Author:	Gonzalo Villalta Puig
Subjects:	Bills of Exchange - Australia Computers Law and Legislation (Other articles) Promisory Notes - Australia
Issue:	Volume 7, Number 3 (September 2000)
Category:	Current Developments

Notes

1. Is it desirable and feasible to legislate for electronic bills of exchange and promissory notes? To answer the question of desirability, one must take into account both the costs and benefits that would be involved in enacting such legislation. If considered in isolation, the costs to government and business would not appear to be substantial given that an Act to remove legal impediments to electronic commerce, as a whole, commenced by Proclamation on 15 March 2000. However, the costs involved in enacting legislation specifically for electronic bills and notes would be seen in a somewhat darker light if one were to consider that the existing legal framework already recognises, if only by implication, their validity. On the other side of the balance, the benefits that would flow from the certainty that legislation would bring to this particular area of electronic commerce are many. And, as the Electronic Transactions Act (1999) (Cth) attests, these would appear to outweigh the costs. Given that it would appear to be desirable to legislate for electronic bills and notes, one must ascertain whether it would be feasible to do so. This is the less significant of the two questions that will be discussed in this article for there seems to be little doubt that there are neither political nor constitutional impediments barring the enactment of such legislation. In conclusion, the thesis of this article is that it is both desirable and feasible to legislate for bills and notes issued in an electronic format.

2. In order to assess whether it would be desirable to legislate for electronic bills and notes, one must not only consider the benefits that would be involved in enacting such legislation but also the costs. Given that electronic bills and notes cannot be adequately understood in a context other than that of electronic commerce, to simply analyse the costs that would be involved in legislating for these two types of negotiable instruments would be a very narrow exercise. It is all the more appropriate to analyse the costs, (to government, business, and community), that would be involved in legislating to remove existing legal impediments to electronic commerce. These are discussed in the Explanatory Memorandum accompanying the Electronic Transactions Bill (1999) (Cth).[1]

3. Insofar as government would be concerned, depending on the way that legislation were developed and implemented, time and resource costs may be significant. Business would also incur costs. In the absence of a principled approach to the legislation, business would be unable to determine what electronic communications technologies would best suit its particular commercial needs. Moreover, unless the legislation was uniform and of national application, the value of certainty would be lost and business confidence and trust in the legal effectiveness and reliability of electronic commercial transactions would be further diminished. Finally, the Memorandum notes that "[t]here would be no apparent cost to the community".[2]

4. Encouraged by this last observation, proponents for the enactment of legislation for electronic bills and notes would dismiss the costs involved in their proposal as being of little substance. But, if this were really the case, why is it then that when asked, "[d]o we need a set of new laws for electronic commerce?", the Security Law and Justice Branch of the Attorney-General's Department answers:

   No... It is the Commonwealth Government's view that our legal system is, subject to some minor adjustments, generally able to deal with the issues raised by electronic commerce.[3]

   The fact is that Australia's existing legal framework already recognises, if only by implication, the legal validity of electronic bills and notes.

5. In Australia, both bills of exchange and promissory notes are governed by the Bills of Exchange Act (1909) (Cth). For bills (subsection 8(1)) and notes (subsection 89(1)) to be valid, the Act requires, amongst other things, that they be in writing and signed. The issue is whether electronic bills and notes satisfy these two statutory requirements.

6. Insofar as the first requirement is concerned, section 25 of the Acts Interpretation Act (1901) (Cth) states: "... 'writing' includes any mode of representing or reproducing words, figures, drawings or symbols in a visible form". The contents of electronic bills and notes may be represented or reproduced in a visible form either, as Gamertsfelder illustrates, on a computer screen or print out.[4] Thus, it would appear that electronic bills and notes satisfy the requirement of writing imposed by subsections 8(1) and 89(1) respectively.

7. With respect to the second requirement, neither the Bills of Exchange Act (1909) (Cth) nor the Acts Interpretation Act (1901) (Cth) define the circumstances in which an instrument will be deemed to have been signed. In R v Moore; ex parte Myer, Higinbotham J outlined the legal criteria for valid signatures under the common law:

   ... a signature is only a mark, and where a statute merely requires that a document shall be signed, the statute is satisfied by proof of the making of a mark upon the document by or by the authority of the signatory.[5]

   Given the tone of the above definition, the encryption technology currently employed to (digitally) sign electronic bills and notes would appear to satisfy the requirement of signature imposed by subsections 8(1) and 89(1) respectively.[6] In the words of McCullagh and Schneier, digital signatures are marks that not only identify the person attaching the signature but also preserve the integrity and authenticity of documents in an electronic format.[7]

8. Writing and signature are two of the several requirements that bills and notes must satisfy in order to be valid under the Bills of Exchange Act (1909) (Cth). It has been established above that electronic bills and notes satisfy those two requirements. Therefore, one may imply with a certain degree of confidence that electronic bills and notes qualify as valid negotiable instruments under the Act. Without a doubt, negotiability is the alma mater of bills of exchange and promissory notes. Both instruments should be capable of being transferred by way of indorsement and/or delivery from one person to another in such a manner as to constitute the transferee their holder with a right to enforce the payment obligation against the underlying debtor (subsection 36(1)). The compatibility of electronic bills and notes with the quality of negotiability associated with their paper-based counterparts should not be questioned. Electronic bills and notes are truly negotiable instruments. With the assistance of electronic communications technologies, they are bound to become the fastest and most easily transferred payment and credit instruments in the commercial world.

9. One legal issue that does not necessarily relate to the validity of electronic bills and notes under the Bills of Exchange Act (1909) (Cth) but to their commercial utility is whether electronic bills and notes can be adduced as evidence in an Australian court of law. Having considered the UNCITRAL Model Law[8] and Wright's studies on this issue, Gamertsfelder concludes that, so long as they are duly authenticated, computerised records are generally admissible as evidence.[9] For instance, section 69 of the Evidence Act (1995) (Cth) states that the hearsay rule does not apply to a document that "... is or forms part of the records belonging or kept by a person, body or organisation in the course of, or for the purposes of, a business". Pursuant to the Dictionary in Part I of the Schedule to the Act, a document "... means any record of information, and includes: (c) anything from which sounds, images or writings can be reproduced with or without the aid of anything else". Thus, it is clear that any computer-produced material, including electronic bills and notes, as well as all forms of computer output may be adduced as evidence in court.[10]

10. This article has assessed the desirability of legislating for electronic bills and notes in reactive terms. In the course of doing so, it has established the validity of electronic bills and notes under the existing legal framework in Australia. This has been done by way of implication since the Bills of Exchange Act (1909) (Cth) does not refer specifically to bills and notes issued in an electronic format. The fact that the legislature has not expressly affirmed the validity of these two types of negotiable instruments may discourage their use in commercial practice because merchants are sensitive to legal uncertainty. Thus, the Commonwealth Parliament should seriously consider the reassuring effect that the enactment of legislation specifically declaring the validity of electronic bills and notes would have in the business community. Any such consideration would, however, have to take into account the political and constitutional feasibility of the proposed legislation.

11. The potential for computer fraud is one factor that weighs against the enactment of legislation expressly recognising the validity of electronic bills and notes. Neither government nor business would wish to encourage the use of an instrument vulnerable to fraud. However, modern encryption techniques virtually rule out the possibility of online fraud in the course of the transmission and receipt of electronic bills and notes. As Gamertsfelder asserts, there is no reason to believe that electronic bills and notes should be less secure than their paper-based counterparts.[11]

12. While there may be no political obstacles to the enactment of legislation recognising the validity of electronic bills and notes, there may well be constitutional ones. Subsection 51(xvi) of the Commonwealth Constitution states: "[t]he Parliament shall... have power to make laws... with respect to: bills of exchange and promissory notes". The issue is whether the Commonwealth Parliament has power to make laws with respect to electronic bills of exchange and promissory notes.[12] Resolving this issue would involve assessing the extent to which subsection 51(xiv), as an express head of legislative power, encompasses technological innovation. The High Court of Australia has held that the ambit of the express heads of power contained in the Constitution extends to any technological changes affecting the several policy areas to which they each relate. Thus, in McGinty v The State of Western Australia, Toohey J expressed the view that "... whilst the connotation of words in the Australian Constitution remain fixed, their denotation may vary over time ...traditionally where there have been technological advances".[13] Drawing an analogy between the cases decided in this area and the technological evolution of the information economy, it would appear that the Commonwealth Parliament has power to ratify the validity of electronic bills and notes. That this is the case is manifestly demonstrated by the fact that the Commonwealth Parliament has already enacted the Electronic Transactions Act (1999) (Cth), an Act to remove legal impediments to electronic commerce generally.

13. There appear to be no political or constitutional impediments to the enactment of legislation for electronic bills and notes. In other words, it would be feasible to legislate for electronic bills and notes. But, feasibility aside, one must consider the desirability of such legislation in proactive terms, that is, in terms of benefits. As was the case with costs, it is important to analyse the benefits from the general perspective of legislation to remove existing legal impediments to electronic commerce. The call for the statutory recognition of the validity of electronic bills and notes must, out of practical necessity, be part of a broader strategy for the recognition of the validity of all electronic commercial transactions.

14. All interest groups identified above would benefit from the enactment of uniform, clear legislation that removes existing legal impediments to electronic commerce.[14] From the government's perspective,[15] legislation would further the national and international development and usage of electronic commerce. Moreover, legislation would facilitate the international recognition and enforcement of Australian electronic commercial transactions, thereby, protecting the rights and interests of consumers who engage in such transactions.

15. Business would also benefit.[16] First, legislation would broaden the range of types of transactions that could be conducted electronically. Similarly, legislation would boost confidence in the legal validity of electronic commercial transactions, thereby, encouraging the use of such transactions. Further, legislation would reduce not only the need to resort to litigation to seek a determination on the legal effectiveness of the use of electronic communications technology but also the costs of preparing contractual arrangements to deal with impediments. Finally, legislation would enable business to compete nationally and internationally through the use of electronic commerce technologies.

16. The community would benefit too since "[l]egislation would provide a certain and secure framework for electronic transactions between members of the community and government, business and other...".[17] In addition, it seems likely that legislation would "... increase community access to electronic information about a wider range of goods and services".[18]

17. Because of the perceived benefits, the Attorney-General introduced a Bill for an Act to facilitate electronic transactions into Parliament on 30 June 1999. The Electronic Transactions Act (1999) (Cth) received Royal Assent in December 1999 and commenced by Proclamation on 15 March 2000. It would appear to remove all uncertainty associated with the implied, as opposed to express, character of the validity of electronic bills and notes under the existing legal framework. Section 4 of the Act reads:
    
    For the purposes of a law of the Commonwealth, a transaction is not invalid because it took place by means of one or more electronic communications.
    The following requirements imposed under a law of the Commonwealth can be met in electronic form:
    (a) a requirement to give information in writing;
    (b) a requirement to provide a signature;

    It would appear that the Act resolves the two main areas of concern regarding the enforceability of electronic bills and notes, namely, whether these two types of negotiable instruments satisfy the writing and signature requirements under the Bills of Exchange Act (1909) (Cth). Insofar as the evidentiary value of electronic bills and notes is concerned, the Act (see subsection 13(5)(a)) does not affect the operation of the Evidence Act (1995) (Cth).

18. This article has established that legislation for electronic bills and notes would be both desirable and feasible. As the drafting of the Electronic Transactions Act (1999) (Cth) would appear to attest, the Commonwealth Government has been so persuaded by the universal merits of this thesis that it has enacted legislation for electronic transactions in general. Nonetheless, there is a danger that the Government may have a different view with regard to electronic bills and notes.

19. Section 13(3) of the Act states: "[t]he regulations may provide that this Division [i.e. Division 2], or a specified provision of this Division, does not apply to a specified law of the Commonwealth". The Act has a two-step implementation process. Prior to 1 July 2001, the Act will only apply to laws of the Commonwealth specified in the Regulations. After that date, the Act will apply to all laws of the Commonwealth unless they have been specifically excluded from the application of the Act. The first and second set of Electronic Transactions Regulations have been made and are now in operation. Subsequent regulations will be made as Departments and agencies continue to opt in to the first phase of the implementation process. The Bills of Exchange Act (1909) (Cth) is not specified in either of the two sets of Electronic Transactions Regulations which are now in operation. The current state of the law appears to be consistent with the growing perception within Government circles that electronic bills and notes will never inspire in the business community the same degree of confidence enjoyed by their paper-based counterparts and that, perhaps, it would be best if the status quo of uncertainty were to prevail. Such a perception would appear to be in conflict with the technologically neutral position reflected by the Act, a position that permits "... parties to take advantage of the available electronic technology while permitting those who wish to continue to use traditional practices to do so".[19] At any rate, it is possible that the Bills of Exchange Act (1909) (Cth) is specifically excluded from the application of the Act. And, even if the Bills of Exchange Act (1909) (Cth) were not specifically excluded, it is unlikely that the Act will apply to it until after 1 July 2001.

20. Given these two possibilities, private parties would be well advised to make alternative arrangements for regulating the use of electronic bills and notes.[20] For example, subject to case and statute law, parties could incorporate a facsimile of the UNCITRAL Model Law into their agreement, thereby overcoming any uncertainty associated with the existing legal framework. If such practice were to become widespread, it could well become absorbed into the lex mercatoria.

21. By way of conclusion, one could state with reasonable confidence that it would be both desirable and feasible to legislate for electronic bills of exchange and promissory notes. The fact that an Act to remove legal impediments to electronic commerce commenced by Proclamation on 15 March 2000 supports that conclusion. The benefits that would flow from the enactment of such legislation would greatly outweigh any costs that would be incurred.