The Commonwealth Electronic Transactions Bill 1999: Ailments and Antidotes

Leif Gamertsfelder
Deacons Graham & James, Australia
Leif.Gamertsfelder@dgj.com.au

(This article is based on submissions made to the Commonwealth in respect of the Electronic Transactions Bill 1999 (Cth) in February 1999.)

Abstract

The Commonwealth recently introduced the Electronic Transactions Bill 1999[1]. The Commonwealth holds the belief that it cannot introduce universal legislation, i.e. legislation that applies to all electronic transactions in Australia, in the form of the Bill due to constitutional restrictions. Consequently, the Bill is designed to apply to Commonwealth laws only, but also serve as a model for the State and Territory governments to model similar laws.

The aim of this paper is to demonstrate that the application of the Bill is too narrow. By limiting the application of the well-drafted Bill, the Commonwealth is creating an environment conducive to uncertainty. This paper argues that perceived constitutional obstacles to enacting universal legislation in this field may be illusory. The author argues that the application of the Bill should be extended by ensuring that:

This is a Legislation Note published on 26 February 1999.

Citation: Gamertsfelder L, 'The Commonwealth Electronic Transactions Bill 1999: Ailments and Antidotes', Legislation Note, 1999 (1) The Journal of Information, Law and Technology (JILT). <http://elj.warwick.ac.uk/jilt/99-1/gamert2.html>. New citation as at 1/1/04: <http://www2.warwick.ac.uk/fac/soc/law/elj/jilt/1999_1/gamertsfelder1/>

1. The Ailment

Ecommerce is rapidly redefining the way in which business is conducted. Ecommerce highlights the difficulties associated with laws that do not have universal application.

The Commonwealth appears to be of the view that the Constitution does not confer on it the legislative power to make universal laws in the form set out in the Bill[3]. In what appears to be a corollary of this belief, the Commonwealth has limited the application of the proposed legislation.[4]

The Commonwealth's preferred course appears to be the establishment of a national scheme in cooperation with the State and Territory Governments.[5] The Commonwealth expects that the Bill will provide a blueprint upon which the State and Territory governments will base similar legislation.[6] The author believes that this approach unnecessarily creates an environment that could harm or inhibit the development of electronic commerce. While it is clear that the State or Territory governments may challenge the introduction of comprehensive legislation, this is true of many Commonwealth enactments and does not appear to be an appropriate response to the challenges posed by electronic commerce ('ecommerce').

The Commonwealth's stated intention to involve the State and Territory governments in the introduction of electronic transaction legislation could promote both uncertainty and inefficiency. Progress and uniformity in this context would be dependent on State and Territory governments consistently, quickly and effectively introducing the initial legislation and any subsequent amendments to the legislation. To create this type of regulatory environment would appear to be contrary to the type of regulatory environment necessary for ecommerce to prosper. And would have implications for both the legal validity of electronic transactions and business confidence in electronic transactions.[7]

In turn, this will impact on what the Commonwealth terms 'Australia's future prosperity in the information economy'.[8] The author submits, with respect, that by adopting this approach the Commonwealth is embarking on an inappropriate course of action. Such an approach stands in sharp relief to calls for universal laws and greater certainty in respect of laws relating to ecommerce. ( Foreshaw J and Tebbutt D; 1999 p.33)

To overcome this problem, the Commonwealth should consider expanding the operation of the Bill. From what follows below, it appears the Commonwealth has the constitutional power to enact electronic transaction legislation of a universal nature that will govern most if not all electronic transactions conducted in Australia.

2. Constitutional Issues - The Antidote

In expanding the scope of the application of the Bill, the Commonwealth could rely on a number of constitutional heads of power, including ss 51(i), 51(v) and 51(xxix). The most compelling arguments in support of the Commonwealth having the power to enact legislation of universal application are based on s 51(v). This paper will now address the issues of whether the:

are within in the scope of the power conferred on the Commonwealth by s 51(v) of the Constitution.

2.1 Electronic Communications and s 51(v)

Unless the Constitution explicitly or implicitly requires otherwise, the grants of power in s 51 must not be 'cut down by a narrow and technical construction, but must be given a large and liberal construction.' (Bank of New South Wales v Commonwealth (1948) 76 CLR 1 at 298) O'Connor J accurately elaborated this principle in Jumbunna Coal Mine NL v Victorian Coal Miners' Association ((1908) 6 CLR 309, at 367-368):

This approach was echoed by Windeyer J in Jones v The Commonwealth (No 2) ((1965) 112 CLR 206) when he observed that: '[o]nce it be conceded that Commonwealth power extends to ...[subject matter] within s. 51 (v.) the laws that may be made with respect to them are a matter for the Parliament.' ((1965) 112 CLR 237)

Section 51(v) enables the Commonwealth to make laws with respect to '[p]ostal, telegraphic, telephonic and other like services.' The author suggests that this head could support the enactment of legislation in the same form as the Bill. The High Court of Australia has had the opportunity to examine the extent of this power on a number of occasions with the leading cases being R v Brislan ((1935) 54 CLR 262) and Jones v Commonwealth (No 2). ((1965) 112 CLR 206).

In Brislan's case there were two lines of reasoning adopted by the five majority Justices. Four of the five Justices comprising the majority held that radio broadcasting could be regulated by Commonwealth statute because it was effected by a means (i.e. radio waves) that was either a telegraphic, telephonic or like service. On the other hand, Latham CJ was of the view that radio broadcasts were a service similar to post, telegraphy or telephony services as they were all forms of communication. Latham CJ also noted that: '[i]f a new form of communication should be discovered, it too might be made the subject of legislation as a 'like service'. ((1935) 54 CLR 262 at 280) On either view adopted by the majority: '[t]he result is the same whether one treats the form of the communication as being within the specific part of the genus or within the genus itself.'[10]

Brislan's case was followed in Jones v Commonwealth (No 2). In this case one question that had to be determined by the court was whether the Commonwealth had the constitutional power to make laws with respect to television broadcasts, which have nothing to do with matters otherwise within the Commonwealth constitutional power. Applying Brislan's case, the court held that television broadcasts and incidental matters were within the scope of s 51(v) either because television was a form of communication within the specific part of the genus or within the genus set out in s 51(v).

It can be seen from the cases mentioned above that the court applied the connotation/denotation distinction when interpreting s 51(v) of the Constitution. This principle has been discussed in many cases,[11] and was concisely stated by Toohey J in McGinty v The State of Western Australia. ((1996) 186 CLR 140) In that case, his Honour explained that 'whist the connotation of the words in the Australian Constitution remains fixed, their denotation may vary over time'((1996) 186 CLR 140 at 200). Importantly, 'the distinction has traditionally been applied where there have been technological advances.'[12]

According to these principles then, technological advances that produce services that share striking similarities to a service or a means of communication that have been held to be a:

must logically be within the scope of the power in s 51(v).

It is submitted that electronic communications the subject of the Bill,[13] whether such electronic transactions were effected by way of either guided electromagnetic energy (e.g. fibre optic cables or telephone lines) or unguided electromagnetic energy (e.g. radio waves or microwaves), would be means of communication that are within the scope of the power conferred on the Commonwealth by s 51(v) either:

2.2 Laws with Respect to Subject Matter Transmitted via Electronic Communications

If it is accepted that electronic communications[14] are within the scope of the power in s 51(v), the next issue that needs to be addressed is whether the subject matter of electronic communications,[15] would be within the scope of the power. That is, whether the provisions in the Bill are laws with respect to electronic communications. Or, to put it another way, whether s 51(v) permits the Commonwealth to make laws with respect to the content of electronic communications.

Although it is arguable that the relevant cases may support the contention that it is only the means of communication per se and not the subject matter communicated by that means that is within the scope of s 51(v), the better view would appear to be along the lines of the judgement of Kitto J in Jones' case.

Kitto J, who wrote the leading judgment, noted that the: 'power under s 51(v) is not confined to providing for the establishment, maintenance and operation of telegraphic, telephonic or other like services [i.e. the means of communication], but extends to the persons who may make use of such a service either to send or to receive communications, to the conditions upon which persons may so use it, and to every aspect of the use and advantage they may have from it [emphasis added].'((1965) 112 CLR 206 at 226.) His Honour added that '[n]o narrower view would be consistent with the broad understanding, upon which Brislan's case insists, of the grant of power in s 51(v).'((1965) 112 CLR 206 at 226.)

The author argues that this statement clearly contemplates an incidental power to make laws that regulate subject matter that is communicated by guided or unguided electromagnetic energy. This power exists despite the fact that the laws contained in legislation such as the Bill are not otherwise within Commonwealth power. A survey of other laws that rely on s 51(v) to effect regulation of content communicated by a means that falls within s 51(v) supports the submission on this point.

The power in s 51(v) has been used to enact legislation imposing conditions as to advertising on television.[16] Section 100 of the Broadcasting Act 1942 regulates the content that can be communicated by a service within the scope of s 51(v), namely the advertisement of cigarettes and tobacco products.[17] The same Act also provides for the regulation of content regulation of children's programmes[18] and by allowing standards to be set in respect of the content of television programmes transmitted by commercial stations.[19] Similarly, the Australian Postal Corporation Act 1989 includes provisions that regulate the 'the kinds of articles that may be carried' by post.[20] Such regulations are indubitably laws relating to content regulation. Therefore they lend further support to the argument that the Commonwealth can make laws with respect to the requirements regarding electronic communications.

Interestingly, in certain circumstances the Australian Postal Corporation Act also provides that content that is carried by the Australia Post Corporation is its property in certain circumstances.[21] Significantly, this provision even extends to information transmitted electronically by Australia Post[22]. It would seem arguable then, that if the Commonwealth can make laws with respect to the status of content, i.e. electronic information, transmitted by electronic means it can make laws that provide requirements for electronic communications.

Another highly apposite example for present purposes is found in s 120 of the Broadcasting Act 1942. Section 120 provides that:

The law of defamation, like the law of contract, is not a sphere in which the Commonwealth normally has legislative power. However, by virtue of the power in s 51(v) it appears that the Commonwealth can make laws with respect to an important evidential element, i.e. a requirement, of defamation law.

Further, the Commonwealth does not normally have the power to make laws with respect to certain trade practices of individuals. However, s 6(3) of the Trade Practices Act 1974:

The conduct contemplated by s 6(3) of the Trade Practices Act 1974 is the subject matter that is communicated and, therefore that content that is communicated by a means referred to in s 51(v). Accordingly, it is yet another example of the Commonwealth making laws with respect to content communicated by a means referred to in s 51(v).

The decision in Herald and Weekly Times Ltd v Commonwealth ((1966) 115 CLR 418) can be used to further strengthen the arguments outlined above. In that case the court said that the Commonwealth could prohibit the broadcasting of television services and therefore could license broadcasting upon such terms as Parliament determined.[24] It follows then, if the Commonwealth can make laws that prohibit communications or provide requirements that have to be met before communications are effected, it should be able to validly enact laws that provide requirements similar to those contained in the Bill.

The author contends that the type of provisions discussed above are within the scope of the power in s 51(v) and by analogy the provisions in the Bill must fall into the same category.

In order to fully ventilate the line of argument traversed thus far, one final point should be made. Contract can be conceptualised as a form of communication. Contracts themselves rely heavily on notions of notice and communication for legal force. An offer is not effective until it is communicated to the offeree. For example, in Henthorn v Fraser ([1892] 2 Ch 27), Kay LJ stated that 'an offer to sell is nothing until it is actually received [by the offeree]'.[25]

Further, '[n]ormally acceptance is not effective until it has been communicated to the offeror'.[26] Once there is agreement between the parties, the terms of the agreement can be identified and the meaning of the parties' contract is determined by way of a process called 'construction.' (Carter J W & Harland D J 1996; p276) Carter & Harland explain the process of construction in the following manner:

This explanation demonstrates that contracts reveal meaning. Meaning in turn is intrinsically linked to communication or more specifically the communication of information. Requirements such as writing and signatures were developed to evidence[27] and authenticate[28] contractual communications. Thus, it is possible to conceptualise contracts as forms of communication. If this point is accepted, it logically follows that any transaction that communicates information intended to have a legal effect must be a communication that falls squarely within the scope of s 51(v).

In summary, the above discussion reveals that:

By using the power in s 51(v) to enact universal legislation in the form of the Bill the Commonwealth would continue to demonstrate vigorous leadership in the field of ecommerce. More importantly, such leadership would provide a regime of universal application that will provide the business, consumer and legal communities with more certainty in this area. This would also assist in the realisation of the objects of the Bill (s 3 ('Object')). The Commonwealth can achieve these aims by ensuring that the potential for the creation of an inefficient, patchwork of Commonwealth, State and Territory laws in relation to electronic transactions is removed.

3. Alternative Heads of Power

It is arguable that the Commonwealth would not be restricted to solely relying on the power in s 51(v) to achieve the aim of introducing universal legislation in the form set out in the Bill. Section 51(xxix) of the Constitution may also provide the Commonwealth with the legislative power to enact a universal Bill. In Commonwealth of Australia v Tasmania ((1983) 158 CLR 1) there is persuasive obiter dicta of 3 Justices that suggests the Commonwealth can use the external affairs power to support an enactment if that enactment reflects a matter of international concern.[30] The Bill would appear to fall into such a category. Evidence of international importance of the type of provisions incorporated in the Bill and the international concern regarding ecommerce generally is provided by the:

It is arguable that these matters provide sufficient evidence to support the conclusion that the Bill is the result of a body of international concern regarding legal issues in respect of electronic transactions, which is significant enough to trigger the power in s 51(xxix).

Indeed, in the Explanatory Paper to the Bill, the Commonwealth confirms that it based the Bill on the Model Law and that the:

Thus, it is arguable that this head of power is available for use by the Commonwealth if it decided to enact universal legislation based on the Model Law that it actively supported in the international arena. The only limitation in respect of this head of power though, is that the provisions of the Bill enacted pursuant to it would have to be reasonably adapted to the end that they intended to achieve.[34] While this may create problems in some contexts, there appears to be little scope for arguing that the Bill in its current form is anything other than reasonably adapted to the end it purports to achieve.

Other heads of power that may arguably support the enactment of a federal Bill of wider application than the one currently being proposed are the corporations power[35] and the trade and commerce power.[36] However, the author believes that these heads of power are not wide enough to support the enactment of a Bill of universal application. Therefore they should only be relied upon as heads of power that supplement rather than substitute for the two heads of power discussed above.

4. Technology Neutrality

Another feature of the Bill that may narrow its application is the definitions of 'electronic communications' and 'information'. These definitions may operate to undermine the objects of the Bill by discriminating between technologies. This appears to contradict the intended aim of basing the Bill 'on [the principle of]. technology neutrality.'[37]

Technology neutrality is defined in the Explanatory Paper to the Bill to mean 'that the law should not discriminate between different forms of technology...'.[38] The Explanatory Paper then proceeds to discuss the importance of certain qualifications to this principle, namely the need for 'specified criteria variously designed to ensure that ...[electronic communications] are accessible, reliable and maintain the integrity of the information communicated.'[39]

Ironically, though, it appears that the Bill may actually discriminate between different technologies. This situation arises because the provisions in the Bill are not intended to apply to 'speech or sound'.[40] As a consequence, although the modern counterparts of the parol contract, such as streamed video files or video conferences, may:

they will not be included within ambit of the Bill because they incorporate speech and sound.[41]

By not including video technologies within its purview, the Bill appears to discriminate between different technologies for no apparent reason. This apparent lacuna in the Bill should be remedied if the twin aims of achieving technology neutrality and the facilitation of 'the use of electronic transactions'[42] are to be realised.

5. Conclusion

The provisions of the Bill reflect a high level of drafting skill and are well-adapted to the end they aim to achieve. However, the Commonwealth should endeavour to extend the application of the Electronic Transaction Bill 1999 to all electronic transactions conducted in Australia. It would appear from the discussion above that there is wide scope for the Commonwealth to enact laws with respect to all electronic transactions conducted in Australia. If the Commonwealth was to do otherwise it would seem to be abdicating its responsibility in respect of providing certainty in electronic commerce.

At a time when certainty in respect of ecommerce is at a premium, the imposition of 9 separate regimes governing electronic transactions should be avoided. Such an outcome will create scope for uncertainty; an inappropriate outcome in the current legal framework for ecommerce. If the Commonwealth broadened the application of the Bill and brought audio-visual communications within its ambit, it would continue to demonstrate global leadership in this very important area.

References

Carter J W & Harland D J (1996) Cases and Materials on Contract Law in Australia (3^rd ed), Butterworths, Sydney.

Foreshaw J & Tebbutt D (1999) 'E-Trade Bill won't pay off: Lawyer', The Australian, 2 February.

Footnotes

1 Hereafter referred to as the 'Bill'.

2 For example, streaming by way of MPEG protocols.

3 The Attorney-General the Hon Daryl Williams AM QC MP, News Release, 2 February 1999.

4 See for example, ss 8(1) ('For the purposes of a law of the Commonwealth'); 9(1) ('under a law of the Commonwealth').

5 Explanatory Paper to the Electronic Transactions Bill 1999, at 2.

6 Ibid.

7 This situation would undermine the aims of the Bill: see s 3.

8 Explanatory Paper to the Electronic Transactions Bill 1999, at 1.

9 This passage has been approved in a long line of cases. See for example: Bank of New South Wales v Commonwealth (1948) 76 CLR 1 at 332, per Dixon J; Reg. V Coldham: Ex parte Australian Social Welfare Union (1983) 153 CLR 297 at 314; and Commonwealth v Tasmania (1983) 158 CLR 1 at 128, per Mason J.

10 R D Lumb & G A Moens, The Constitution of the Commonwealth of Australia (5^th ed), Butterworths, Sydney, 1995, 149. Cf Menzies J adopted a narrow view of s 51(v): Jones v The Commonwealth (No 2) (1965) 112 CLR 206 at 229-231.

11 See for example: Lansell v Lansell (1964) 110 CLR 353 at 366, per Taylor J; R v Federal Court of Australia; Ex parte WA National Football League (1979) 143 CLR 190 at 233-234, per Mason J; Attorney-General (Vic); Ex rel Black v The Commonwealth (1981) 146 CLR 559 at 578, per Barwick CJ; Street v Queensland Bar Association (1989) 168 CLR 461 at 537, per Dawson J.

12 (1996) 186 CLR 140 at 200. See also L Gamertsfelder, 'Electronic Bills of Exchange: Will the Current Law Recognise Them?', (1998) 21 University of New South Wales Law Journal, No 2, 566 at 576.

13 As defined by the Bill: see s 5.

14 Ibid.

15 The requirement of writing in s 8 of the Bill.

16 Broadcasting Act 1942 imposes prohibition of certain advertising content: s 100.

17 Section 100(5A), Broadcasting Act 1942.

18 Ibid, s 16(7)(c).

19 Ibid, s 16(1)(d).

20 Section 32(2)(a), Australian Postal Corporation Act 1989.

21 Ibid, s 101.

22 By reading s 101 with s 3 (definitions) it is clear s 101 extends to messages or information transmitted electronically.

23 G Evans, 'The Constitutional Validity and Scope of the Trade Practices Act 1974,' (1975) 49 Australian Law Journal 654 at 668. Section 6(3) only extends the application of Part IVA and of Divisions 1 and 1A of Part V of the Trade Practices Act 1974.

24 Ibid at 434, citing Fairfax v Federal Commissioner of Taxation (1965) 114 CLR 1. In the Herald case, Kitto J's reasons for judgment were endorsed by Taylor, Menzies, Windeyer and Owen JJ: see P Hanks, Constitutional Law in Australia (2^nd ed), Butterworths, Sydney, 1996, 389.

25 [1892] 2 Ch 27, at 37. See also J W Carter & D J Harland, Contract Law in Australia, (3rd ed) Butterworths, Sydney, 1996, 37.

26 J W Carter & D J Harland, Contract Law in Australia (3^rd ed), 37.

27 Note that Carter & Harland point out in Contract Law in Australia (3^rd ed) that requirements of writing have two other functions: a 'cautionary' function and a 'channelling' function: 163.

28 For example, see Morton v Copeland (1850) 16 CB 517 at 535; R v Moore; ex parte Myer (1884) 10 VLR 322 at 324.

29 At first blush it may appear that further support for Commonwealth power in this area may be drawn from s 51(xxxix). However, whether this placitum would provide such scope is questionable and that is why the matter is not pursued in this submission: see R D Lumb & G A Moens, The Constitution of the Commonwealth of Australia (5^th ed), Butterworths, Sydney, 1995.

30 See Commonwealth of Australia v Tasmania (1983) 158 CLR 1, at 98 per Gibbs CJ; at 170-171, 177 per Murphy J; and 256-259 per Deane J. See also R v Burgess; Ex parte Henry (1936) 55 CLR 608 at 643 per Latham CJ, and at 684 per Evatt and McTiernan JJ.

31 So far as it relates to encryption technologies and ecommerce and therefore the need to create 'a more secure legal environment for electronic commerce' (adopting the words of the Explanatory Paper to the Bill, 2). Entered into in July 1996.

32 Entered into on 1 December 1998.

33 Explanatory Paper to the Bill, 1.

34 See Commonwealth of Australia v Tasmania (1983) 158 CLR 1 and Richardson v Forestry Commission (1988) 164 CLR 261.

35 Section 51(xx) of the Constitution.

36 Section 51(i) of the Constitution.

37 The Explanatory Paper to the Bill also refers to the principle of 'functional equivalence', but this principle is not relevant for present purposes.

38 Explanatory Paper to the Bill, 2.

39 Ibid.

40 Explanatory Paper to the Bill, 4.

41 Ibid.

42 See objects of the Bill: s 3(b).