Goldsmith Paul: Electronic Transactions (Contract Formation) Amendment Bill — Second ReadingText is incorporated into the Bound VolumeGoldsmith Paul: Electronic Transactions (Contract Formation) Amendment Bill — Second Reading[Sitting date: 19 February 2014. Volume:696;Page:16125. Text is incorporated into the Bound Volume.]PAUL GOLDSMITH (National): I moveThat the Electronic Transactions (Contract Formation) Amendment Bill be now read a second time. The purpose of this bill is to clarify the legal position on the time at which a contract is formed if the acceptance of the offer is sent by electronic communications. It is indeed a very important piece of legislation.If I may begin with just a quick overview of the importance of contracts—Hon Ruth Dyson: You could tell us why you thought of it too. Like where did the inspiration for this come from?PAUL GOLDSMITH: We will move on to that later on thank you. 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 a transaction having taken place for a promise to fulfil a certain obligation. A contract is important as it protects both parties from any surprises and any changes to the contract. This helps parties to avoid any type of misunderstanding that may arise and sometimes provides a mechanism for settling disputes that arise between parties. So a contract is an agreement having a lawful object entered into voluntarily by two or more parties.Typically each of these parties intends to create legal relations between themselves. The elements of the contract are offer and acceptance normally by competent persons having legal capacity who exchange consideration—which is generally in the form of money—and where the terms of the contract must be certain. So contracts are at the very heart of the market system that underpins the prosperity that we all enjoy and indeed are the foundation of this nation and our economy. Contracts may of course be formed orally. They may be formed on paper or through conduct or electronic means.As has been explained in the explanatory note of this bill the general rule is that the contract is formed at the time at which acceptance of the offer is communicated to theofferor. An exception to that was created by a famous legal case calledAdams vLindsell. Here I must impose a little bit of history on the House and go back to 1818 when the two parties in that case were involved in the sale of some wool. On 2 September 1818 the defendants wrote to the plaintiffs offering to sell them fleeces and required an answer in the course of the post. The defendants in this circumstance 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. Therein was the nub of the problem.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 contract through the post because if the defendants were not bound by their offer until the answer was received the plaintiffs would not be bound until they had received word and it would go on and on indefinitely. So it was decided that when theofferee placestheir acceptance in the post there was a fictional meeting of minds that concluded that the offer was done and gave effect to the acceptance. The idea was tidied further into what is now referred to as the postal acceptance rule in the 1892 caseHenthorn v Fraser where the court determined the precise time limit of acceptance—that is the moment when the letter of acceptance is posted.So the longstanding rule as to postal acceptances inAdams vLindsell is not appropriate for electronic transactions. Therein lies the background to this member’s bill.Kris Faafoi: Why take 5 minutes to explain something that takes 30 seconds? Get on with it.PAUL GOLDSMITH: I know it is difficult sometimes for these complex things to sink in on the other side of the House so I want to take my time. However be that as it may the will of this House was sufficiently favourable to pass this bill at its first reading. I think it was 83 votes to 37 so it was quite a resounding victory. It was sent off to the Commerce Committee which considered this bill in quite some detail and heard submissions. I was grateful for the work—Hon Member: You don’t have to do the full 10.PAUL GOLDSMITH: What was that? I was grateful for the forbearance of the committee and the hard work that it did in listening to the submissions and wrestling with some of the issues. It is not as simple as it seems because when indeed is an electronic offer accepted? Is it when it arrives in the in-box or is it when it arrives in the server? Sometimes there is a gap between when it arrives in the server and when it arrives in the in-box. It is not always as straightforward as it seems.The committee made a couple of suggested changes which I am grateful for. Clause 5 of the bill relates to contract formation. My initial bill introduced a proposed new section 32A to explicitly state that an offer submitted electronically would be deemed to be accepted at the time of receipt of the acceptance by theofferor. This would create a misapprehension of a hard-wired rule applying—that the offer can be deemed to be accepted electronically only at the time of receipt. The committee proposed amending clause 5 to insert a new section 13A into the Electronic Transactions Act 2002 instead of the new section 32A to make it clear that this is a default rule instead of a rigid approach from which the parties would be unable to contract out.Proposed new section 13A(1) would ensure the bill would achieve its intended effect. Section 11—Kris Faafoi: I’ve changed my mind; I want to hear the rest.PAUL GOLDSMITH: Mr Deputy Speaker there is a lot of disruption. I am finding it hard to follow my train of thought on this and I am finding myself getting muddled. I am wondering whether I should start again—go back to the start—because I really have lost my train of thought.If you do not mind I just want to touch on the committee’s proposed amendment to clause 5 to insert new section 13A instead of the new section 32A into the Act to make it clear that this was a default rule instead of a rigid approach from which the parties would be unable to contract out. So new section 13A would ensure that the bill achieves its intended effect. Section 11 of the Act establishes the time at which the electronic communication is taken to be received. The amendment would make it clear that the time of receipt referred to in section 11 of the Act also applies to acceptances of contract offers that are communicated electronically.Proposed new section 13A(2) specifies that the acceptance rule would not apply if the contracting parties agree otherwise. I think that is absolutely appropriate because if the parties negotiated specifically their own mutually agreed conditions in relation to the time and place of receipt then good luck to them. We live in a free society and theyshould be able to do that and I absolutely agree. In fact that is indeed the principle that underlies my next member’s bill which I hope to have to drawn in the next ballot. That bill is about contract formation in terms of fitting in elements of industrial relations. The committee’s amendment would maintain the freedom of contracting parties to decide the time at which a contract is formed.I also want to mention the question of the time of receipt and the designated information system. The committee considered whether the terms “time of receipt” and “designated information system” used in sections 10 and 11 of the principal Act lacked clarity. I am pleased to see that the committee was not persuaded that they lacked clarity and considered that the terms were in need of no further definition. On that score I was very pleased that the committee reported back and I do want to thank the Hon Clayton Cosgrove for all his work on the committee and the fact that he was part of the overall group who reported back unanimously that this bill be continued on in this way. So I am looking forward to the support of Labour this time round.If I did have a little bit more time—