Electronic Transactions (Contract Formation) Amendment Bill

I move, That the Electronic Transactions (Contract Formation) Amendment Bill be now read a first time. I nominate the Commerce Committee to consider the Electronic Transactions (Contract Formation) Amendment Bill. This bill clarifies a point of contract law that is currently vague. Its purpose is simply to clarify the legal position on the time at which a contract is formed if the acceptance of the offer is sent by some form of electronic communication. The bill recognises the need for contractual transactions to join the electronic age.

The general rule of contract formation is that a contract is formed at the time an acceptance of the offer is communicated to the offerer. So when someone says: “Yes, I accept the offer.” or the offerer and the acceptor shake hands, then the deal is done. However, an exception to the rule was created for acceptances by post. This goes back to the case of Adams v Lindsell of 1818. I might trespass on the time of the House to explain the details of that case. The case involved two parties to the sale of some wool. On 2 September 1818 the defendants wrote to the plaintiffs, offering to sell them certain fleeces, and required an answer in the course of post. The defendants misdirected the letter, so that the plaintiffs did not receive it until 5 September. The plaintiffs posted their acceptance on the same day, but it was not received until 9 September. Meanwhile, on 8 September the defendants, not having received an answer by 7 September as they expected, sold the wool to somebody else.

The defendants argued that there could not be a binding contract until the answer was actually received and that until then they were free to sell the wool to somebody else. The judge said that if that was true, it would be impossible to complete any contracts through the post, because if the defendants were not bound by their offer until the answer was received, then the plaintiffs would not be bound until they had received word, and it would go on and on indefinitely. And so it was decided that when the offeree placed his acceptance in the post there was a fictional meeting of minds that concluded that the offer was done and gave effect to the acceptance. That idea was tidied further into what is now referred to as the postal acceptance rule in the 1892 case Henthorn v Fraser, where the court determined the precise timing of the acceptance—that is, the moment when the letter of acceptance was posted.

That longstanding rule as to postal acceptances in Adams v Lindsell is not appropriate for electronic transactions. This has already been recognised by the courts in relation to acceptance of contractual offers by telex as far back as 1955 and Entores Ltd v Miles Far East Corporation, which treated the communication being, as with the telephone, simultaneous. So the contract was formed when the offeree said yes. The facts in that case involved a London-based trading company sending an offer by telex for the purchase of copper cathodes from a company based in Amsterdam.

There is no clear authority on acceptance by way of email. This bill will serve to clarify the law. The position with telex differs from emails. Communication by telex is generally acknowledged at each end, the sending machine and receiving machine. With email, it is not known to the sender that an email has been received unless confirmation is received from the recipient. This postal acceptance rule was based on the policy that the post office was an assured means of communication and acted as a form of agent for transmission, provided there was proof of posting. Emails are delivered by a variety of servers, and there is not the same assurance that an email, once put into the ether, will be delivered. Proof that an email has been posted is also difficult, because it is not a simple matter of obtaining a receipt for a registered letter.

This bill provides, in my view, an appropriate way to deal with the email acceptances by providing that an offer can be accepted by electronic communication and is deemed to be accepted at the time of receipt by the offerer—

💬 Hon Trevor Mallard: What does receipt mean?

—that is, when it arrives in the offerer’s in-box. You can know when that is.

So why is this important?

💬 Hon Trevor Mallard: Why doesn’t the bill say that?

Well, that is something that the select committee can look at when we get down to it.

So why is this important? Well, on its own this bill is not going to bring about the brighter future to which we all aspire and to which this Government is so committed, but it is a small and useful addition to the latter’s work. Clear and predictable laws governing commerce are some of the foundations of the success of the modern economy upon which our prosperity depends. Clarity and certainty lead to confidence, and confidence leads to greater investment. So our laws need consistently to be maintained and adapted to respond to changing technology. This bill tidies up one small area of uncertainty and will go some way to increasing the flow of business. Given the prevalence of electronic communications in society today, including email, smartphones, and social media, it is useful that the current Act be amended to cover such areas.

It is worth digressing briefly to fit this bill into the broader context of a Government committed to operating online in the 21st century. As part of the National-led Government’s determination to make the public services work better for taxpayers, businesses, and consumers, we have set a target that an average of 70 percent of New Zealanders’ most common transactions with Government will be completed in a digital environment by 2017, up from 24 percent currently. Ten transactions, the House may be interested to know, are being used to measure progress towards a 70 percent uptake of online services. These include the renewal of adult passports, applying for visas, applying for financial assistance through the Ministry of Social Development, filing tax returns, paying fines, paying vehicle licensing, SmartGate for air travellers, and booking Department of Conservation assets.

Likewise, this bill is all the more relevant as the Government rolls out its investment in ultra-fast broadband, which will revolutionise the way many businesses, schools, health care providers, and communities operate. It will help overcome the tyranny of distance from the rest of the world. This Government has committed $1.5 billion to plug New Zealand into the world, through ultra-fast broadband and our Rural Broadband Initiative. That wool merchant and his customer, Adams v Lindsell, doing their business more than two centuries ago, could not have imagined the modern world where contracts can be formed instantly between traders in London and Auckland. But the fundamentals of business have not changed, in that trading is amongst the most natural activities of humanity. It is a civilising activity, because at bottom it is about making an arrangement from which both parties benefit, and, most of all, trade flourishes when there is a shared understanding of the rules. I trust this bill will go some way to add to that shared understanding, and on that basis I commend it to the House. Thank you.

The normal practice for the Labour Party when there is a member’s bill that is well drafted and heading in a general direction that the Labour Party approves of is to send it off to a select committee. But this bill, the Electronic Transactions (Contract Formation) Amendment Bill, is a bill that is very badly drafted. It is an area that the Government should be dealing with, and it is a relatively minor area and would almost certainly slip through statutes amendment legislation or commerce law reform legislation. When it is left to a member like this, Paul Goldsmith, to draft a bill, what do we end up with? We end up with a bill that does not even achieve what it is meant to on the face of it.

The really important point—the issue that the bill is designed to remedy—is the lack of definition of “receipt” when it comes to electronic transactions. This bill does not remedy it. We would not mind if the member had done it and got it wrong. If he had said it was received by a server, or it was in an in-box, or it was in an in-box and it was open—if he had picked something and defined “receipt” as that—well, then, we could have had a discussion about it at the select committee, and we could have heard the evidence and worked out whether that was the right thing or not. But this member brings a bill to the House that does not even pick one of the alternatives. He did not even look at the essence of the question that he was meant to be answering in bringing in this legislation before he put his name on it. Do you know—

💬 Chris Hipkins: He knew Paul Quinn.

Well, no, Paul Quinn is an intellectual giant—an intellectual giant—in comparison with Paul Goldsmith.

I am sorry to interrupt the honourable member, but the time has come for me to leave the Chair.

Debate interrupted.

Sitting suspended from 10 p.m. to 9 a.m. (Thursday)