In November 2008, the Commonwealth Attorney-General's Department - in collaboration with the States and Territories - released a consultation paper on the Australian Government's proposal to accede to the United Nations Convention on the Use of Electronic Communications in International Contracts (the Convention). For Australia to accede to the Convention, it needs to make changes to its domestic electronic transactions laws.

The existing legislative framework and how it may change

In recent years, the Commonwealth, States and Territories have all passed legislation to facilitate electronic transactions. The Electronic Transactions Acts (ETAs) are, in essence, unified across Australia, and state that a transaction will not be invalid simply because it was conducted by the use of electronic means. The ETAs allow any of the following requirements in transactions to be fulfilled by electronic means:  

  • giving of information in writing;
  • providing a handwritten signature;
  • producing a document;
  • recording of information; and
  • retaining a document.  

The ETAs were based on the 1996 Model Law on Electronic Commerce (the 1996 Model Law), developed by the United Nations Commission in International Trade Law. Since that time, there is now a better understanding of the role the internet plays in electronic transactions. There have also been significant advances in technology. The Convention updates many of the concepts in the 1996 Model Law to addresses these factors.

The Convention applies where electronic communications are used in relation to international contracts. Ideally, in order to avoid having separate regimes for domestic and international contracts the rules of the Convention should be implemented across Australia and apply to domestic contracts and other electronic transactions.

The significance of the changes required to bring the ETAs in line with the Convention is that they will align Australia's laws with new international standards. The Attorney-General's consultation paper makes 11 recommendations in relation to amending the ETAs. This e-update looks at the most significant of those recommendations.

Signatures

The ETAs state that an electronic communication will satisfy the requirement to obtain a person's signature if:

  • a method is used to identify the person and to indicate the person's approval of the information communicated; and
  • the method was as reliable as was appropriate for the purposes for which the information was communicated.

The ETAs leave it open for a party to use the "reliability test" in bad faith to refuse to acknowledge a signature. However, the Attorney-General's consultation paper recommends that the ETAs be amended so that a party cannot argue that a signature fails the objective "reliability test" where the method used is proven in fact to have identified the signatory and indicated the signatory's intention in relation to the information contained in the electronic communication.

Until such a recommendation is incorporated into the ETAs, a party may continue to use the "reliability test" in bad faith in an attempt to disclaim its signature. Until such time as the ETAs are amended, careful consideration should be given to the nature of the transaction (in particular, the value and level of risk) and how effective the authentication method needs to be as a result of such factors.  

Automated Message Systems

Contracts and other electronic transactions are being increasingly formed by a computer program or other automated system (an Automated Message System or AMS), without review or intervention by a natural person. Currently, the ETAs do not contain a provision which makes it clear that the absence of human intervention does not, in itself, make a contract invalid or unenforceable. To remove any doubt about the validity of contracts, the Attorney-General's consultation paper recommends that the ETAs be amended to clarify the validity of contracts formed in this way.

Until such a recommendation is incorporated into the ETAs, a business may increase the likelihood of a contract formed by an AMS being enforceable by making its intended mode of acceptance clear to the other party and requiring the other party's clear and informed consent to enter into a contract through an AMS.

Invitations to make offers

It is generally accepted that if a party offers goods or services to the world at large, for example, through an advertisement, the advertisement is not a contractual offer unless there is a clear indication otherwise. Rather, it will generally be regarded as an "invitation to treat", that is, the advertisement invites the customer to make an offer or enter into further negotiations. If an advertisement is held to constitute a contractual offer, the advertiser would be liable to sell the goods or services to the customer, regardless of whether they had necessary stock or were able to provide the services. With the general accessibility of the internet, it is proposed that the ETAs should "incorporate a provision that proposals to enter a contract made by electronic means to the world at large are to be treated as an invitation to make offers, unless there is a clear indication by the trader of an intention to be bound."i

Until such a recommendation is incorporated into the ETAs, where a business does not intend to be bound by an electronic advertisement for goods or services, it should make this clear in its online order form or contract: for example, making it clear that an order will be an offer not accepted until the business notifies its acceptance.

Correcting input errors

Errors in contracts and other electronic transactions may occur due to human error or as a consequence of a malfunctioning system. The ETAs do not currently address how a party may correct these errors and the extent to which a contract containing erroneous information is enforceable. This is particularly relevant where a person has entered into a contract or completed a transaction through an AMS because "unlike transactions involving human intervention...the opportunity to detect or correct an error is reduced."ii The Attorney-General's consultation paper recommends that the ETAs be amended to give transacting parties the right to withdraw the portion of the electronic communication in which an input error was made if an AMS does not provide the person with an opportunity to correct the error.iii It is proposed that this safeguard not only apply to business to business contracts (as the Convention suggests) but that it extend to transactions generally, including transactions with consumers.

This proposed change is significant where the portion of the electronic communication in which an input error was made is fundamental to the contract: for example, the nature of goods that are being purchased, or the price or quantity of such goods, in which case a party may be able to rescind the contract where erroneous information was provided.

While the proposed amendments only apply to transactions involving an AMS and only where the other party has not been given the opportunity to correct an input error, it may be possible to avoid a situation where a person is able to rescind a contract by giving that person the opportunity to review and correct any errors: for example, by allowing the other party to review the data that they have provided and requesting that they confirm the information they have provided is correct.

Location of parties

The ETAs contain provisions to "determine the place of dispatch and receipt of electronic communications. Unless otherwise agreed, the place of dispatch is deemed to be where the originator has its place of business and the place of receipt is where the addressee has its place of business."iv While the ETAs define 'place of business' for government, government bodies and non-profit bodies, they do not define 'place of business' for private entities.

A change in business practices, as a result of technological advancements, has meant that it can sometimes be difficult to determine a place of business. For example, a customer could place an order for goods from a sales representative that is operating from their own home. The goods themselves may be located in another location and payment may be made with a credit card which is processed in yet another location.

The Attorney-General's consultation paper recommends that the ETAs be amended to clarify the rules for determining a place of business so that:

  • it is presumed that a party's place of business is the location indicated by that party, unless the other party demonstrates that the party making the indication does not have a place of business at that location;
  • if a party has more than one place of business and has not indicated a specific place of business, then the place of business is that which has the closest relationship to the contract, having regard to the circumstances known to, or contemplated by, the parties at any time before or at the entry into of the contract;  
  • a location is not a place of business merely because that it is where equipment and technology supporting an information system used by a party in connection with the formation of a contract is located (i.e. location of relevant application servers) or where the information system may be accessed by the parties;  
  • if a party makes use of a domain name or email address connected to a specific country, that does not create a presumption that its place of business is located in that country; and  
  • a definition of 'place of business' is included for private entities.

Clarity on the location of the parties is important as it may determine which law governs the contract. The issue of governing law can have downstream impacts on the validity, interpretation and enforceability of a contract, and the statutory context with which the contract is to be applied. Until these recommendations are incorporated into the ETAs, parties may avoid any ambiguity by clearly stating the law that will govern the transaction.

Time and place of dispatch and receipt

In relation to contracts, the time and place of dispatch and receipt of electronic communications is relevant as it relates to the issue of acceptance and therefore the formation of a contract. In relation to other transactions, the time of dispatch and receipt may be relevant, for example, whether a particular government form has been lodged in time, or if an offer is open for a certain period.

Generally, a contract is concluded when acceptance of an offer is communicated to the offeror. More often than not, the dispatch and receipt of an electronic communication is almost instantaneous. However, it is possible for emails to be 'lost' or delayedv, or delivery may be interrupted by security systems such as firewalls and filters. In these cases it is particularly important for there to be clarity around the time and place of dispatch and receipt of an electronic communication. The Attorney-General's consultation paper recommends that the ETAs be amended so that the default rules for:

  • timing of dispatch are changed from when an electronic communication enters an information system, to when it leaves an information system under the control of the originator. If the parties exchange communications through the same information system, the time of dispatch will be the time that the electronic communication is received;vi  
  • timing of receipt are clarified so that the time of receipt of an electronic communication is the time when it becomes capable of being retrieved by the addressee at an electronic address designated by the addressee. It is presumed that an electronic communication is capable of being retrieved by the addressee when it reaches the addressee's electronic address. However this presumption may be rebutted if an addressee can show that they, in fact, had no means of retrieving the communications, for example where security measures such as a spam filter results in the addressee not receiving the electronic communication. This presumption creates an interesting challenge in the case of consumer contracts given that a consumer may not regularly check his or her email, "nor be able to distinguish readily between legitimate commercial messages and unsolicited mail or spam."vii This is particularly relevant as consumers are increasingly undertaking transactions online;viii and  
  • the time of receipt of an electronic communication at another electronic address of the addressee is the time when it becomes available and the addressee becomes aware that the electronic communication has been sent to that address.ix

The proposed amendments to the ETAs will clarify the law in relation to the time and place of dispatch and receipt of an electronic communication. However, any current uncertainty around these issues can be mitigated by clearly specifying the desired outcome in the relevant online contractual terms.

Summary of practical tips

While the proposed amendments to the ETAs will provide greater clarity, there are number of practical ways that you can reduce the risk of another party challenging the interpretation or validity of an online contract or other transaction. These include:

  • using an authentication method for 'signing' online contracts that is 'reliable'. When assessing reliability of an authentication method, consideration should be given to the nature of the transaction, taking into account the value and level of risk;  
  • where an AMS is used in an electronic transaction: making it clear to the other party, and seeking their consent to, enter into a contract through an AMS; and allow the other party to review the data that they have provided and request them to confirm that the information that they have provided is correct;  
  • where a business does not intend to be bound by an offer for goods or services, for example, in an advertisement, the business should make this clear in its online environment;
  • stating the governing law in the online contract or terms of use; and
  • stating the time and place of dispatch and receipt of an electronic communication, or time and place of contract formation, in the online contract or terms of use.