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36 UNDER NEW ZEALAND LAW, to prove that a binding contact has been formed:
These legal criteria apply to determine whether there is a binding contract regardless of whether the contract is formed orally, by paper-based writing, through conduct or through electronic means. There is also the overarching requirement that persons entering into a contract have the legal capacity to do so.92 While this requirement is not influenced by the medium in which a contract is concluded, the anonymous nature of the internet increases the opportunity for contracts to be concluded with persons who do not have the legal capacity to contract; in this regard we note that the Minors’ Contracts Act 1969 may be in need of review.93
37 None of the submissions made to us in response to ECom 1 suggested that there was any need to reform the law in relation to the elements of intention to create legal relations and certainty of terms. There is nothing we can usefully add to our discussion of these topics in ECom 1.]
38 In ECom 1 we described the law on offer and acceptance.94 When dealing with websites it is important to establish at the outset whether a “proposal” (to use a neutral word) found on a website is, as a matter of law, an invitation to treat or an offer. An invitation to treat, as opposed to an offer, cannot be turned into a binding contract by mere acceptance of its terms. A business offering goods or services over the internet will generally want to retain control over the quantity of goods or services it sells, and must therefore ensure that its website contains invitations to treat. If the website advertisement of a product or service is considered an offer, website sellers “. . . may find they have entered into an unserviceable number of contracts.”95
39 Another influential factor in the formation of contracts is the time when acceptance is deemed to have occurred. A contract is complete upon acceptance, which is the time the acceptance is received by the offeror, unless the postal acceptance rule applies. (The postal acceptance rule and case law interpretation of that rule were discussed in ECom 1.)96 If the means of communication of acceptance is one that would not be categorised by the court as instantaneous,97 then the timing of dispatch of an electronically generated message is, instead of the time of receipt, the time when an acceptance is deemed to have been received by the offeror, and also the time when the contract is complete. The law is uncertain in this area because it is difficult to predict whether the postal acceptance rule will apply to an acceptance sent electronically.98
40 We posed the question, in ECom 1, whether acceptance of an offer through electronic means should only be completed upon proof that it actually reached the offeror.99 A number of submitters supported the statutory abolition of the postal acceptance rule for all modes of communication, including by electronic means. In our view, there are strong reasons to abolish the postal acceptance rule in New Zealand. Quite apart from its debatable application in the electronic environment,100 it is undesirable to have different rules as to when acceptance of an offer occurs depending upon whether the contract is domestic or international in nature.101 But, on reflection, we have misgivings about making a final recommendation to abolish the postal acceptance rule when submissions were sought by us on this issue in the context of a report dealing solely with electronic commerce. It is conceivable that many of those who choose to do business solely through paper-based means through the postal system may wish the rule to remain in force. Moreover, the prospect of abolishing the postal acceptance rule was not so starkly stated in ECom 1.102
41 There are a number of issues which have arisen from consideration of the application of that law of contract to the electronic environment which are beyond the scope of a report confined to electronic commerce. Accordingly, we will issue a separate discussion paper dealing, among other things,103 with the possible abolition of the postal acceptance rule.
42 We deal later in this chapter with the question whether default rules for attribution of electronically generated messages, timing of electronically generated messages and acknowledgement of receipt of electronically generated messages should be enacted in a form consistent with articles 13, 14 and 15 of the Model Law.104
43 In ECom 1 we raised the question whether the doctrine of consideration should continue to be an essential element of binding contracts,105 while noting that it was beyond the scope of ECom 1 to consider whether consideration should continue to be an element of contract. Not surprisingly, in the context in which the question was raised, there was no support for abolition of the doctrine of consideration as part of legislation designed to facilitate electronic commerce. The merits of abolition of the element of consideration is something which the Law Commission may give its attention to at some future time.
44 In ECom 1 we dealt specifically with barriers to the formation of contracts arising from overarching statutory provisions.106 We referred to the formalities required to execute a deed,107 to assign debts and choses in action,108 for contracts relating to land and guarantees;109 and more generally, to other statutory instruments which deal with international sales of goods, shipping and carriage by air.110
45 In contrast to ECom 1, in this report we discuss barriers resulting from statutory overlay and the use of transportation documentation separately from our discussion of the law of contracts.111 We have already outlined the precise barriers caused by statute,112 and it is those barriers to which we direct further attention later in this report.113
46 One of the statutory barriers to the formation of contracts by electronic means not discussed separately in this report is the requirement for writing and signature imposed by the Contracts Enforcement Act 1956 section 2(2). Section 2(2) provides:
No contract to which this section applies shall be enforceable by action unless the contract or some memorandum or note thereof is in writing and is signed by the party to be charged therewith or by some other person lawfully authorised by him.
That section applies to contracts relating to land and guarantees.114 Section 29 of the Interpretation Act 1999 will (from 1 November 1999) enable electronic communications to constitute “writing”. Whether or not an electronic equivalent to a manual signature will be sufficient to comply with the requirements for a signature under section 2(2) of the Contracts Enforcement Act will ultimately turn upon whether a court assesses the reliability of the electronic signature to be sufficiently reliable for the purpose for which it is used, having regard to the nature of the transaction.115 In most cases, a simple email message, with a person’s name typed at the foot, would, in our view, be insufficient to constitute a “signature” for contracts relating to land and guarantees. However, a court might find the signature sufficient if, for instance, the amount involved is of low value or the transaction is not complex or the parties have completed contracts by electronic means previously.116 Equally, there is a potential for an electronic signature which meets a high level of security to be accepted as sufficient for Contract Enforcement Act 1956 purposes. But, ultimately, each case will need to be determined on its own facts.
47 The Commission, in its discussion paper Repeal of the Contracts Enforcement Act (PP 30), concluded:
The Commission considers that candour requires it to state clearly its present view that the time has now come for the repeal without replacement of all of the Contracts Enforcement Act 1956. We emphasise, however, that this present view is not fixed or rigid, and that we are open to persuasion that it is mistaken.117
Although we have not yet been dissuaded from that conclusion, it is inappropriate for us to recommend repeal of the Contracts Enforcement Act 1956 in a report confined to electronic commerce. Accordingly, we propose to detail submissions received in response to PP30, examine the merits of repealing the Contracts Enforcement Act and make final recommendations for reform in a later report.118
48 In ECom 1 we asked the question whether there should be statutory rules which attribute liability for electronic messages.119 Article 13 of the Model Law deals with questions of attribution (and was discussed in ECom 1).120 Article 13(2) deems an electronically generated message to be that of the originator if it was sent by a person who has the authority to act on behalf of the originator in respect of that message or if it was sent by an information system programmed by, or on behalf of, the originator to operate automatically.
49 The Australian (Federal) Attorney-General’s Electronic Commerce Expert Group, in its report of 31 March 1998 to the Attorney-General, took the view that it was preferable to not enact article 13(2) of the Model Law, instead leaving development of this area to the common law.121 That recommendation is reflected in the Australian Bill.122
50 If article 13 had the effect of codifying the rules of common law and equity relating to both agency and estoppel there would be benefit in adopting it. The law of estoppel, even now, may be regarded as in a state of development. Codification of the law of agency and estoppel could enhance predictability of outcome and, by doing so, reduce transactions costs by making the legal outcome in a particular case clearer, and thereby reducing recourse to litigation. However, article 13 does not go far enough to achieve predictability of outcome.
51 Those parts of article 13 which, on their face, seem to be a codification of the relevant law of estoppel and agency are merely indicators which can be taken into account in determining whether a message should or should not be attributed to a particular person. The Guide to Enactment of the Model Law stated that the purpose of article 13 was not to assign responsibility but, rather, to deal with attribution of data messages by establishing a presumption that under certain circumstances a data message would be considered as a message of the originator.123 The provisions of article 13 are based on article 5 of the UNCITRAL Model Law on International Credit Transfers.124 Paragraph 92 of the Guide to Enactment records that earlier drafts of article 13 had contained an additional paragraph expressing the principle that attribution of authorship of a data message to an originator should not interfere with the legal consequences of that message which should be determined by other applicable rules of national law. Although that principle is not set out in the Model Law, paragraph 92 of the Guide to Enactment makes it clear that the principle was considered sufficiently important to be restated in the Guide. Domestic laws of agency were not intended to be affected by article 13.125
52 The Australian approach makes it very clear that the question of attribution is to be determined by domestic law, whether written or unwritten.126 On reflection, we prefer the Australian approach, at least in the short term. Other reasons cementing that view include:
53 So far as timing issues are concerned, they are, in our view, dealt with adequately by default provisions of the type contemplated by article 15 of the Model Law.129 The default rules provided for by article 15 can be displaced by agreement to the contrary; hence, party autonomy is retained.130 The time of receipt of an electronically generated message is, under article 15(2), intended to be the time at which the message entered the designated information system of the recipient or, if it was sent to an information system which was not the designated information system, at the time when the message was retrieved.131 But if no designated information system has been given by the addressee, the default rule provides that receipt occurs when it enters an information system of the addressee.132
54 We gave consideration to the possibility of limiting adoption of article 15 to those provisions of it that pertain to the time and place of receipt of electronic communications. We thought that may be appropriate because we were attracted to abolishing the postal acceptance rule; thus, questions of dispatch would no longer have been relevant. But, as we are not recommending abolition of the postal acceptance rule in this report,133 it is essential to provide for both receipt and dispatch. Otherwise, the postal acceptance rule may apply, creating uncertainty as to the time of formation of a contract.134 As was stated in ECom 1, article 15
. . . eliminates the confusion caused by the possible application of the postal acceptance rule by deeming messages to be received when they enter the addressee’s designated information system.135
55 Beyond removing uncertainty as to the application of the postal acceptance rule, article 15 has several other advantages which recommend its adoption. Article 15:
56 Factors militating against adoption of article 15 are:
57 The submissions received that commented on article 15 were divided on whether to adopt it. Three examples are:
The enactment of a provision similar to Article 15 would create the certainty required to determine when information or a document has been sent and received, which is essential in setting the legal terms of electronic commerce.141
Telecom does not consider there is any need to legislate in order to promote certainty in electronic transactions. Areas where there may be some initial doubt such as issues of timing will best be resolved by contract.142
. . . New Zealand legislation should enact principles similar to those set out in article 15 of the Model Law in order to recognise the fact that not all electronic communications are instantaneous. Unlike telephone, facsimile and telex communications, transmissions via the Internet are typically not instantaneous. Messages sent by the Internet not infrequently require several minutes to arrive at their destination . . . The law relating to contract formation and time of acceptance needs to recognise this inherent delay.143
58 In our view the factors in favour of adopting article 15 outweigh those against. While we agree that article 15 can be seen as providing a set of rules which may discourage parties from entering into agreements tailored to their own needs, we think it is preferable, given the wide variety of participants utilising electronic commerce, that default rules should be in place which are more certain and which are tailored to the electronic environment, but out of which the parties can still contract. Larger players in the market may well devise their own rules, but the same cannot be said for the smaller to medium sized businesses or consumers who elect to trade on the internet.
59 Article 14 of the Model Law deals with “acknowledgement of receipt”. The Guide to Enactment states:
The use of functional acknowledgements is a business decision to be made by users of electronic commerce; the Model Law does not intend to impose the use of any such procedure. However, taking into account the commercial value of a system of acknowledgement of receipt and the widespread use of such systems in the context of electronic commerce, it was felt that the Model Law should address a number of legal issues arising from the use of acknowledgement procedures. It should be noted that the notion of “acknowledgement” is sometimes used to cover a variety of procedures, ranging from a mere acknowledgement of receipt of an unspecified message to an expression of agreement with the content of a specific data message. In many instances, the procedure of “acknowledgement” would parallel the system known as “return receipt requested” in postal systems.144
The Guide to Enactment goes on to say that:
Article 14 is not intended to deal with the legal consequences that may flow from sending an acknowledgement of receipt, apart from establishing receipt of the data message.145
60 The Australian Electronic Commerce Expert Group recommended that legislation was not needed to deal with the issue of acknowledgements.146 A provision equivalent to article 14 has not been included in the Australian Bill. We agree with the approach adopted by members of the Electronic Commerce Expert Group when they said:147
We have taken the approach that legislation should only be considered to facilitate the implementation and conduct of electronic commerce in Australia and have therefore only recommended legislative intervention where necessary to avoid uncertainty or to remove obstacles to the use of electronic commerce. To the extent that existing legislation or common law deals with these issues, it is our view that the same situation should apply to electronic commerce; discrimination between media should be avoided.
We do not believe that article 14 enhances predictability of outcome as it would not obviate reliance on the common law. Contractual solutions are preferable.148 Accordingly, we recommend that article 14 not be adopted.
61 The relative novelty of electronic commerce can be a barrier to the development of trust.149 “Trust” is a notion to which reference is often made in discussions of how to facilitate electronic commerce; but, it can also be an ill-defined concept. In our view, in this context, “trust” has two important parts, ie:
62 It is not possible for the legislature to instill users of electronic commerce with the necessary trust of the technology. We are of the firm view that this industry – more than any other because of its nature – should be private sector led. While the legislature cannot directly instill trust in users of electronic commerce, it is open for it to provide an Electronic Transactions Act that is comprehensive in approach, even if, from a legal perspective, some provisions are not strictly necessary to remove an existing barrier as to form. Such legally redundant provisions do however play a part in reassuring users of electronic commerce that their business practices are legitimate. In short, as was recommended by the Australian Electronic Commerce Expert Group in Electronic Commerce: Building the Legal Framework the approach taken in what is now the Australian Bill should ensure “certainty as to the application of the law to electronic commerce and enhance business and consumer trust and confidence”.151 To bolster business confidence and trust in the use of electronic commerce, we recommend adoption of articles 4 (Party Autonomy),152 5 (Non-Discrimination)153 and 5 bis (Incorporation by Reference) of the Model Law.154
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