Electronic Transactions Act comes into force on 21 November

On 21 November 2003, the Electronic Transactions Act (the ETA) will come into full force.

Just under five years in the making, the ETA caused much hype in the government and public sectors, was heralded as a key part of the Government's e-commerce strategy, and is vaunted as a major step forward in facilitating e-commerce.

Overarching in nature and drafted so as to be technology neutral, the ETA aims to clear away uncertainty surrounding the use of electronic communications and thereby encourage and facilitate greater use of electronic technology. Although it is better than nothing, the drivers of technology neutrality and the number of exceptions prevent the ETA from fully achieving its aims.

The ETA framework sets out presumptions of the validity of electronic communications and default rules for the despatch and receipt of an electronic communication is sent and received. The ETA also clarifies that the requirements of almost all acts and regulations can be met using electronic documents and electronic signatures, provided that general functional principles are followed.

Through this framework, the ETA attempts to remove statutory barriers to the use of electronic means of communicating and transacting. That said, the ETA does not alter the law in any significant way and by setting general principles (and not prescribing actual methods or practical descriptions of what is required) it leaves a great number of details to be worked out by organisations, their lawyers and, potentially, the courts.

So what does the ETA actually do?

The key sections of the ETA state that:

• Information is not denied legal effect solely because it is in electronic form or is in an electronic communication.
  
  
• A legal requirement that information be "in writing" or "recorded in writing" is met by information that is in electronic form if the information is readily accessible so as to be usable for subsequent reference (unless that legal requirement expressly excludes the use of electronic technology).
  
  
• A legal requirement to retain, produce or provide information or provide access to information, is generally met by information that is in electronic form if the maintenance of the integrity of the information can be assured and the information is readily accessible so as to be usable for subsequent reference. Government entities must also comply with guidelines to be prepared by the Chief Archivist on the electronic retention of documents. The consent of the recipient to the information being in electronic form is also required.
  
  
• A legal requirement for a signature is met by means of an electronic signature if that signature "adequately identifies the signatory and that signatory's approval" and "is reliable as is appropriate given the purpose for which and the circumstances in which the signature is required". The ETA provides some detail in relation to what constitutes a "reliable" signature by stating, if:
  
  
• the means of creating the signature is linked to and under the control of the signatory and no-one else; and
  
  
• any alteration to the electronic signature or the document made after the time of signing is detectable,
  
  
then the signature is presumed to be "reliable" (this appears to refer to Public Key Infrastructure or similar technologies). In addition, the consent of the receiver of the electronic signature is required.

Be aware that these sections of the ETA only apply to legal requirements in acts and regulations and do not apply to documents or dealings that require a "very high level of integrity" (i.e. cheques, bills of exchange, wills, affidavits, land registration documents, immigration/citizenship documents and other such documents that have no electronic alternative).

As a result, you cannot use electronic signatures or electronic documents for these purposes. There are also a number of statutes excluded from these parts of the ETA.

The regulations to the ETA also set out special rules for notices under the Credit Contracts Act, notices regarding the destruction of dogs, notices under the Burial and Cremation Act and the retention of tax records. It is also important to note that no-one is required to use, provide or accept information in an electronic form without that person's consent (such consent, however, can be inferred).

Other provisions of the ETA set default rules on the despatch and receipt of electronic communications, which apply if parties to a transaction do not set their own rules. These default rules state that:

• an electronic communication is "sent" at the time it first enters an "information system" outside the control of the person sending it; and
  
  
• an electronic communication is "received" at the time it enters an information system that has been designated as the receiving system or, if the recipient does not designate an information system to receive the electronic communication, at the time that the electronic communication comes to the attention of the recipient.

So where does this leave us?

We have an ETA which prescribes default rules, requires consent and removes some uncertainty surrounding the use of electronic technology. However, the ETA creates further uncertainty as to how its requirements can be satisfied. Case law and industry practice is likely to determine what is and isn't legal, leaving the ETA as merely the bare bones.

Do we need to do anything about the ETA?

One of the main advantages of the ETA is that it will enable organisations to move to more efficient information management systems that allow them to meet legal requirements electronically and reduce compliance costs.

Irrespective of whether your organisation can benefit from such changes, you should consider taking the following steps to prepare for the ETA:

• Consider modifying your email disclaimer to clarify that just because you use email, you are not designating an information system under the ETA, i.e., state that nothing in the email designates an information system for the purposes of section 11(a) of the New Zealand Electronic Transactions Act 2002, unless expressly stated otherwise. This reduces the risk of emails of legal significance going to unmonitored email addresses.
  
  
• Consider whether the default rules as to time and place of despatch and receipt of electronic communications in the ETA are appropriate for your operations. If not, consider an alternative approach that is more appropriate for your organisation and set out the alternative in your standard agreements and terms of trade.
  
  
• Check the "standard terms" of your suppliers carefully to ensure that you do not inadvertently agree to receiving information in electronic form (or electronic signatures), if your business processes cannot yet cope with this.
  
  
• If you do plan to move to more efficient information management systems to meet legal requirements electronically, update your "terms of trade" to obtain the consent of your customers to these changes. However, to ensure that consent is gained it would be sensible to draw your customers' attention to these changes too.
  
  
• Establish a policy stating how your organisation will respond to requests that communications required to meet legal requirements be provided by others in electronic form. On a related note, consider which legal requirements covered by the ETA apply to your operations and how they might be met electronically by you or others. Even if you decide not to implement systems to take advantage of the ETA yourself, you will at least be aware of how others that you deal with might make changes to take advantage of the ETA.
  
  
• Review your document retention practices to consider if cost savings can be made by moving to retention of electronic records.

Jeremy Salmond