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Executive summary

E1 NEW ZEALAND’S BASIC COMMERCIAL LAW is derived from nineteenth-century English law, both common law and consolidating statutes. Examples are the Sale of Goods Act 1908, Mercantile Law Act 1908, Partnership Act 1908 and (until 1996) Arbitration Act 1908. When this law was made, the only forms of electronically generated communications were the telegraph and the telephone: the Bell Telephone Company itself not being founded until 1877. Thus, the law which New Zealand inherited from England at the turn of the twentieth century was designed to facilitate paper-based transactions. At the eve of the twenty-first century, the question is whether that legal infrastructure is, without reform, sufficient to meet the needs of those who wish to engage in trade through electronic means.

E2 The Law Commission decided late last year to embark upon a project to consider whether existing commercial laws were sufficient to accommodate the needs of those engaged in electronic commerce. This report is the result of our first phase of inquiry. Our second report will make recommendations on the form of any reforms proposed as a result of submissions made to us.

E3 Business benefits to be gained by trading through electronic, rather than paper-based, means include:

• lower information transfer costs;
• lower procurement costs;
• reduced inventory costs;
• product customisation;
• ability to conduct business with distant partners in the same way as with neighbouring partners; and
• increased operational efficiency.

If the law can be reformed to facilitate these benefits then much economic benefit to both traders and the national economy can result.

E4 The structure of this report is somewhat different to reports which have been released in other jurisdictions dealing with electronic commerce issues. The Commission’s view is that commercial law reform is aimed at improving business efficiency while, at the same time, retaining safeguards for those who use it. In order to address the problems that arise in adapting the law to fit the electronic environment, the Commission, at an early stage, identified four guiding principles by which it proposed to conduct its analysis. Those guiding principles are:

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

In relation to the last of these guiding principles we have provided in appendix D of this report a comparative law study on issues of conflict of laws.

E5 Furthermore, we decided to address, in the first instance, electronic commerce issues in an international context. Having said that, we emphasise that our objectives (necessarily) are limited to reform at a domestic level. Compatibility of approach with that of major trading partners will help to ensure that New Zealand businesses do not face costs or obstacles which render the use of electronic commerce uncompetitive. Our work should also be seen as a contribution to an ever-growing foundation for future harmonisation of international commercial law.

E6 We have considered the law of contract, the law of torts, the law of evidence and the rules of conflict of laws in the context of the principles which we have stated. On these matters we have provided an analysis (in a more elementary form than is customary in a Law Commission report) of how these areas of law are affected by the electronic environment; we have suggested methods of reform on which we have sought submissions (see generally, questions Q1–Q17 in the summary of questions). We have then looked at particular issues arising out of the use of electronic media: notably, issues concerning electronic signatures, banking, intellectual property, tax and privacy. On all of these latter points we have raised general questions for consideration which we will address in more detail in a further report to be published by the end of April 1999 (see, more specifically, questions Q18–Q30). On all issues we have compared our approach with the provisions to be found in the United Nations Commission on International Trade Law (UNCITRAL) Model Law on Electronic Commerce and the Australian (Federal) Electronic Commerce Expert Group’s report, Electronic Commerce: Building the Legal Framework.

E7 Appendix A to this report is a copy of the UNCITRAL Model Law on Electronic Commerce. Appendix B is a reproduction of extracts from the draft Uniform Commercial Code of the United States of America which deals with similar issues, but in more detail. A comparison of the two texts shows the difference in approach between legislation designed to provide a framework and legislation designed to deal with matters of detail. One of the issues which must be addressed is the type of legislation required to resolve any problems created by commercial activity through electronic means.

E8 Appendix C contains extracts from the draft Evidence Code which will be recommended when the Commission publishes its final report on its evidence reference later this year. The relevant provisions, which we believe will meet the needs of those who wish to engage in electronic commerce, are discussed in chapter 5.

E9 Another fundamental issue is whether New Zealand should follow its own predisposition against legislation for particular industries or circumstances. Given the global nature of the internet, New Zealand might be better advised to follow the approach favoured (if there is unanimity) by our major trading partners. Time will give us more information against which to address that difficult question.