How to: The Electronic Transactions Act 2002

A summary of the Act

Introduction

The ELECTRONIC TRANSACTIONS ACT 2002 sets out new rules to facilitate the use of email and other electronic technology, both in business and in interaction between government and the public.

With some exceptions, information in electronic form is now on the same legal footing as paper-based information. The Act says that information can't be considered to be legally invalid merely because it's in electronic form.

The ELECTRONIC TRANSACTIONS REGULATIONS 2003 (SR 2003/288) also sets out some detailed rules for specific situations.

The Act and the regulations came into force on 21 November 2003.

The main features of the new Act

  • The Act allows businesses to use electronic technology, if they wish, to comply with various legal requirements for producing, giving or storing information in writing, provided the person who is given or receives the information (if there is one) consents to this.
  • The Act allows members of the public to use emails and faxes for communications with government that are required to be in writing (such as applications for licences). Similarly it allows government bodies to use emails and faxes to send written notices to individual members of the public. But in each case the person or organisation receiving the information must have agreed to receiving it in that form.
  • The Act states rules for when an email is taken to have been sent and received, and for where an email is taken to have been sent and received. This is important for issues such as when and where a contract was entered into. These rules remove the existing uncertainty in this area.

Am I required to use electronic technology for any particular transaction?

No. Nothing in the ELECTRONIC TRANSACTIONS ACT 2002 requires anyone to use electronic technology. It is an empowering Act, in that it allows people to substitute electronic technology for paper if they wish to do so. So, for example, a legal notice sent to you by a government body by email is legally valid only if you've consented to receiving the notice in this way.

The "opt-in" nature of this new system applies to government bodies, as well as to private individuals and businesses. Therefore a government department doesn't have to accept applications or other information from you in electronic form if it hasn't consented to this in advance. But it's expected that each government body will give this consent as soon as it has put in place the necessary systems and technology.

A person who consents to using, providing or accepting information in electronic form can also place conditions on the specific form of the information and on the way in which the information is sent, received, processed, stored or displayed.

Consent can be inferred from a person's conduct. For example, if you make an offer in an email, you will have implicitly agreed to receive any acceptance by email (unless you say otherwise).

Does electronic information have the same legal effect as paper-based information?

In most cases, yes. Electronic information and transactions can't be denied legal effect simply because they are electronic rather than paper-based. For example, if you and another person have a contract that says that any variations to the contract must be in writing, and then by email you both agree to a particular variation to the contract, you can't then claim that this variation is legally invalid merely because the exchange between you was electronic.

The new Act also protects the legal validity of information that is incorporated by reference in an electronic communication. "Incorporation by reference" is where, for example, you make an offer to enter into a contract and your letter of offer refers to your standard terms and conditions contained in another document. Your letter of offer thereby legally "incorporates" those other terms and conditions into the offer. The effect of the Act is that if you make this offer by email rather than on paper, neither side can use this fact to claim that the terms and conditions don't apply to the contract because they weren't legally incorporated into the offer. This is relevant where, for example, a hyperlink in an electronically based contract incorporates standard terms and conditions that are contained on a business's website.

Of course, the new Act doesn't say that all electronic information and transactions are always legally valid – rather the Act says that they are not invalid simply because they are in electronic form. Like any paper-based information or transaction, any relevant legal requirements that apply to the particular case must be met.

Specific rules in regulations

The Act has been accompanied by regulations that set out some specific requirements in particular cases. The ELECTRONIC TRANSACTIONS REGULATIONS 2003 (SR 2003/288) states, for example, special requirements for banks and other lenders wanting to use email to send notices such as bank statements and credit-card statements. See below, "Special rules for 'disclosure' by lenders under consumer credit contracts" and "Rules for Time and Place of Sending and Receiving Emails / Special rules for time of 'disclosure' under consumer credit contracts".

Meeting legal requirements with electronic technology

Introduction

The ELECTRONIC TRANSACTIONS ACT 2002 provides that most statutory laws requiring information to be in writing, or to be recorded in writing, or to be given in writing can be met by electronic means. When information must be retained for certain periods, the information can also be retained in electronic form, allowing businesses to reduce the costs involved. Legal requirements to provide a document – for example, to show a certificate to a government department – can also be met by providing the document in electronic form.

But the Act specifically excludes a number of statutory requirements (see the next heading), so that paper documents must continue to be used in these cases. The Act also doesn't apply to any common-law (non-statutory) requirements for particular information be in writing.

What information is still required to be paper-based?

Some communications or transactions that the law requires to be in writing cannot be in electronic form: they must still be on paper. For example:

  • notices that are required to be given to the public
  • information that is required to be given in writing either in person or by registered post
  • wills, affidavits and powers of attorney
  • cheques and other negotiable instruments, and bills of lading
  • court documents
  • documents to do with title to land
  • various agreements or notices that are required to be in writing by consumer-protection laws, for example:
  • consent by a psychiatric patient to brain surgery
  • search warrants

Legal requirements for information to be, or be recorded, in writing

A legal requirement for information to be in writing is met by information being in electronic form if the information is readily accessible so that it can later be referred to. (Exactly what "readily accessible" means is discussed below.)

Similarly, a legal requirement for information to be recorded in writing is met by recording it in electronic form if the information is readily accessible so that it can later be referred to.

This will affect a wide range of legal requirements. For example, a hire-purchase agreement, a guarantee, and a company's annual report must all be in writing.

Legal requirements for information to be given in writing

A legal requirement to give information in writing is met by giving the information in electronic form (whether through an electronic communication or otherwise), if:

  • the information is readily accessible so that it can later be referred to, and
  • the other person consents to this. (If the information is to be given by email or other electronic communication they would also have to have specifically consented to this.)

If you're legally required to give several copies of the information to the same person at the same time, you can meet this requirement by providing a single electronic version of the information.

The Act says that a legal requirement to give information includes, for example:

  • making an application
  • making or lodging a claim
  • giving, sending or serving a notification
  • lodging a return
  • making a request
  • making a declaration
  • lodging or issuing a certificate
  • making, varying or cancelling a choice between two courses of action
  • lodging an objection
  • giving a statement of reasons

What does "readily accessible" mean?

The Act doesn't say specifically, but the requirement that the electronic information be "readily accessible" is probably an on-going one. You're probably required to continue to make sure that the information can be accessed and interpreted, including keeping any software that's necessary for this.

Special rules for "disclosure" by lenders under consumer credit contract

Regulations state special requirements for banks and other lenders wanting to use email to make "disclosure" of the key financial information that they are required to give the borrower (see How to get out of a loan contract, credit sale (hire purchase agreement) or other consumer credit contract). This applies to "initial disclosure" to the borrower, to "guarantee disclosure" to any guarantors of the loan, to "variation disclosure" when a credit contract is modified, and to "continuing disclosure" under a revolving credit contract (for example, credit statements for credit cards).

The regulations state that the lender can give the information in electronic form, whether by electronic communication (such as email or fax) or otherwise, only if the borrower:

  • has been given the option of receiving the information in electronic or paper-based form, and
  • has expressly consented to the electronic form and, if applicable, to it being sent by electronic communication

"Express consent" means a positive indication of consent that is specific to the matter consented to. The regulations state, as an example, that if you check a box to select the option of receiving the information in electronic form, you will have expressly consented. If, however, you sign an agreement that includes, among other terms, a term that says you consent to receiving the information in electronic form, the regulations state that this is not express consent.

Special rules for notices to owners of dogs seized under Conservation Act or National Parks Act

The same requirement for "express consent" applies to electronic notices issued to owners of dogs found in controlled dog areas and seized under the CONSERVATION ACT1987, and electronic notices issued to owners of dogs or other animals seized under the NATIONAL PARKS ACT 1980.

Legal requirements to store information

There are a variety of laws that require documents to be retained for certain periods. The COMPANIES ACT 1993, for example, requires companies to keep minutes, shareholders' and directors' resolutions and various other documents for at least seven years.

The ELECTRONIC TRANSACTIONS ACT 2002 enables businesses to meet requirements such as these by scanning the paper documents and retaining only the electronic copies. However, they can do this only if:

  • the particular electronic form reliably ensures that the information remains complete and unchanged (apart from immaterial changes), and
  • the information is readily accessible so that it can later be referred to

If you wish to take advantage of these new provisions, you'll need to consider whether the particular technology you'll be using will meet these conditions.

If the information is in an email or other electronic communication, you must also keep information that identifies where it was sent from, where it was sent to, and when it was sent and received.

Special requirements for storing your tax records

Regulations specify that a requirement in the INCOME TAX ACT 1994 or other tax-related Acts to retain a record that's initially on paper may be met by retaining an electronic copy if the record can readily be produced in a paper form that is a duplicate image of the original paper-based record. It does not matter that annotations, indexing references or other additional information are included in the electronic form, provided it's clear they are additions and they don't obscure the original information.

However, if you receive a record in both paper and electronic forms (for example, a bank statement), you can comply with a legal requirement to retain the record by retaining the electronic form only.

Providing or producing documents and originals

Many New Zealand laws require a person to provide particular documents; often the requirement is to provide an original or certified copy. The new Act allows you to produce the document in an electronic form, by electronic communication or otherwise, if:

  • the particular electronic form reliably ensures that the information remains complete and unchanged (apart from immaterial changes), and
  • the document is readily accessible so that it can later be referred to, and
  • the person or body to whom you must provide the document consents to this. (If you're sending the document by email or other electronic communication they would also have to specifically consent to this.)

For example, when you apply for a driver's licence you must provide the Land Transport Safety Authority with an original birth certificate or some other proof of your age and identity. The new Act would allow the LTSA to accept a copy of your birth certificate in electronic form.

Providing access to information

A legal requirement to allow a person access to paper-based information is met by providing access to information in electronic form if:

  • the particular electronic form reliably ensures that the information remains complete and unchanged (apart from immaterial changes), and
  • the person or body to whom you must provide access consents

This would enable, for example, companies to use electronic information in providing access to shareholders, if the shareholder consented to it.

Electronic signatures

When can a legal requirement for a signature be met by an electronic signature?

An electronic signature will meet a legal requirement for a document to be signed if the electronic signature:

  • adequately identifies the person signing and adequately indicates that that person approves the accompanying information, and
  • is as reliable as is appropriate given the purpose and circumstances of the signature

Further, if the legal requirement for a signature relates to information that is legally required to be given to someone, the person receiving it must have consented to receiving an electronic signature.

Do I have to use a particular kind of signature technology?

No. The Act has been described as "technologically neutral", in that it doesn't require any particular technology to be used. Instead the signature must simply meet the functional requirements explained under the previous heading. These focus on the signature being reliable in the particular context.

A senior analyst from the Ministry of Economic Development has said that an electronic signature might cover anything from a hand-written signature at the bottom of a fax, to biometric methods of confirming identity (such as fingerprint scanning), to an electronic authentication provided by a certification authority using encryption technology (the Independent, 30 October 2002, p 4).

When will an electronic signature be "reliable"?

The law presumes that an electronic signature is sufficiently reliable if:

  • the means of creating the signature is linked to the person signing and no-one else, and
  • the means of creating the signature was under the control of the person signing and no-one else, and
  • any subsequent changes to the signature are detectable, and
  • any subsequent changes to the accompanying information are detectable (if the purpose of the signature requirement is to assure the integrity of that information)

A person can prove on other grounds or by other means that an electronic signature is not sufficiently reliable.

Whether a particular kind of electronic signature is sufficiently reliable will be a matter of fact for the Courts to decide in any particular case. This is likely to be an uncertain area in the next several years, until the Courts have adequately interpreted the Act. The MED analyst quoted above also commented: "If you are just applying for a dog licence it may be that typing your name and address on the bottom of a form is enough. But if you are buying a house then something a bit more robust might be required" (the Independent, 30 October 2002, p 4).

Special rules for certificates required for burial or cremation of still-born children

The BURIAL AND CREMATION ACT 1964 states that no person can bury, cremate or otherwise dispose of a still-born child without first having been given a certificate, signed by a doctor or midwife, that the child was born dead. The ELECTRONIC TRANSACTIONS REGULATIONS 2003 state that the certificate can be in electronic form with an electronic signature only if:

  • the means of creating the signature is a digital certificate for authentication of users, and
  • the person signing uses a public key cipher (asymmetric encryption) with a minimum key length of 1,024 bits, and
  • any changes to the information or the signature after the time of signing can be detected

Rules for Time and Place of Sending and Receiving Emails

Introduction

The ELECTRONIC TRANSACTIONS ACT 2002 sets out rules to provide certainty about:

  • when an electronic communication, such as an email or fax, is taken to have been sent and received, and
  • where electronic communications are taken to have been sent and received

How will these rules affect contracts?

These new rules may be important for working out exactly when and where contracts are entered into, particularly for Internet trading between New Zealand and overseas. If you regularly enter into contracts, you should think about how these rules could affect your contracts. You should think about whether you need to change any of your business practices in this area, or whether you need to agree with the other contracting party that you'll be bound by different rules.

Although the use of emails in business to date doesn't appear to have created any significant difficulties or disputes, the rules in the new Act will remove any doubts in this area.

Because these rules are most likely to come into play for international transactions, the Act has adopted the same rules as those that apply in Australia and those contained in the United Nations Model Law on Electronic Commerce.

Can two contracting parties decide on different rules?

Yes. The rules contained in the Act and explained below are only "default" rules. The parties involved in the particular transaction can decide that different rules will apply.

When is an email taken to have been sent?

An email or other electronic communication is taken to have been sent at the time it first enters an information system outside the sender's control.

So if you have an email account with an Internet Service Provider (ISP), your email will be taken to have been sent when it first enters your ISP's system. If you have a direct Internet connection, the email will be taken to have been sent when it first goes to the recipient's ISP or their own mail server.

When is an email taken to have been received?

An email or other electronic communication is taken to have been received:

  • if the receiver has designated an information system for receiving emails, when the email first enters that information system, or
  • in all other situations, when the email comes to the receiver's attention

What does "designating an information system" mean?

It seems that a person "designates" a particular information system if they specify in, say, a letter or email making an offer that the other party should send any acceptance to a particular email address. The mere fact that your email address appears somewhere on a letterhead or other document probably doesn't count as "designating" an information system.

So if the receiver had specified an email address for receiving an acceptance, they'll be taken to have received the acceptance when it enters their "information system". If they have an email account with an ISP this will be when their ISP receives the email. If the receiver is a business or organisation with a direct Internet connection and an internal mail server, this will be when their mail server receives the email. If the receiver has a direct connection and no mail server, the email will have been received when it arrives at their individual PC.

If the receiver's designated information system blocks an email for some reason, they'll still be taken to have "received" the email for this purpose.

If the recipient specifies a hotmail address for receiving emails (that is, if they access their emails by logging on to a website), they'll be taken to have received the email when it enters the hotmail system, even if the system for some reason blocks their access to the email.

What does "comes to the attention of the addressee" mean?

You probably don't have to have actually read an email for it to have "come to your attention" for the purpose of this rule. It will probably be enough if you are aware that the email is in your "Inbox".

The "postal acceptance rule": When is an email-based contract entered into?

These rules will be especially important for working out, for example, whether a person who withdrew an offer did so before or after the offer was accepted, and therefore whether or not a contract had already been entered into. But the Act doesn't say whether emails will fit into an established exception in contract law called the "postal acceptance rule".

The postal acceptance rule says that if A sends a letter to B, accepting B's offer to enter into a contract, B is taken to have received the letter as soon as A posted or sent it.

If the Courts treat emails the same as letters here, a contract will be entered into as soon as the email is taken to have been sent under the rules in the ELECTRONIC TRANSACTIONS ACT 2002 explained above. But if emails are treated the same as instantaneous communications such as telephone calls, then the contract won't have been entered into until the acceptance email is received under those rules. The difference could be important if an email is delayed or blocked. The result may depend on whether the communication was effectively instantaneous in the particular case – for example, on whether the person who sent the email sent it through an Internet Service Provider or through a direct Internet connection.

Where is an email taken to have been sent from?

An email or other electronic communication is taken to have been sent from:

  • the sender's place of business, or
  • if the sender has more than one place of business, either the one that has the closest relationship with the underlying transaction or, if there is no such place, the sender's main place of business, or
  • if the sender doesn't have a place of business, the place where the sender usually lives

Where is an email taken to have been received?

An email is taken to be received at:

  • the receiver's place of business, or
  • if the receiver has more than one place of business, either the one that has the closest relationship with the underlying transaction or, if there is no such place, the receiver's main place of business, or
  • if the receiver doesn't have a place of business, the place where the receiver usually lives

So under these rules for the place of sending and receiving, the location of the server or other computer that first receives an email is irrelevant, because that is arbitrary and irrelevant to the particular transaction. For example, a person in New Zealand might use a hotmail account to receive an email from Australia, the hotmail server being a computer in the United States.

The New Zealand Courts have jurisdiction over a contract dispute if it was entered into in New Zealand, and these rules can be important in working out whether a contract was in fact entered into here. Usually the contract will have been entered into at the place where the acceptance was received.

Special rules for time of "disclosure" under consumer credit contracts

The ELECTRONIC TRANSACTIONS REGULATIONS 2003 state special rules for when "disclosure" by lenders of financial information under the Credit Contracts and Consumer Finance Act 2003 is taken to have been made, if done by email, fax or other electronic communication:

  • Borrower's right to cancel contract. For the purpose of the borrower's right to cancel the contract at any time up to the end of the third working day after the day on which disclosure is made, disclosure by electronic communication is taken to have been made on the second working day after the day on which the documents were sent. This means that the borrower can cancel at any time up to the end of the fifth working day after the day on which the documents were sent. (The rule under the Act for when disclosure is made by paper documents sent by post is that the borrower is taken to have received the notice on the fourth working day after they were posted.)
  • Lenders enforcing the contract or guarantee. The Act says that a lender cannot enforce a credit contract, nor take property or enforce a security given under the contract, nor enforce a guarantor against a guarantor, before disclosure is made. Again, for this purpose, disclosure by electronic communication is taken to have been made on the second working day after the day on which the documents were sent.
  • Penalties for lenders failing to disclose within time limit. By contrast, for the purpose of determining whether a lender is subject to a financial penalty for failing to make disclosure to borrowers and guarantors within the time limits specified in the Act, disclosure by electronic communication is taken to have been made on the same day as the documents are sent. For example, the Credit Contracts and Consumer Finance Act 2003 requires a lender to make "initial disclosure" to the borrower before the end of the fifth working day after the day the credit contract is made. So a lender who sends the documents by email on the fifth day complies with the rule and is not subject to a penalty.
Note that these rules relate only to when disclosure in electronic form is taken to have been made. They assume that the lender was entitled to send the documents in electronic form in the first place, under the rules explained above under "Meeting Legal Requirements with Electronic Technology / Special rules for 'disclosure' by lenders under consumer credit contracts". In short, this depends on the receiver having first expressly consented to receiving them in that form.
Cautionary notes
  • If you are in business and want to take advantage of the Act, you should consider whether the particular electronic technology you are or are likely to be using will meet the requirements in the Act for a particular type of transaction – for example, the requirements for electronic signatures to be sufficiently "reliable" for the particular context. The Act doesn't require anyone to use particular kinds of technology; it instead sets functional requirements that any particular electronic technology must meet.
  • It may be necessary to wait until the courts, by interpreting the new Act, have laid down some certainty in this area before you can be confident that your practices satisfy the conditions in the Act.


New ZealandAustraliaUnited StatesUnited Kingdom
Fast & cost effective answers to your unique legal questions.
Ask a Lawyer a question now







New ZealandAustraliaUnited StatesUnited Kingdom
Fast & cost effective answers to your unique legal questions
Ask a Lawyer now

DIY Legal Documents

Solve your own legal issue cost effectively with these DIY documents








  Bookmark this page in your web browserwww.howtolaw.co - Home PageCartNo Items in your Cart