economic Law Forum in 1997 (published as “A Legal Infrastructure for Electronic Commerce?” (1998) 7 Canta LR 11).

23 The Commission has identified as an objective of this work the need to facilitate business efficiency by ensuring that the law keeps apace with technology rather than reacting to it in an ad hoc fashion. As the Guide to Enactment of the UNCITRAL Model Law recognises, it is not a matter of electronic communications replacing paper-based methods of doing business; rather, it is a matter of enabling businesses to choose which of the systems they wish to use (para 15). We observe that a different principle may well apply if electronic systems are given legislative approval in order to replace existing paper-based systems.10 If an electronic regime is mandated by legislation it can be argued cogently that government should assume a responsibility to ensure that the electronic system is as safe and secure as the paper-based system;11 or, possibly more precisely, that mechanisms are put in place to ensure that market participants will not be disadvantaged by the removal of the right to trade through paper-based systems. Subject to that one (possible) qualification, the principle of choice remains paramount.

24 However, the special characteristics of the internet raise particular problems for those who would regulate its use. The internet is global in its operation and neither it nor its users have any regard for traditional concepts of geographical distance or sovereignty. In other words, the internet has no nationality. There is, for example, no distinction between local and international communication, and the actual geographical location of a website or correspondent may be difficult to determine.

25 The practical implications of the global nature of the internet for law reform purposes are, at least to some extent, clear. First and foremost, if there is a need to regulate the use of the internet, it will ultimately require international solutions. Apart from banning access to electronic communications entirely, little can be done at a national level to control the actions of internet users or their access to information, products and services. This has led some commentators to advocate minimal regulation or even no regulation at all.12 Second, it is not clear that, even if regulation is desirable, the formulation of international rules for electronic commerce requires governments to negotiate a formal convention.13

26 It is preferable that uniform terms, based on custom and usage, be developed. These can be given effect in two ways. First, those terms can be embodied in a contract which governs the relationship between the parties. Alternatively, they can be embodied in a convention signed by various states. If New Zealand adopts such a convention New Zealand law would be presumed to conform with its terms. Such commercial usage could translate into a form of lex mercatoria.

27 The Law Commission has taken these factors into account in formulating its principles for reform. However, rules and standards for the facilitation of international electronic commerce will be of little use if domestic law acts as a barrier or disincentive to business. We therefore consider that the first phase of the electronic commerce project must be to ensure that New Zealand’s domestic law is conducive to international electronic commerce. The work of the Commission in this first phase should provide the ground work for more detailed recommendations in the future. Liaison with other international bodies will assist in achieving compatibility of approach with our major trading partners. But, to get maximum benefit from such liaison, the aim should be to achieve a consensus which can be embodied in a convention which will be adopted as part of the domestic law of each state involved.


28 In developing the following guiding principles, the Commission has endeavoured to ensure that its recommendations are, as far as practicable, consistent with the themes which underpin both the UNCITRAL Model Law on Electronic Commerce and the policy statements issued by other jurisdictions. Those principles, while expressed in different language in different documents, generally reflect similar objectives, for example:

29 The four principles which the Commission has identified as guiding principles, are now addressed.

Principle 1

30 The Commission’s first guiding principle is:

To ensure that business people can choose whether to do business through the use of paper documentation or by electronic means without any avoidable uncertainty arising out of the use of electronic means of communication.

31 Fundamentally, principle 1 is concerned that the right to choose between electronic and paper media should not to be limited by avoidable uncertainties in the law (“law” in this context means the domestic law of New Zealand including conflict of laws rules). Facilitation of electronic commerce does not warrant (at least at this stage of its development) the wholesale replacement of paper-based methods of doing business. Business people should have the opportunity to choose how they wish to do business. This choice will be influenced by factors such as efficiencies and cost. Sometimes, that choice will involve a blend of both electronic and paper media. However, as technology improves and its cost reduces, the “choice” may become less obvious: it may as a matter of economic survival be necessary to transact business purely through electronic means.

32 Emphasis must also be placed on the stated objective of ensuring that “avoidable uncertainty” does not arise out of the use of electronic means of communication. The word “avoidable” has been deliberately chosen. There is a tendency to seek standards of security from electronic forms of communications which are, in fact, higher than those demanded from paper documentation. Risks are inherent in doing business. There is always a risk that a paper document will be forged or that a facsimile sent to accept an offer will not be received. Thus, the emphasis should be on ensuring that “avoidable uncertainty” is removed while accepting that there will always be some unavoidable uncertainties in the business process.

33 The cost of resolving disputes in an unpredictable legal environment is also relevant to this principle. Businesses (particularly the small and medium-sized businesses which may benefit the most from electronic commerce)14 may be dissuaded from using electronic communication because of uncertainties in the law and the likely cost of litigating (in both direct terms and in terms of opportunity costs) if problems arise. Elimination of avoidable uncertainties in this way will help the growth of the electronic medium as a means of doing trade. Avoidable uncertainty will also be eliminated by recommendations made concerning the use that can be made of electronic evidence (see chapter 5).

Principle 2

34 The Commission’s second guiding principle is:

To ensure that fundamental principles underlying the law of contract and tort remain untouched save to the extent that adaptation is required to meet the needs of electronic commerce.

35 We address in chapters 3 and 4 what we regard as the fundamental principles which underlie the law of contract and of tort. In general terms we intend that the term “fundamental principles” refer to the elements which must be established (as a matter of New Zealand domestic law) to prove the existence of a contract, or that a tort has been committed. For example, to prove that company A and company B have entered into a binding contract it is usually necessary to produce evidence showing that: an offer was made; that offer was accepted; there is valuable consideration; the terms of the contract are certain; and the parties intended to create a binding legal relationship. Similarly, to prove that company B is liable in tort for negligence in its dealings with company C, it is necessary to prove the existence of a duty owed to C, which was breached by B, and which caused loss to C (see Gringras 1997 chapters 2 and 4).

36 The law of contract has developed over the centuries to meet the needs of the people whom it serves. Similarly, the law of torts has developed to govern relationships where no contractual obligations exist (eg, developments in common law principles which underlie the law of agency). Changes to these laws should not be made without proper justification.

37 There is a third branch to what might, generically, be described as the overall law of civil obligations. These are the obligations owed in equity. Examples of such obligations include the fiduciary obligations owed by one person in a position of trust to another (eg, solicitors to their clients), and obligations of trusteeship owed by trustees to beneficiaries. In some cases these obligations will intrude upon obligations otherwise owed in contract or in tort: for example, the position of an agent and his or her principal where the agent has both contractual and fiduciary obligations. In this report we do not deal with equitable obligations as such: an exception is the issue of misuse of confidential information (see chapter 3). Specific issues are raised by electronic commerce in relation to that particular issue (which has never been clearly defined as falling within either the law of torts or equity), and we therefore deal with it specifically.

38 Many laws will adapt neatly to the electronic environment. The Commission takes the view that existing law can and should be adapted (rather than fundamentally reformed) to recognise two distinct imperatives:

The latter is consistent with the “non-discrimination” principle underlying article 5 of the UNCITRAL Model Law (see para 46 of the Guide to Enactment).

39 The Commission recognises that businesses require the law to be consistent in its application and predictable in its outcomes in order to make commercial decisions. The best way to deliver such consistency and predictability in the field of electronic commerce is to ensure that the law applies equally to business transactions regardless of the medium by which they are performed. It is therefore inappropriate, at least at the present, to propose an entirely new legal environment specifically for electronic transactions. This approach will also ensure that electronic commerce does not become over-regulated and avoid undermining the potential efficiency of the medium.

Principle 3

40 The Commission’s third guiding principle is:

To ensure that any laws which are enacted to adapt the law of contract or the law of torts to the use of electronic commerce are expressed in a technologically neutral manner so that changes to the law are not restricted to existing technology and can apply equally to technology yet to be invented.

41 Technology has advanced with great speed in recent years. It is likely to continue to do so. Unlike technology, the law tends to develop slowly, usually by reacting to situations only as they arise. It is therefore vital that any reform of the law be drafted so as to take account not only of the technology currently available, but also that which has yet to be developed. This presents a considerable challenge. However, it should be possible to draft law in such a way as to meet technological advances. An attempt has already been made in the UNCITRAL Model Law to draft a provision which will encompass further technological advances:

The approach used in the Model Law is to provide in principle for the coverage of all factual situations where information is generated, stored or communicated, irrespective of the medium on which such information may be affixed. It was felt during the preparation of the Model Law that exclusion of any form or medium by way of a limitation in the scope of the Model Law might result in practical difficulties and would run counter to the purpose of providing truly “media-neutral” rules. However the focus of the Model Law is on “paperless” means of communication and except to the extent expressly provided by the Model Law, the Model law is not intended to alter traditional rules on paper based communications. (Guide to Enactment para 24)

The drafting technique adopted in the Model Law was to define the term “data message” in a manner which would capture all forms of electronic communication, present and future.15

42 Many current statutes are “media-specific” in that they require (either expressly or by necessary implication) transactions to be effected by paper documents. We examine some of these at paras 100–111 and 118–137. Ultimately, such obstacles can only be removed by statutory reform.

Principle 4

43 The Commission’s fourth and final guiding principle is:

To ensure compatibility between principles of domestic and private international law as applied in New Zealand and those applied by our major trading partners.

44 New Zealand is a small country and is reliant upon export earnings. We also have no control over the laws that may be enacted by our major trading partners. There is no point whatsoever in New Zealand having (at least in our own minds) the best laws in the world to deal with the issues arising out of electronic commerce unless those laws are as compatible as possible with principles of private international law applied by our major trading partners.16

45 In addition, many of our major trading partners have already been involved in commercial law initiatives through the United Nations which may lead to common standards both in terms of technology and in terms of law. An example is the Convention on Contracts for the International Sale of Goods which has been given statutory force in New Zealand through the Sale of Goods (United Nations Convention) Act 1994 (see para 112). The UNCITRAL Model Law on Electronic Commerce and the continuing work of UNCITRAL on electronic signatures (see paras 336–338) is likely to be just as important.

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