Electronic Transactions (Contract Formation) Amendment Bill — First ReadingText is incorporated into the Bound VolumeElectronic Transactions (Contract Formation) Amendment Bill — First Reading[Sitting date: 15 May 2013. Volume:690;Page:9983. Text is incorporated into the Bound Volume.]Electronic Transactions (Contract Formation) Amendment BillFirst ReadingDebate resumed from 5 December 2012.JONATHAN YOUNG (National—New Plymouth): I am very pleased to stand in support of the Electronic Transactions (Contract Formation) Amendment Bill which is a bill in the name of my colleague the National MP Paul Goldsmith. Although this bill might be seen as a reasonably small technical bill in the modern age of transactions it is actually a very important bill because we know that any economy and any business economy is going to be successful only on the strength of the transactions that take place amongst traders and amongst business people. We live in this age when the internet is incredibly integrated in all of our business transactions and indeed in all of our lives. So it is important that we understand that incorporating technology within the time-tested rudiments of business is very important and it is very important to do it properly do it well and do it so there is certainty around transactions that take place via technology.This bill clarifies the legal position on the time at which a contract is formed if the acceptance of the offer is sent by electronic communication. I am not sure whether the sponsor of the bill has thought about text messages but perhaps at some point in time—Paul Goldsmith: They’re included.JONATHAN YOUNG: They are included as well he tells me. That is very important. It is to do with every form of communication through electronic means so that is good to see. The general rule of contract formation is that a contract is formed at the time that acceptance of the offer is communicated to the offeror. The general rule of contract formation is that there is that sending and receiving and acknowledgment of that receipt. When someone says “Yes I accept the offer.” or the offerer and the acceptor shake hands then the deal is done. We know that in terms of the face-to-face communications that take place.I want to just touch on some of the aspects that the sponsor of the bill Paul Goldsmith touched on in his first reading which was now some many months ago. People who are watching this at home on their TVs might just appreciate some of the background to this bill. An exception to the rule was created by acceptances by post. This goes back to the case ofAdams v Lindsell as far back as 1818. 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 the plaintiffs did not receive it until 5 September that year. 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. These are the sorts of confusions that take place.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 received word of that and it would go on and on indefinitely. 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 up further into what is now referred to as the postal acceptance rule in the 1892 case ofHenthorn v Fraser where the court determined that the precise timing of the acceptance is the moment when the letter of acceptance is posted.We understand looking back in history that the timing of such events and communications is incredibly important for the orderly transaction of business. What the member Paul Goldsmith has noticed and known is that in electronic communications we do not have that time stamp available and what this bill is seeking to do is to establish that moment in time when the transaction becomes formalised. Thank you.DARIEN FENTON (Labour): I rise on behalf of Labour to oppose the Electronic Data Safety Bill and I note that our spokesperson is on her way to speak on this bill.Hon Member: On what basis?Hon Member: Anti-technology.DARIEN FENTON: Pardon?Hon Member: That’s right they are a party of the past.DARIEN FENTON: Yes well hang on. So you know I accept what the member says about a member of the public being able to download 7000 documents from the Ministry of Social Development’s computer network. I am glad that he is concerned about that and certainly Labour is concerned about the problems that we have with electronic data. That has been in many Government departments actually. We have seen I suppose a year full of scandals on this issue but I am not sure—I think our problem is that we do not believe the bill will deal with the issues by setting up a commission on this. I think we have other options that are included in other bills that hopefully we will get to debate at some time on a members’ day.The purpose of this bill is to establish a special commission of inquiry and that would look at the privacy breaches and any other similar significant or recent breaches—but I think I may have the wrong bill. [Interruption] Thank you very much. I do apologise. I say that as a whip we often get to do this. We often end up having to speak about bills that we know very little about but OK I will keep speaking.This bill the Electronic Transactions (Contract Formation) Amendment Bill is about what is known in the IT sector as spam and the sole purpose of the bill is to fill themember’s ballot so that Opposition bills are less likely to be drawn and considered by the House in a timely manner. As to why Paul Goldsmith is the member in charge of this bill rather than Amy Adams the Minister for Communications and Information Technology you would have to ask the other side of the House. I think that is a very interesting question. If it is such an important matter we have to ask why the Minister is not indeed introducing this bill. Certainly when the original bill was passed in 2002 the Hon Paul Swain was the responsible Minister but once again Amy Adams is missing in action when it comes to information and communications technology.This is simply another example of this Government undermining the processes of Parliament for its own end. This time could be used to debate matters of importance to New Zealanders and instead we are standing here talking about a piece of legislation that is completely pointless. Let me tell you why this bill is completely pointless. The other bill that I mistakenly began speaking about is not pointless and we will get to debate that bill at some stage. I have no doubt that the National Party will stand up and oppose that bill as it is wont to do. Actually the Minister Amy Adams should be showing leadership in this sector and is not.What this bill tries to do is solve an issue that does not even exist. Apparently the point at which an agreement comes into effect has been muddled by the growth of technology and its use in business negotiations. Currently the law states that a contract comes into effect when the acceptance of the offer is communicated to the offeror. There is an exemption for postal communications where the contract becomes effective once it leaves the offeree’s hands as opposed to when the offeror receives it. However this is not relevant to digital communications. The delay between sending a notice of acceptance and receipt of that notice of acceptance is so negligible as to be non-existent. So in effect what we are debating here today is whether it is the responsibility of the offeree to ensure that the email or digital message is read or the responsibility of the offeror to check their inbox frequently.This point could be quite interesting to a court of law. I understand that it has been raised in other jurisdictions and precedent would indicate that the onus lies with the offeror to check their inbox. Unfortunately this bill fails even to ask that question. So on those grounds Labour is opposing the bill.I congratulate the member on having a bill drawn from the ballot—I know it is a big deal—but Labour cannot support it. We think it is another example of ill-thought-out badly researched and hurriedly drafted legislation from the Government. If it were really serious about these issues its Minister for Communications and Information Technology would be bringing to the House bills that would deal with the real issues that are happening in information and communications technology. Thank you.DENISE ROCHE (Green): It is my great pleasure to rise to take a call for the Greens on this bill. First of all I would like to congratulate the member Paul Goldsmith on bringing this bill to the House. I imagine that when Mr Goldsmith was the chair of the community services committee on Auckland City Council and was working on the homelessness action plan this was one of those crucial issues that kept him awake at night the Electronic Transactions (Contract Formation) Amendment Bill. I imagine he was dreaming of this night and day and of his opportunity to bring this bill to the House.The purpose of this bill is all about postal acceptance and the postal acceptance rule. It has quite a lot of interesting aspects to it—well actually not really—but the bill makes clear that the archaic postal acceptance rule does not apply to electronic transactions meaning that an electronic contract is formed at the time that acceptance of the offer is communicated to the offerer the person who is offering the contract. The main effect of the old postal acceptance rule is that the risk of acceptance beingdelivered late or lost in the post is placed upon the person who is offering the contract and if the person who is offering the contract is reluctant to accept that risk then they can always get a receipt that they have posted it. But nowadays we have moved into modern times when people send things by electronic mechanisms i.e. the computer and so I guess this bill is a good thing in that it is trying to bring us up to date with what happens when we send contracts to one another.However the explanatory note of the bill says: “The issue of whether the postal acceptance rule can be extended to electronic communications has not yet been considered by the courts.” So although I commend Mr Goldsmith for thinking towards the future I do kind of worry that maybe there was no great hurry to have this bill introduced.As we know from New Zealand Post postal use is declining so it is timely I guess to bring this legislation to the House. However one does have to ask oneself why the bill is being brought in as a member’s bill that has gone through the ballot rather than as a Government bill which the Government could just push through. In fact it could probably go through as part of an omnibus bill because there is going to be very little dispute about it so long as we all get the right bill that we are talking about. I can only assume that the reason it was put into the ballot was to take up some space in what is basically a raffle—a raffle for members’ bills—so that it could get pulled out and somebody else’s bill did not get pulled out.It is members’ day tomorrow so some more bills may be pulled out of the hat which is really really exciting because there are some really good ones in there. There are ones like for example the one that I will be putting in the Charities (Charities as Advocates) Amendment Bill which looks at the long-overdue definition of what “charitable purpose” means. In the last ballot there were things like the Care of Children (Adoption and Surrogacy Law Reform) Amendment Bill. There was Catherine Delahunty’s Citizenship (Acknowledgement of Te Tiriti o Waitangi) Amendment Bill. Mojo Mathers had a good one the Consumers’ Rights to Know (Country of Origin of Food) Bill. In fact there was the Copyright (Parody and Satire) Amendment Bill. There is a raft of bills that take up a bit of space in the ballot which is actually a raffle. I know that I have some issues about gambling but this is one gamble I am willing to take because I want my bill to be drawn out. So it leaves me with a sense of dissatisfaction that the member has had his bill pulled out of the ballot when actually this could have been done more or less overnight.But I commend him. We will be supporting it. It is fairly inoffensive and it is nice to have Mr Goldsmith thinking of the future. Just for the record in caseHansard does not pick it up I have had a huge tone of irony in my voice during this speech. Nō reira tēnā koutou katoa.DENIS O’ROURKE (NZ First): New Zealand First will support the Electronic Transactions (Contract Formation) Amendment Bill as far as passage to the Commerce Committee because it at least deserves proper consideration. I congratulate the member Paul Goldsmith on having this bill selected from the ballot. However the bill may prove to be not needed because the general rule of contract formation is that a contract is formed at the time an acceptance of the offer is received by the offeror. That applies generally unless an exception applies and as we know there is no such exception for electronic transactions such as those formed by an exchange of emails.As is also very well known there is an exception for acceptances by post in the well-known case ofAdams v Lindsell so that the date and time of acceptance is when the letter is posted not when it is received. The reliability of the postal system was considered to be so good that this rule could apply well in practice and indeed it has served us well over a couple of centuries. Otherwise of course it would be difficult inpractice to complete any contract through the post because if the offeror were not bound by the offer until the answer was actually received then the offeree would not be bound until they had received advice of that. Also the offeror may simply decide to deny receipt of acceptance. So there were good and practical reasons for the rule inAdams v Lindsell.I agree that the longstanding rule in that case is however not appropriate for all electronic transactions. Contractual offers by telex as with the telephone or just face to face of course are simultaneous so a contract is formed when the offeree accepts at the same time as the offeror gets the acceptance. Although it is correct that there is no clear authority on acceptance by way of email there is no established exception either so the general rule applies in favour of acceptance when it is received. This also is at the same time as when it is sent if it is sent by electronic means such as email. Nevertheless this bill would serve to clarify the law.I accept that the position with telex differs from that with emails and that is of course because communication by telex is generally acknowledged at each end—at the sending machine and the receiving machine—at the same time. With an email however as we are all very well aware it is not known to the sender whether an email has been received unless some form of confirmation is received from the recipient. Although the sender of an email can obtain confirmation that a message has been received that is not commonly done. So the issue here really is that emails are delivered by a variety of servers and there is not the same assurance that an email will get to the intended recipient or be acknowledged as is the case with post.For those reasons I do believe that this bill deserves examination by the Commerce Committee first of all to see whether it is needed. I think there is at least a prima facie case for it. If it is needed we need to consider what the bill should provide and that needs I think to be very carefully looked at. If indeed the bill is passed it would clarify one small area of uncertainty and would assist business. Given the prevalence of electronic communications in society today with emails smartphones and all sorts of other devices it is useful that the current Act be amended to cover such areas. New Zealand First will therefore support the bill going to the select committee and we look forward to the debate on all of those issues there.Peseta SAM LOTU-IIGA (National—Maungakiekie): It is a privilege to speak on this bill the Electronic Transactions (Contract Formation) Amendment Bill and I want to thank the member Paul Goldsmith for bringing it into the House. He always makes thoughtful contributions both in select committee and in the House and certainly this is another example of his making a contribution to our Parliament.This bill is like its author: it is short it is sharp and it will have an impact on contract law and society in general. This bill clarifies the legal position on the time at which a contract is formed if the acceptance of the offer is sent by electronic communication. Of course contract law is one of the fundamental cornerstones of our legal system. Contracts facilitate trade and commerce as well as other business and social transactions where they are proof of the transaction having taken place for a promise to fulfil a certain obligation or set of obligations. A contract is important as it protects both parties from any surprises or changes to contracts and it helps the parties involved avoid any type of misunderstanding that may arise—and sometimes indeed contracts provide mechanisms for settling disputes that arise between parties.A contract is an agreement that has a lawful object entered into voluntarily by two or more parties. Typically each of the parties intends to create legal obligations or legal relationships between them. The elements of a contract are an offer an acceptance normally between what would be considered competent persons who have legal capacity who exchange consideration and this can come in the form of money wherethe terms of the contract between the parties must be certain. Contracts may be formed orally by paper-based writing through conduct or through electronic means.As explained in the explanatory note of this bill: “The general rule … is that a contract is formed at the time acceptance of the offer is communicated to the offeror.” We have already heard about the rule inAdams v Lindsell which created an exception for acceptances conveyed by post. Basically it stated that when an offer was accepted by post the offer was deemed to have formed from the moment the acceptance was posted and not when the contract was read by the offeror. So although the issue of whether the postal acceptance rule can be extended to electronic communications has not been considered by the courts this bill ensures that that postal rule will not apply to contracts accepted by electronic communications.I want to thank the member who has just sat down Denis O’Rourke. He alluded to a difference between the different forms of electronic communications which may create some uncertainty around this clause. I must say also that the exception that was enunciated inAdams v Lindsell really was because when the defendant wrote to the claimant in that case offering to sell some wool they asked for a reply that was “in the course of post”. So the letter which was ultimately delayed in that case was because the parties to the transaction actually required it as part of the contract to be “in the course of post”.It is my view that the established rules around acceptance must still apply and the factors that must be taken into account must be that the acceptance must be communicated to the offeree the terms of the acceptance must exactly match the terms of the offer and the agreement—as with any contract formed whether oral or written—must be certain. The general rule that the offeror must receive acceptance before a contract is accepted has been stated clearly inEntores Ltd v Miles Far East Corporation where it was held that to amount to an effective acceptance the acceptance needed to be communicated to the offeree and hence where the defendant in that particular case sent a telex as the previous speaker mentioned regarding telex messages it was—The ASSISTANT SPEAKER (Lindsay Tisch): I am sorry to interrupt the honourable member. His time has expired.CLARE CURRAN (Labour—Dunedin South): As you have heard tonight Labour is opposing this Electronic Transactions (Contract Formation) Amendment Bill and if it does get to the Commerce Committee then I am sure we are going to have an interesting time discussing the various legal cases for and against this particular issue. This bill actually amends legislation that Labour pioneered in 2002 which removed impediments to e-commerce and brought New Zealand into line with many other developed countries in the world. At that time it was part of Labour’s Digital Strategy—remember it was 10 years ago. It was 10 years ago when there was a lot of work being done by the previous Labour Government to introduce a Digital Strategy. This work amends that. What we say tonight is that this should be a Government bill. It should not be a member’s bill; it should be a Government bill.There is an inherent contradiction in it which is why we are opposing it tonight. At the heart of it is the issue that there is a fundamental difference between snail mail and email and no doubt if the bill does pass tonight then that will be teased out. As we have said we are describing this bill as spam. That is not meant to be a slur on the member Paul Goldsmith who has done the work on this bill but it is a criticism of the fact that there are many other important issues that could be being debated in this House. If there needs to be a law change in this area then the Government should have brought this bill to the House. The Minister for Communications and InformationTechnology should have actually done the work and provided the advice that would have brought this law change to the House.What I would like to say about this bill is that there has been discussion over the years about whether the postal acceptance rule should be extended to online scenarios but the prevailing view is that it should not. The issue was briefly considered in a 2009 Australian Federal Court case in which the judge concluded to the effect that the postal acceptance rule could not—should not—apply to acceptance by email. We have discussed this issue around what happens when an email arrives in your in-box—if the members on the opposite side of the House remember—in other bills at the select committee if they were paying attention. Is the person whose in-box it is liable for the contents of that email if they do not know it is there if they have not looked at it if they have not opened it? That is the question because there is a great big difference between when you send a letter to somebody by snail mail and it arrives in a physical letter box than when you send an electronic email to somebody and it goes within seconds. There are some considerable issues there to be determined.Case law based on theBrinkibon case which was a leading decision of the House of Lords on the formation of a contract using telecommunication and together with section 11 of the electronic transactions case law suggests that the bill means that the contract is formed when an email arrives rather than when it is read. But this is not clear in the bill itself. So perhaps if Mr Goldsmith would like to clarify to the House what he actually intends the bill to do then we would be able to make a more informed decision about this bill.Labour is pushing ahead with a comprehensive digital strategy in our development of policy which involves looking at the whole of the digital environment. A bill such as this as I said should have come before this House as a Government bill if the law needed to be changed and that should have been on the advice of officials. There could be many other issues of great moment in the digital environment that we could have been discussing in this House tonight. Certainly we do give congratulations to National for moving beyond quills and typewriters and acknowledging the existence of the digital age but there certainly are other major issues that could have been discussed tonight.KANWALJIT SINGH BAKSHI (National): It is my pleasure to stand in support of the first reading of the Electronic Transactions (Contract Formation) Amendment Bill introduced by my good friend Paul Goldsmith. Times have changed and we are living in a digital world so our laws are to be updated. We have to update the laws that are obsolete.The purpose of this bill is to clarify when a contract is formed where there is an electronic acceptance. The general position is that a contract is formed at the time of acceptance if an offer is agreed upon. Clause 5 of the bill amends the Electronic Transactions Act by inserting new section 32A and thereby clarifying when a contract is formed when the acceptance of the offer is made through electronic communication.For example if a contract is posted then regulations say that the contract has been established as soon as the acceptance is placed in the post. At present this regulation does not cover contracts accepted electronically. For example if a person accepts a job offer by email then there is no legal certainty over when the contract was created. In bygone eras before emails there was a term entitled “postal acceptance rule”. This rule created a directive where an offer was deemed to be accepted when the acceptance was posted. Over the years the rule has been extended to include telegraphs but has been held not to apply the acceptance by telephone telex or fax.In these modern times when email and smartphones are in regular use it is paramount that the current Act is amended to cover such areas. Currently there is nomandate on acceptance by email which is practically immediate and the person who sends the email is usually in the best position to know whether it has not been delivered.National is focused on building a more competitive and productive economy in the 21st century. We want to make the most use of other services including ultra-fast broadband. This bill introduced by my friend Paul Goldsmith is in line with what the National Government wants to achieve. National has set a target that by 2017 on average 70 percent of the transactions with Government departments will be completed digitally. At present it is 24 percent.Filing individual tax returns has also been a popular resource online. It is more economical and very prompt. Another example is SmartGate which has cut down on queues for air travellers and creates a more efficient and secure service at the airport. National is committed to making public services better for taxpayers business people and consumers. I commend this bill to the House.Dr KENNEDY GRAHAM (Green): I rise to confirm that the Green Party will support this member’s bill the Electronic Transactions (Contract Formation) Amendment Bill but only through a spasm of exasperation with the increasing tendency on the part of Government members such as Mr Goldsmith who are putting this kind of bill in the form of a member’s bill into the ballot. Had it been a personal vote I might be saying entirely different things. I do see from the first reading when it was initiated by Mr Goldsmith back in November that he asked rhetorically: “Why is this bill important?”. He said: “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”—he added endearingly—“it is a small and useful addition to the latter’s work.” I can only admire the gravitas and insight that buttresses those comments back in November and I think the House is now well informed with that insight and we can proceed very quickly to despatch this bill to the Commerce Committee if not to the void.The essential provision as he has drafted it with his own pen is clause 5 which adds new section 32A. It says: “Contract formation—An offer that can be accepted by electronic communication is deemed to be accepted at the time of receipt of the acceptance by the offeror.” The difficulty is and I think it has not gone unnoticed that there is no definition of the act of receipt. Somehow this got through the parliamentary drafting process. I invite the author of the bill to return to his office at the end of tonight’s session and send an email to me as a parliamentary colleague on any subject that he wishes and then he can telephone me at 7.45 tomorrow morning and ask me: “Have you received my email?”. I can be sitting there at my office in front of my computer and say to him yes and no. Yes I have received an email from Paul Goldsmith. I see it here in my in-box. No I have not clicked into it. Yes I see the contents of the email in the window panel to the right. No I have not clicked into it. How are we going to resolve this issue? Perhaps when it goes to the select committee and wise minds attend to it—Hon Member: Just open the damn email.Dr KENNEDY GRAHAM: But there may be no indication that I have or I may choose not to and so I could leave it there for 6 months. He could ring me at 7.45 every morning and we could go through this routine. Let us pray that the select committee led by the author of this bill with his diligence and skill will add perhaps the following: “Section 32B—receipt of the electronic communication specified in section 32A must be signified by return of electronic communication to the offeree. Section 32C—receipt of the electronic communication by the offeree specified in section 32B must be signified by return electronic communication to the offeror.” At some stage—as the division bells ring—that would be the receipt of the email. There is a little bit of work tobe done on this bill and we will go in and treat it very positively in the select committee and in the second reading.PAUL GOLDSMITH (National): It does fill me with pleasure and gratitude to know that the Greens are offering to support this bill the Electronic Transactions (Contract Formation) Amendment Bill as they did support me in the campaign during the election in Epsom. It is nice to recall some of those moments of bipartisanship which I hoped to carry on when I got into Parliament. I know the Greens did very well.This debate has indeed focused on the question of when exactly an electronic communication is received by the offeror. Is it when he or she opens an email in his or her in-box or when it arrives in the server if there is a gap between the arrival in the server and when it is in the in-box and similarly for text messages? Mr Mallard way back when this bill was first brought to the House was very strong on that point. I do defer to Mr Mallard on matters of criminal law given his personal experiences there but on matters of commercial law I am not so sure. So I just want to say that it may well be that it is best to include a definition of “receipt” in the legislation. Certainly it is my expectation that receipt refers to the arrival of an email or a text in the in-box rather than when the email or text is opened up. That would seem the logical way because it might be months—as indeed my colleague Mr Graham suggests—after they receive the email before it is actually opened.However this matter is not as simple as it seems. There was the episode in February this year for example when Telecom cancelled the passwords of more than 60000 Yahoo XTRA email accounts because it believed that they had been compromised by a cyber-attack. Those people could not access their accounts for a few days though presumably emails had arrived in the server and perhaps in the in-box but they could not be accessed. So it may well be that it is best not to be too prescriptive in the legislation. I have had a few comments from legal practitioners on the topic and suggestions on how it may best be achieved and I think the best thing to do is to send this bill off to the select committee to consider precisely how we deal with the question of receipt.Some members have been so unkind as to suggest that this bill is rather minor in its ambition and perhaps not befitting a politician of such promise but it is a small step and every little bit helps. This bill is about maintaining that intricate latticework of the rule of law that holds up and sustains capitalism in this country. It is a small piece and on that basis I am very pleased that we have the support of the Greens and New Zealand First. I am shocked and dismayed that the Labour Party members do not see fit to even send it to the select committee to consider further but that may perhaps reflect their rather negative mindset at the moment. Given the Budget that is coming tomorrow and the good story that this Government has I am not surprised that they are a little bit lost like sheep without a shepherd. But we will hear more about that tomorrow. Coming back to this bill I am very pleased that it has such widespread support within the House. It will continue to maintain grow and sustain contract law which is so essential to this economy continuing to grow. Thank you very much.A party vote was called for on the questionThat the Electronic Transactions (Contract Formation) Amendment Bill be now read a first time.Ayes83New Zealand National 59; Green Party 14; New Zealand First 7; ACT New Zealand 1; Mana 1; United Future 1.Noes37New Zealand Labour 33; Māori Party 3; Independent: Horan.Bill read a first time.Billreferred to the Commerce Committee.