Submissions on Government Proposals on ECommerce

On August 13th, 1999 the Department of Public Enterprise issued outline legislative proposals on electronic signatures, electronic contracts, certification service provision and related matters. The main impact of these proposals if implemented as legislation are as follows:

• Legal recognition will be accorded to signatures, writing, contracts in electronic form;
• There is a carve out in respect of the creation, execution or revocation of a will, codicil, other testamentary instrument, trust and a power of attorney;
• Any legal requirement for delivery of a document will be effective through electronic means;
• Electronic signatures and writing will be admissible for legal proceedings;
• A system of voluntary accreditation of certification service providers is established in respect of the provision of electronic signature certification services;
• domain names in Ireland will be subject to registration and regulation

A&L Goodbody welcomes the publication of the Department’s Consultation Document on E-Commerce. The Department is to be congratulated for taking this initiative. While the Commission has signalled its intention to adopt an EU Directive in relation to E-Commerce, the Department’s draft legislation underlines the importance of E-Commerce in Ireland and will help to promote Ireland as an attractive environment in which to conduct such business. This pro-business stance is also served by the Department’s decision to adopt a flexible regulatory framework as opposed to a detailed complex framework which would place onerous requirements on individual undertakings.

This Paper is a response to the Department’s requests for feedback and comment . We have focused on those sections of the paper which will have most impact from a legal perspective. Where appropriate we have addressed its potential impact on some related areas of law. These are highlighted in an appendix.

Specific rules in relation to proving receipt of proceedings would have to be clearly established. We are not in favour of a piecemeal approach to electronic processing of court documents and we urge the department to adopt caution in this regard. Perhaps the Department could discuss these issues with the Rules of the Superior Courts Committee.

The purpose of this section is to grant electronic signatures the same status as manual signatures. We note that section 7.1 and 7.2 proposes to grant this status to " an electronic signature or advanced electronic signature". The definition of "electronic signature " provided in section 2 of the draft proposals does not require that the signature be uniquely linked to the signatory. This could present a difficulty to the successful operation of this section given the importance of security in the e-commerce arena.

Adequate consumer protection will be an important factor in creating consumer confidence in e-commerce. However, this must at all times be balanced against the overriding objective of attracting e-commerce business to Ireland . This will only be achieved if we can assure foreign investors that our legal environment will not militate against commercial enterprise.

Whilst existing legislation will undoubtedly afford to electronic contracts the protections currently in force in respect of paper based transactions, we feel that some system specific rules might be considered. For example, in relation to exclusion clauses, conditions and warranties the issue of click-wrap and shrink wrap agreements ought to be considered. The Department might consider setting out rules in relation to these issues within the framework of the e-commerce legislation. We have set out detailed consideration of ancillary legal considerations in relation to consumer issues in an appendix to this paper.

We would urge the Department to clarify whether cheques , promissory notes and Bills of Exchange come within the ambit of the legislation. It may not be appropriate to include such instruments at this time. Specific rules need to be formulated in respect of electronic banking and legislation in this regard ought not be introduced in a piecemeal fashion.

We do not see any impediment to the conclusion of standard banking documents , such as guarantees, in electronic form in commercial transactions. However, we would urge the Department to give consideration to the implications of allowing credit agreements to be concluded in electronic form.

Under the Consumer Credit Act, 1985 the consumer is entitled to a copy of the agreement. Clarification is needed as to requirements where such agreements are concluded electronically. The Department ought to consider whether specific additional consumer safeguards ought to be put in place in relation to electronic credit agreements.

Whilst we agree that the exemptions set out at section 7.4 are appropriate, the Department might consider not excluding commercial trusts and ordinary powers of attorney at this stage. These instruments are not so substantially different from other commercial documents to justify exemption from the legislation .

Also, in relation to section 7.4 (b), the reference to "any interest in real property" should be amended to refer to "any interest in land" so as to include dealings with leaseholds. A considerable number of property interests in Ireland are held by way of leasehold,

In response to the Department’s request to do so, we have explored the prospect of extending the legislation to the exempted categories. We do not regard these inclusions as a matter of urgency and emphasise that the immediate goal of e-commerce legislation must remain the promotion of Ireland as an attractive e-commerce location for foreign investors.

In relation to the creation execution or revocation of a will, codicil or any other testamentary instrument, the social policy underlying the Succession Act, 1965 and the specific rules relating to the execution of a will ought to be considered.

Whilst, in principle, there would be no impediment to facilitating the creation and execution of a will in electronic form, legal safeguards > to prevent undue influence ought to be maintained. It would be desirable that the need for attestation of the testator's signature be retained in any future legislation in this area. This would require the electronic signature not only of the testator but also of two witness signing contemporaneously.

The recognition of electronic wills ought not to dilute public awareness of the need for legal advice as a matter precedent to drawing up the necessary documentation.

Finally, any changes in legislation in this respect would necessarily involve the co-operation and adaptation of current practice in the Probate Office.

Any future legislation to allow for the creation of an electronic enduring power of attorney would have to safeguard against the possibility of undue influence and would require the retention of provision for the attestation of the signature of the donee.

Clarification would also need to be provided in relation to certification and documentation supporting the creation of an enduring power of attorney.

Any changes in relation to the execution of powers of attorney would necessarily involve the co-operation of the Office of the Wards of Court.

We would welcome a considered debate of all issues pertaining to the creation, acquisition and disposal of any interests in land by e-commerce methods. In our view the "in writing" requirement in the Statute of Frauds, 1695, could include electronic writing. One of the fundamental aspects of a deed is that it is an instrument in writing or print on paper and a statutory definition of "a deed" would be required to make the execution of deeds amenable to e-commerce methods. Also,the application of the doctrine of "subject to contract" in the e-commerce context will have to be considered.

Some practical administration issues would also have to be addressed, for example the mechanics of registration at both the Land Registry and Registry of Deeds.

The admissibility of such documents in electronic form ought to be considered only in the context of an integrated system of electronic proceedings and pleadings. It is our view that this exemption is justified at this time, but we support initiatives currently being made to increase the efficiency of the Courts system. In particular we would welcome facilitating the conduct of cases, filing and the processing of proceedings by electronic means.

The statement in section 10.2 that electronic delivery of a document has the same effect as delivery by hand is not, in our view, sufficiently clear.

The timing of acceptance of an offer legally made is of central importance to the law of contract. The wording of Section 10.3 would appear to suggest that an acceptance is received when the electronic communication by which the document is delivered enters an information system under the control of the recipient. It is our view that such wording may lead to ambiguity. Service by electronic means requires new rules specific to this new form of communication. We would favour the inclusion of the definition provided in the Commission proposal for a Directive on Certain legal aspects of Electronic Commerce and the Internal Market (Comm (1998) 586 Final 98/0325), Article 11 as amended.

Having reviewed the outline provisions in relation to this aspect of the e-commerce framework we are fully in support of the concept of voluntary accreditation facilities and also the fact that no prior authorisation is required to act as the certification service provider.

As the draft proposals correctly identify, one of the most difficult issues to deal with from a legal point of view is the liability of certification service providers. Clearly if certification service providers can exclude important forms of liability, the service they provide may be of little use in the e-commerce environment in relation to security and certainty. Some of the existing legislation, for example the Unfair Terms and Consumer Contracts Regulations 1995 will prohibit certain exclusions in relation to consumers. Many users of electronic signatures and certification service providers however will be businesses and we feel that in order to provide a suitable environment to facilitate the growth of e-commerce it will be necessary that the interests of the business community are taken into account. In this regard the Department could consider the imposition of a maximum level of exclusions which certification service providers can use in respect of consumers and businesses. In addition the Department could consider legislative provisions setting out the manner by which exclusions used by certification service providers should be brought to the attention of their customers.

Clearly it is important that there is some limit on the liability of certification service providers in order to attract entrants to this new market. This must be clearly balanced however with the certainty and security which is required by consumers and businesses in an e-commerce requirement.

The present legal position in relation to the registration of domain names is very unclear. Any regulations aimed at providing some element of certainty in relation to this area would be welcomed. As many businesses rely heavily on domain names to build their reputation on line there is an ever increasing amount of disputes in relation to domain name registration and related trademark issues. Regulations setting out an appeal process against decisions of registries and also providing a dispute resolution mechanism could prove very useful. Regard could be had to the WIPO recommendations on domain name registration.

Given the global nature of electronic transactions and the inevitability of criminal activity in the electronic sphere, we feel that some debate ought to take place on the merits or otherwise of putting in place some restricted means of lawful access to counteract and deter fraud and crime in the e-commerce environment.

A&L Goodbody supports these Draft proposals. We particularly welcome the Department’s initiative in seeking, at this stage, submissions from interested parties. We have formulated our submissions in response to this request and with a view to co-operating with the Department. We look forward to entering into the new e-commerce era and to continued co-operation with government in developing an environment in which e-commerce can continue to flourish.

At present both members and directors are permitted to take decisions by way of written resolution. It would be a welcome development if this could be done by way of electronic writing accompanied by electronic signature.

A related issue that should be addressed is the ability to hold board and/or shareholder meetings by conference call and/or video conferencing. At present Irish Company Law is unclear as to whether all directors participating in a board meeting can do so by telephone or whether a quorum must be physically present in the same place with others participating by telephone. The prudent view is that the quorum for the meeting must be physically present in the same place though others may participate by telephone (if the company’s Articles of Association allow for telephonic participation in meetings).

The proposed Bill would be an excellent opportunity to specifically provide that everyone (including the necessary quorum) attending a board meeting or a meeting of shareholders of an Irish company can "meet" by telephone or video link.

The proposals will enable companies to execute contracts electronically. However, to enable companies gain the full benefit of e-commerce, the law relating to the sealing of documents by companies should be changed to allow the authorised signatories to execute a document under seal without having to actually affix a seal to the document (as is now the position in the UK). This would enable companies to execute documents "under seal" by electronic means.

It will be necessary to make a detailed review of related legislation dealing with the making of statutory declarations .The purpose of the review would be to evaluate what amendments are required to facilitate directors in making declarations electronically in the presence of a commissioner for oaths/solicitor.

Similar issues arise with the possibility of electronic legalisation of documents in foreign jurisdictions for use in Ireland, and the electronic legalisation in Ireland of documents for use in countries outside of the EU.

As a practical matter, all companies have to file documents with the Companies Registration Office. These usually have to be signed by a director or the company secretary. Subject to the consent of the Registrar, companies should be able to file documents with the Companies Registration Office electronically.

A key issue here will be the date of receipt of the document as there are usually time limits for filing documents with the Companies Registration Office, non-compliance with which can have disastrous consequences.

The same points apply to the filing of certain documents with the Revenue Commissioners and other governmental agencies.

We would suggest that the department perhaps seek to extend the rationale of the CREST regulations to other areas of commercial transactions and company administration.

Perhaps the Department may consider at this point the value of consolidating the Sale of Goods/Consumer legislation. Legal certainty in the basic matters of contracting for the sale of goods and contracting for the supply of a service is crucial for effective e-commerce. For example "consumer" is defined differently in the Sale of Goods legislation and in the European Communities (Unfair Terms in Consumer Contracts) Regulations, 1995.

Doubt exists in Irish law as to whether a company can constitute a consumer for the purposes of the Sale of Goods legislation. Having regard to the differing considerations for both consumer and non-consumer under that legislation, in particular regarding the seller’s/supplier’s ability to negative or vary any statutory implied term and to exclude/limit liability for its breach, it would be helpful if some certainty could be provided in this area.

Since many clickwrap and shrinkwrap agreements are in the nature of software licences, it would be helpful to legislate to create certainty as to whether a licence of software is regulated by the Sale of Goods legislation and if so, whether it constitutes a contract for the sale of goods or a contract for the supply of a service. Additionally, it should be borne in mind that since the European Communities (Unfair Terms in Consumer Contracts) Regulations, 1995 effectively apply to standard contracts which have not been individually negotiated, they would seem to apply particularly in the context of clickwrap and shrinkwrap agreements of any kind.

Section 17 of the Draft Proposals deals with the liability of certification service providers and discusses the possibility of legislating for limitation of liability and for the protection of consumers. it would be helpful for the avoidance of doubt for the new legislation to deem certification services providers’ contracts to be contracts for the supply of a service under the Sale of Goods legislation

Under the Sale of Goods legislation, in the context of a contract for the supply of a service to non-consumers, the statutory terms may be negatived or varied by an express term of the contract, or by the course of dealing between the parties, or by usage (if the usage is such so as to bind both parties to the contract). Since "usage" is essentially a reference to any recurring modern practice in a particular business, industry or locality, this may be too imprecise.

We welcome the Revenue Commissioners’ report on "Electronic Commerce and the Irish Tax System". We recognise the proactive role taken by the Revenue Commissioners at a national, EU and OECD level in addressing the impact of e-commerce on the Irish tax system.

These Draft proposals raise a number of tax issues. We are concerned that these issues be addressed now, so that they do not hinder or delay implementation of this legislation.

Stamp duty is a tax on documents. These proposals would allow contracts for sale and transfers of property to be effected electronically, thus avoiding the creation of any stampable document. This issue is recognised in the Revenue report, and mention is made of the CREST system (which is an electronic system for settling share transactions) and a suggested solution in relation to the transfer of real property involving the Land Registry and the Registry of Deeds as trusted intermediaries.

However, Irish stamp duty is chargeable in respect of Irish property and shares . Contracts for sale of Irish situate intangible property and, generally, transfers of Irish situate property by way of sale or gift are stampable. Is it proposed that stamp duty be imposed on such electronic documents? It is difficult to see what trusted intermediary could be appointed in this case. Clarification must be provided in this regard.

Additionally, the execution of a transfer of property in Ireland, regardless of the situation of the property, will generally bring that transfer within the charge to Irish stamp duty. The execution of a document for Irish stamp duty purposes is normally regarded as taking place when the document becomes legally effective. For example, an instrument under hand would be regarded as being executed once signed and delivered. We have pointed out in our analysis under "Delivery of Documents" that the wording under section 10.3 could lead to an ambiguity in this regard and should be clarified. This would be important to ensure that an electronic transfer of non-Irish property by an Irish based vendor to a non-Irish based purchaser would be regarded as delivered only when received by the purchaser and would thus be regarded as executed outside Ireland and outside the charge to Irish stamp duty.

These issues should be regarded as an integral part of these proposals and clarification must be provided by the Revenue Commissioners and the Department of Public Enterprise as to how these issues will be addressed.

We believe that given the difficulties and lack of certainty outlined above, this might be an opportunity for considering the reduction of the scope of Irish stamp duty in relation to contracts for sale and transfers, to the transfer on sale of Irish land and shares only. Stamp duty accounted for just 3.4% of the total tax take in 1998. The retention of Irish land and shares as property within the scope of Irish stamp duty, together with the stamp duty collected under the mortgage, insurance policy and bills of exchange heads of charge and the companies capital duty regime, would substantially preserve the tax base for the Irish Revenue Commissioners. This would be a pro-business and a pro-e-commerce initiative resulting in a minimal tax loss for the Irish Exchequer.

Irish tax legislation requires Irish businesses to maintain certain records. For example, Irish businesses must retain records relevant to their tax liability, which may be inspected by the Revenue Commissioners. These records may include documents or data which relate to sales and purchases made by the business, and could include sales contracts entered into electronically. At present, permission must be obtained from the Revenue to allow a business maintain these records electronically. We welcome the statement in the Revenue report that the requirement for case by case approval may be outmoded, and we recommend that a change in the law be tabled in the next Budget.

It would be somewhat anomalous if an Irish e-trader was empowered to do business electronically by these proposals, but was still required to issue paper invoices. We welcome the comments in the Revenue report in this regard to extend the scope for use of VAT e-invoices in Ireland, and to work towards an effective system for VAT e-invoices at a cross-border level, perhaps through use of an EDI system by larger businesses. We believe that this should be regarded as integral part of these proposals.