Might Slow Adaptation of the Law Impede E-Commerce?

Roger Clarke

Principal, Xamax Consultancy Pty Ltd, Canberra

Visiting Fellow, Department of Computer Science, Australian National University

Version of 8 March 1999

© Xamax Consultancy Pty Ltd, 1999

This paper was prepared for publication in the Business Council of Australia's BCA Papers

This document is at http://www.anu.edu.au/people/Roger.Clarke/EC/BCA99.html


E-commerce is growing. It promises to smooth the way for domestic and global trade alike, and to reduce Australian corporations' perceived distance from world markets.

There is a fear, however, that longstanding legal provisions have uncertain meaning in the digital age, and that this may undermine confidence in e-commerce and thereby hamper its uptake.

This article examines recent moves by the Commonwealth Government to address these uncertainties, and places them in their international context.



The bullish predictions for Internet commerce may be exaggerated; but there's no doubt that relationships within many industries are being affected by the new telecommunications-based tools, and that business opportunities abound.

Governments are conducting initiatives to stimulate public awareness, and to encourage SMEs to improve their use of information technology. The rallying call has migrated progressively from 'the post-industrial society', via 'knowledge-management' and 'the networked nation' to 'the information economy'.

Many of today's trading and settlement practices can be traced back to the heyday of the Venetian and even Phoenician economies, and most of the remainder to Victorian Britain. In a rapidly changing context, the legal framework within which business is conducted is being argued by some to be an impediment to change.

As paper's atoms give way to telecommunication's bits, will the courts be deluged with disputes, and will the flow of trade be undermined by uncertainties about what is needed to evidence an undertaking and a debt, and about who bears what risks?

The Differences That E-Commerce Makes

What is it about electronic transactions that is so different that existing laws might be poorly applicable?

Business involves communications among various parties. The law afford rights to those parties. For example, if one party indulges in negligent or fraudulent misrepresentation, breaches a confidence, abuses the terms of a copyright licence, or fails to comply with an express or implied term of contract, then the affected party can sue. In order to win their case, the aggrieved party needs to provide evidence that is acceptable to the court. The orderly conduct of business id dependent upon the credibility of such laws, and of the sanctions that can be invoked against misbehaving corporations and individuals.

Nowhere is this orderliness more important than in the formation of contracts. Important, long-term contracts must be evidenced 'in writing'. The identity of the parties must be clear, and evidence may be called for to show that the party's asserted identity was authenticated, e.g. by letterhead, 'signature', 'corporate seal' and/or the signature of a 'witness'. The 'original' of a communication is regarded much more highly than a 'copy'. Moreover, assumptions made by the courts about the date and time of despatch and receipt of communications can be critical to a case.

Another area affecting business enterprises is compliance with regulatory requirements, such as registration and licensing. Statutes frequently specify the particular (paper) 'forms' or 'documents' on which 'applications' and periodic 'returns' must be submitted. Many laws stipulate the methods of delivery of documents, often referring specifically to 'the post' or to personal service. Some explicitly require that payment 'accompany' the application or return.

Business has been conducted in a stable and reliable environment based on a body of law that has accumulated during the preceding centuries. Compliance with these formalities has assured certain and predictable legal effects. In the vast majority of circumstances, this has obviated the need to resort to the courts.

With the abrupt arrival of Internet-based electronic commerce since the mid-1990s, however, the ground has suddenly shifted, because the meaning of hitherto fundamental concepts like 'writing', 'signature', 'witnessing', 'original', 'copy', 'form' and 'post' is called into question.

The Commonwealth Government's Proposal

The Commonwealth Government, aided by a task force that included business representatives, has examined the relevant laws. Some of the issues have been addressed before, particularly in laws relating to computer-based storage. The Government concluded that the law is not really broken, and therefore it would be unwise to try to fix it, but that some clarificatory statements might be useful.

In drafting the Electronic Transactions Bill 1999, the Commonwealth has applied two key principles. One says that electronic mechanisms should be treated under law in the same manner as the manual techniques that they replace. That's referred to as 'functional equivalence'.

The other principle is called 'technology neutrality'. This is a variant of the dictum that 'governments should not be in the business of picking winners', and says that the law should not specify which particular technologies satisfy the requirements.

Applying these principles, the Bill proposes that:

Actions Needed by the States

The Commonwealth has, however, expressly chosen to legislate only in respect of laws of the Commonwealth, and not to impose the new law on the States. (It is arguable that it could have done so by invoking the telecommunications power under the Constitution s. 51(v)).

The great majority of business conducted within Australia is subject to State laws, and hence is unaffected by the Commonwealth's Bill. Resolution of any problems in these areas is therefore entirely dependent on complementary measures being implemented by the States.

The Commonwealth Attorney-General claimed on 30 October 1998 that "National agreement has been reached on uniform legislation to remove legal obstacles to electronic commerce in Australia. Ministers at today's meeting of the Standing Committee of Attorneys-General in Adelaide agreed in principle to my proposal for an Australian model law to facilitate electronic commerce".

It remains to be seen whether the States' and Territories' agreement-in-principle will translate into action. If so, will those actions be consistent with one another, and with that of the Commonwealth? In the case of the corporations law, a consistent regime has been achieved. In relation to other matters on which harmonisation has been attempted, on the other hand, such as computer crime and evidence, there is a great deal of inconsistency among Australia's jurisdictions.

The sole instance of a State or Territory that has made significant progress to date is Victoria, which has long been pressuring the Commonwealth to act. It has an Electronic Commerce Framework Bill in advanced draft form. The approach it adopts is broadly comparable with the Commonwealth Bill, but it differs on matters of detail. For example, it includes an explicit definition of an 'electronic signature' as "the result of a process applied by [a] person to a document in electronic form by which (a) the person authenticates the document, and (b) acknowledges that the document is being signed".

The International Context

In developing their proposals, the Commonwealth and Victorian Governments have done only a limited amount of trail-blazing. The proposals, especially those of the Commonwealth, are intentionally derivative from the Model Law provided by a Working Group of the United Nations Commission on International Trade Law (UNCITRAL).

In the United States, the framework for trade in all States is established by the Uniform Commercial Code (UCC). The U.S. Administration has strongly encouraged adoption of the UNCITRAL approach both within the U.S.A. and elsewhere. The National Conference of Commissioners of Uniform State Law (NCCUSL), the Code's primary sponsors, have published successive drafts of a proposal to adapt the UCC. Meanwhile, several U.S. States have proposed legislation based on the UNCITRAL Model Law.

A number of other countries are also preparing proposals along the lines of the UNCITRAL Model Law. A good example is Singapore's Electronic Transactions Act of 1998. However it would be, at least at this stage, an exaggeration to say that the UNCITRAL Model was sweeping the world.

There does not appear to be any major alternative being proposed, although the European Commission's document 'Legal Framework for the Development of Electronic Commerce' of November 1998 appears to leave the way open for a different pattern to be adopted.

Is the ET Bill the Final Word?

The Commonwealth Government's intention is that public confidence in the legal context of business will be sustained simply by the passage of its Bill into law. Unfortunately, some uncertainties remain. In particular:

The seriousness of these concerns is a matter of debate, and hence it remains to be seen whether or not the Bill will engender the necessary confidence among business enterprises and consumers.


The Commonwealth Government is seeking, in this area as in many others affecting business, to enact 'light-touch' legislation. The risk is that the much-admired adaptability of the common law may be far too ponderous to cope with the explosive changes that information technology is imposing on business practices.

Australian corporations would be well-advised to maintain a close watch on developments in this area. It may be that legislation ensuring 'functional equivalence' and 'technology neutrality' will be sufficient. Alternatively, it may transpire that business interests are better served by more explicit legislation that avoids the need for slow court-processes and unpredictable judicial decisions to clear uncertainties out of the path of business.


* International

The UNCITRAL Model Law on Electronic Commerce,1996, at http://www.un.or.at/uncitral/english/texts/electcom/ml-ec.htm

The UNCITRAL Working Group on Electronic Commerce, at http://www.un.or.at/uncitral/english/sessions/wg_ec/index.htm

* Commonwealth of Australia

The Electronic Transactions Bill 1999 (Cth), at http://www.law.gov.au/ecommerce/interim2.html

The development path of the Commonwealth's policy on legal aspects of electronic commerce, at http://www.law.gov.au/ecommerce/legal.html

The Commonwealth's Strategy in relation to the Information Economy, December 1998, at http://www.noie.gov.au/docs/strategy/index.html

The foundations of the Commonwealth's Strategy, the Report of the Broadband Services Expert Group, 'The Networked Nation', December 1994, at ftp://ftp.dcita.gov.au/pub/docs/bseg/

* Victoria

The Electronic Commerce Framework Bill 1998, at http://www.mmv.vic.gov.au/, under Publications

'Discussion Paper: Promoting Electronic Business: The Electronic Commerce Framework Bill' July 1998, at http://www.mmv.vic.gov.au/, under Publications

* U.S.A.

The U.S. Administration's 'A Framework for Global Electronic Commerce', July 1, 1997, at http://www.ecommerce.gov/Framewrk.htm

The National Conference of Commissioners on Uniform State Laws (NCCUSL), at http://www.abanet.org/nccusl/home.html

The Draft Electronic Transactions Bill of the National Conference of Commissioners on Uniform State Laws (NCCUSL), draft of 29 January 1999 at http://www.law.upenn.edu/bll/ulc/uecicta/eta199.htm

* The European Union

'Legal Framework for the Development of Electronic Commerce', European Commission, November 1998, at http://www.ispo.cec.be/Ecommerce/legal.htm#legal

* Singapore

The Electronic Transactions Bill 1998, at http://www.cca.gov.sg/eta/


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Created: 27 February 1999

Last Amended: 8 March 1999

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