In November 2008 the Commonwealth Attorney-General released a consultation paper (Paper) on the Australian Government's proposal to accede to the '2005 United Nations Convention on the Use of Electronic Communication in International Contracts' (Convention) by amending the existing uniform Commonwealth, States and Territories Electronic Transactions Act (ETAs).
The Convention is intended to increase certainty about electronic communications in relation to international trading and contracts via electronic means (eg in the e-commerce space).
This Intellectual Property and Technology Update focuses on some of the main amendments recommended in the Paper and how they may affect e-commerce in Australia.
BACKGROUND
The ETAs, which currently govern the operation of contracts formed by electronic means in Australia, were based on the '1996 Model Law on Electronic Commerce' developed by the United Nations Commission on International Trade Law. The technological and legal landscape in which electronic transactions are conducted have progressed significantly since then. The Convention, which was formally adopted by the UN in late 2005, is a response to those advances and addresses and updates many of the issues that have arisen in e-commerce since the implementation of the 1996 Model Law.
Currently 18 countries, including China, are signatories to the Convention. In order for Australia to align itself with international legal standards in relation to electronic transactions (which is increasingly pivotal in today's digitized global economy), the Paper considered it important to update the ETAs.
RECOMMENDED AMENDMENTS TO THE ETAS
The Paper outlines 11 recommendations to amend the ETAs. The main proposed changes include:
- A new rule clarifying what is an 'invitation to treat' in the electronic context.
- Amendments to the rules regarding the time of dispatch and receipt of an electronic communication.
- Amendments to the electronic signatures provisions.
- New rules that recognise the use of automated messages systems.
- The right to withdraw and correct input errors.
1. 'Invitation To Treat' - Extent To Which A Business Is Bound In The E-Commerce Environment
Where a business is offering goods or services for sale through a website, this is generally treated as an 'invitation to treat' rather than a contractual offer (unless the business clearly indicates that it intends to be bound - ie that it is making an offer capable of acceptance by the customer). An invitation to treat merely indicates to a customer that goods or services are available and invites the customer to make an offer for them. It is then open to the business to accept or reject the customer's offer. A valid contract is formed only when the business communicates its acceptance of the offer to the customer. However if on the other hand, an offer is made by the business which is then accepted by the customer, the business is liable to sell the goods to the customer even when it has run out of stock.
The Paper recommended that the ETAs should incorporate a provision that clarifies that proposals to enter into contract made by electronic means to the world at large (ie via a website) are to be treated as invitations to make offers by the customer to the business, unless there is a clear indication by the business of an intention to be bound.
2. Time Of Dispatch And Receipt
The time of dispatch and receipt of electronic communications is crucial to the issue of acceptance and the formation of electronic contracts (ie where and when the contract is formed). A contract is formed when the acceptance of the offer is communicated to the offeror (for example, an email from the business to confirm that your offer to buy a product has been accepted and the order is being processed).
Confusion over when a communication is dispatched or received is particularly important in situations where an offer is only open for a limited period or there is a question over whether a government form has been lodged in time. For example, a common problem with communication via emails is that it may be lost or caught by security filters so the offeror may never receive the acceptance.
To provide greater clarity the Paper recommends that the current rules in the ETAs be amended so that:
- dispatch is assumed to occur when a communication leaves an information system under the control of the sender; and
- receipt occurs when the communication becomes capable of being retrieved by the recipient.
3. Electronic Signatures
Under the current ETAs a person's electronic signature is valid if:
- a method was used to identify the signatory and to indicate the signatory's approval of the information communicated; and
- the method was reliable and appropriate for the purposes for which the information was communicated.
The Paper concluded that this existing test would allow a party to, in bad faith, invalidate the contract on the basis that the authentification method failed the above 'reliability test', even if there was no dispute over the identity or intention of the signatory.
The Paper recommends that the electronic signatures provisions of the ETAs be amended so that a party cannot argue that a signature fails the 'reliability test' (as currently drafted) where the method of 'signing' proves the identity of the signatory and indicates the signatory's intention to be bound.
4. Contracting Via Automated Message Systems
An increasing number of electronic transactions and contracts are formed by automated message systems (AMS) without review by or the interference of a natural person. The ETAs do not currently contain provisions which deal with contracts entered into by means of AMS.
The Paper recommended that the ETAs should be revised to:
- clarify and confirm the validity and enforceability of contracts formed using AMS; and
- incorporate the definition of AMS from the Convention into the ETAs.
5. The Right To Withdraw Or Correct Errors
Input errors in an electronic contract may be made by a natural person or a malfunctioning AMS. The current ETAs do not address the effects of such errors or if or how a party may correct them.
Input errors could potentially be significant if the errors change the fundamental elements of a contract (eg where the price, quantity or type of goods being purchased were wrong).
The Paper recommends that the ETAs should incorporate a provision offering a person the right to withdraw (unless unreasonably delayed) that portion of the electronic communication containing an input error
if the person was not given the opportunity by the AMS to correct the error. It is also recommended in the Paper that this right to withdraw be made available to both consumer contracts and business-to-business contracts.
Although this is not intended as a right for parties to rescind or terminate a contract at will, the effect of withdrawing the error affected portion may nonetheless be akin to rescission in whole or part of the contract, if the portion withdrawn is a fundamental part of the contract as a whole.
If the AMS did in fact provide the person an opportunity to correct the error (ie a confirmation screen), the consequences of the error would be as provided by the general law addressing errors in contract formation or by the agreement between the parties. Obviously, if this recommendation becomes law, all AMS should where possible provide for a details confirmation screen giving the chance to correct errors, to avoid the uncertainty of 'error correction' under the Convention.
PRACTICAL TIPS FOR E-COMMERCE BUSINESSES
Until the recommendations are formally adopted in Australia through amendments to the ETAs, businesses can take the following practical steps to ensure that electronic/ecommerce transactions are valid and significantly reduce the risk of a customer successfully challenging the enforceability of a contract:
- Invitation To Treat - if a business does not intend to be bound by an electronic advertisement for goods or services it should expressly state in its online order form that a contract is not formed until the business notifies the customer of its acceptance of the order (or such other relevant process of formation of the contract).
- Time Of Dispatch And Receipt - businesses should avoid any confusion as to the time a communication is dispatched and received by including in the terms & conditions a clarification on the time such communication is considered sent and received and of the resulting contract formation.
- Electronic Signatures - businesses should consider the nature of transactions and ensure that the signature authentification method is both appropriate and reliable in all circumstances.
- Contracting Via Automated Message Systems - businesses should inform customers that they are entering into a contract through an AMS and specifically seek their acknowledgement of and consent to this.
- A right To Withdraw Or Correct Errors - to reduce the risk of a customer or another business withdrawing from the contract, businesses should provide a confirmation page showing all the information entered by the customer and allowing for corrections to be made, even if the customer is contracting through an AMS.
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