Electronic Commerce Law
Electronic Commerce Law
Module 4: Electronic
Signatures
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Electronic Signatures The expansion of electronic communications raises a number of unique legal questions. Among these questions is the status of an electronic signature. Signatures What is a signature? What is a signature's purpose? These should be relatively simple questions for the lawyer. However, the status of signatures has been taken for granted or assumed. The law has developed for centuries with notions of deeds and documents being signed, sealed and delivered, witnessed, notarised and so forth. In certain situations a signatory is not bound by a document until it is delivered. The underlying intention is to be bound by a subsequent act of delivery. There may be two signatures on a contract. One may sign intending to be bound, whilst the other is a witness. Their intention is paramount. A signature may appear on a document, but the signor is not bound because he or she lacked the requisite intention, raising duress, undue influence, non est factum, unconscionability etc. The "signature" may be an "X". A quadriplegic may use another to place the "signature" on the document. The case of R v Moore; Ex Parte Myers
(1884) 10 VLR 322 dealt with a pawnbroker's pledge ticket that was not signed in
accordance with the relevant legislation but was signed by an authorised agent.
The name of the pawnbroker was printed on the ticket. Higginbotham J stated that
a "signature is only a mark" and may "be impressed upon the document by a stamp
engraved with a facsimile of the ordinary signature of the person signing."
Electronic Signature The term electronic signature should not be confused with "digital signature". The later refers to a specific attachment which uses an asymmetric cryptosystem and a hash function and public and private "keys" for authentication and verification. An "electronic signature" is any means of electronic authentication of the identity of a person and of the intent of that person associated with an electronic record. The term has no universally accepted meaning and internationally is variously defined in different statutes. In R v Frolchenko (1998) QCA 43 Williams J in the Queensland Court of Appeal recognised that modern communication, such as e-mail, may not bear a personal signature. His Honour stated that such a electronic document could be authenticated by looking at other factors such as whether the name appears in typescript at the end of the document. In the US case Doherty v Registry of Motor
Vehicles (1998)
Agnes J held that a police report made "by means of e-mail or some other
electronic method" is regarded as signed subjecting the reporting officer to
possible perjury charges. Arguments are raised that an e-mail can appear to be from someone else and that false addresses and pseudonyms can be employed. However this is not new. Letters, facsimiles, telexes and so forth can easily be faked. Typically a range of proofs are used to verify the origin and genuineness of messages. It is rare that standard hardcopy messages are they proven purely from the signature. More often the origin and genuineness are determined from the facts and surrounding circumstances of the case. Parties to contracts generally have no technical proof of genuineness of a handwritten signature, and there is typically no practice requiring additional verification, until a dispute arises. There is no technical proof of origin of a telegram or telex. Commercial parties have accepted the risk factor in the past. The law needs to address the same level of trust and not impose unreasonable standards for the electronic medium. The same can be said regarding the future of electronic signatures. It will be rare where the facts solely rely on the electronic signature alone. A combination of conduct, spoken words, part performance and other communications will contribute to proving a party's intention. Legislation Thailand
Australia The Electronic Transactions Acts (ETA) include a weak attempt to give electronic signatures functional equivalence to traditional signatures. The weakness arises in two respects. Based on the UNCITRAL Model Law of Electronic Commerce, section 10 of the Commonwealth ETA and section 14 of the Queensland ETA give legal effect to the electronic signature only after regard is given "to all the relevant circumstances when the (electronic signature) was used" and that "the method was as reliable as was appropriate for the purposes for which the information was communicated." This formulation, whilst reasonable on one level, leaves open a number of possible arguments. Courts are yet to consider both the circumstances and the meaning of "as reliable appropriate". The second weakness is that both the Commonwealth and States' ETAs inserted a consent provision absent from the UNCITRAL original. This provision requires the person to whom the signature is required to be given to consent to the requirement being met by using the electronic signature. The parties must reach an agreement in advance as the use of the particular electronic signature method. The Explanatory Memorandum to the Commonwealth's ETA states that the intention of the provision is to allow a person to satisfy a legal requirement for a manual signature by using an electronic communication that contains a method that identifies the person and indicates their approval of the information communicated. The consent provision was based on the Government's "general policy that a person should not be compelled to use an electronic communication to conduct a transaction in order to satisfy requirements or permissions to give information in writing under Commonwealth law". The recipient's consent is required in relation to the medium by which the information is communicated. The definition of "consent" in the Acts includes
consent that can reasonably be inferred from the conduct of the person
concerned, but does not include consent given subject to conditions unless the
conditions are complied with. This is intended to ensure that express consent
is not required prior to every electronic communication. The federal Explanatory
Memorandum gives the example, the fact that a person has used electronic mail to
communicate with a Commonwealth entity should generally be sufficient to allow
the Commonwealth entity to assume the person's consent to receiving further
information at that email address. The UNCITRAL Model Law on Electronic Signatures In July 2001 The United Nations Commission on Trade and Law (UNCITRAL) released its Model Law on Electronic Signatures. The Model provide a template for national legislatures for a specific legal framework to reduce uncertainty as to the legal effect regarding Electronic Signatures. Its intention is to build on the fundamental principles underlying signature provisions of the Model Law on Electronic Commerce. The new Model Law offers practical standards against which the technical reliability of electronic signatures may be measured to add certainty and truly foster functional equivalence. Australian Approach to Electronic Signatures The Australian approach to date has been to provide a light touch regulatory structure. The matters set out in the ETAs were considered sufficiently significant to legislate federal and state standards. However, the same lawyers and drafters have resolved to leave additional matters such as both electronic and digital signatures to industry. Clearly the Australian legislatures have not provided any real equivalence in relation to electronic signatures. However, each department is maintaining a watching brief to consider the future, as commercial parties and industry set standards and come to grips with the alternatives in the digital world.
A Matter of Consent A serious weakness in both the Commonwealth and States' Electronic Transaction Acts (ETAs) is the inclusion of a consent provision for electronic transactions absent from the UNCITRAL Model Law on which the legislation is based. The additional provision requires consent of the recipient of the electronic communication for compliance with certain legal requirements. The parties must reach an agreement in advance as the use of the particular electronic communication. No one disputes that contracts can be entered into using electronic mail. Generally, contracts may be oral, in writing or both. Contract law requires certain elements such as offer, acceptance and consideration. However dating back to the Statue of Frauds in 1677 the law requires certain contracts to be in writing, evidenced in writing or to include a written signature. For example, assurances of land (section 10 Property Law Act 1974 (Qld)), assignments of intellectual property and bills of exchange. The Australian Electronic Transactions Acts are based on the UNCITRAL Model Law of Electronic Commerce (Model Law). The fundamental principle underlying the Model Law is functional equivalence. Namely, where electronic writing or electronic signature serves the same function as the traditional method, such as paper based methods, it should be treated as equivelent by the law. UNCITRAL The purpose of the Model Law is to offer national legislators a set of internationally acceptable rules as to how a number of such legal obstacles may be removed, and how a more secure legal environment may be created for what has become known as "electronic commerce". The resultant Commonwealth's ETA commenced in full in 2001 whilst Queensland's ETA commenced in November 2002. Australia The Federal parliament made certain changes to the Model Law template. This was not unusual. Most countries modified the language and rules to suit the particular culture and domestic position. The Federal parliament introduced consent as an additional precondition for functional equivalence of "electronic" writing and "electronic" signatures. The person to whom the electronic writing or signature is required to be given must consent to that requirement being met electronically (ss 9 and 10 ETA (Cth) and ss 11 and 14 ETA (Qld)). This consent provision does not appear in any other country (except New Zealand which copied the Australian Act) but was duplicated by all Australian states and territories. The inclusion of the consent provisions substantially weaken the functional equivalence of electronic writing and signatures and lead to unusual if not absurd results. The consent provisions for writing 9(1) If … a person is required to give information in writing, that requirement is taken to have been met if the person gives the information by means of an electronic communication, where: … (d) … the person to whom the information is required to be given consents to the information being given by way of electronic communication. (Cth) 11(1) If … a person is required to give information in writing, the requirement is taken to have been met if the person gives the information by an electronic communication (where) … (2) (b) the person to whom the information is required to be given consents to the information being given by an electronic communication. (Qld) Rationale – Explanatory Memorandum The Explanatory Memorandum to the Commonwealth's ETA (EM) states that the consent provision was based on the Government's "general policy that a person should not be compelled to use an electronic communication to conduct a transaction in order to satisfy requirements or permissions to give information in writing under Commonwealth law". Clearly the Australian legislatures have not provided any real equivalence in relation to electronic writing and signatures. A recipient of paper based communications has no choice. Treating electronic communications different erodes the functional equivalence principle and downgrades e-commerce. The EM states that the power only applies where a person is receiving an electronic communication and that it is not necessary to state whether that person consents beforehand because "the provisions are clearly drafted to provide a person with the ability to choose whether or not to satisfy their legal obligations by using an electronic communication." (Emphasis added) However, the drafters have failed to consider the impact and consequences on contract law in the realm of offer and acceptance. In contract, consent must be known in advance. Practice Consider this "consent provision" in practice. If the law requires writing or a signature, and a person emails an acceptance, what is the effect of the consent provision on the timing of the formation of the contract. Simplify the problem by ignoring the postal acceptance considerations and assume the contract is formed on communication. When is the contract formed? There are several scenarios. Assume an offer is made by letter. The letter contains the requisite material terms and the signature of the offeror. The contract would be entered into where, for example, the recipient accepts by return letter. Applying the ETA it would be expected that the same result would and should occur where acceptance is by email with an electronic signature. However, consider the effect of the timing of the consent, on the timing of the contract. If it is known that the offeror will consent in advance, whether expressly, impliedly or by prior conduct, the ETA applies and the requirement of writing "is taken to have been met (where) the person gives the information by means of an electronic communication". However, what if it is not known in advance whether the offeror consents? At first appearance the answer would appear to be that on receipt of the acceptance the offeror considers his or her position, weighing up whether to consent to the "electronic" writing and signature. After some deliberation he or she may decide to consent and all appears to be well. This seems to be the position taken the EM. But at what time is the contract entered into? Is it at the point of communication or when the offeror actually consent? What if the offeror obtains legal advice regarding the "electronic" writing and so takes one or two weeks to consider whether or not to consent? What would be the effect should a time of the essence provision operate during the deliberation period? It would be absurd to suggest that a contract is entered into not on communication but at a later time. To do so would be to create a concept of deferred formation of contract. The only sensible result can be that where consent is not known in advance the requirements of writing and signature are not "taken to have been met" for the application of the ETAs. This is contrary to express statements in the EM. However the EM was not expressly referring to contract formation. Subject to the qualification below, this leads to two surprising results. Where consent cannot be determined in advance, the offeror cannot enforce a contract on receiving an email "acceptance". Second, the "acceptor" sending the email knows that the acceptance cannot be enforced against him or her, to the same extent that the "acceptor" knows that on oral acceptance cannot be enforced. Of course additional conduct may give the offeror a remedy using doctrines of estoppel or part performance. The effect of the Australian consent provisions removes the desirability of functional equivalence while also leading to absurd and unintentional results. "For the application of the ETAs" The above comments are made for the purposes of the application of the ETAs only. The relevant provisions merely state that writing or signature requirements have been met if certain preconditions apply. The Act does not state that if the preconditions are not met that the writing or signature shall not be equivalent. Accordingly the next step is to determine whether the common law would regard the electronic writing and signature as equivalent. Most commentators in the field of electronic commerce law would argue both are equivalent even in the absence of the ETAs. ------------------------------------------------------------------------------------------------------------------------------
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