Electronic Transactions in the Modern World: An Analysis of Recent Sri Lankan Legislation

Law College Law Review 2006

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ELECTRONIC TRANSACTIONS IN THE MODERN WORLD: AN ANALYSIS OF

RECENT SRI LANKAN LEGISLATION

SALEEM MARSOOF

Introduction

At first man was illiterate; long thereafter, but before the invention of paper, he became literate. In recent times man has become e-literate. Throughout history, man has entered into commercial transactions, which have with the passage of time increased in complexity and sophistication. At first these transactions were straightforward barter of goods; but with the advent of coins and other forms of money it became possible for man to sell, hire, lease and mortgage goods, and even provide various forms of services, in exchange for money. The law began to insist that transactions relating to land should be entered in a special form of writing called a „deed‟1, and a sale of goods should be evidenced by a note or a memorandum in writing2. Even where there was no legal requirement for writing, it was a matter of prudence to enter into a commercial transaction in writing, and a claim on a unwritten contract could get time-barred much before a contract in writing.3

Men worked together for the production of goods or the supply of services through partnerships, companies and joint ventures. Payment for goods and services began to be increasingly done through cheques and other forms of negotiable instruments.4 With the increase in international trade, letters of credit came into vogue, which combined with bills of lading to produce what is known as the „paper‟ or documentary transaction. Legal concepts evolved with the focus on the physical nature of property and goods, so much so that our courts were inclined to hold that the sale of intangible rights are not sale of goods5, and intangible things such as electricity or information cannot be the subject of theft or misappropriation.6 Evidence was classified as oral or documentary, but courts were unwilling to act on a computer generated document as it is “neither original evidence nor derivative evidence.”7

However the twentieth century witnessed a vast transformation in the way man did business and expected the law to protect his rights. Great innovative activity resulted in intellectual property rights such as patents and trademarks becoming more and more

1 § 2 of the Prevention of Frauds Ordinance, No. 7 of 1840 (CLE 1956 Official Ed. Cap. 70) as subsequently amended 2 § 5 of the Sale of Goods Ordinance No 11 of 1896, (CLE 1956 Official Ed. Cap. 84) as subsequently amended 3 Compare § 6 with § 7 of the Prescription Ordinance, No. 22 of 1871(CLE 1956 Official Ed. Cap. 64) as subsequently amended 4 See, the Bills of Exchange Ordinance No. 25 of 1927, (CLE 1956 Official Ed. Cap. 82) as subsequently amended 5 Croos v De Soysa 7 NLR 32; Rae Sands v Kadhibhoy 15 N.L.R 289. Compare, J.E. Perera v M.M. Zainudeen 65 NLR 261 6 Nagaiya v Jayasekera 28 NLR 467 7 Benwell v Republic of Sri Lanka (1978-79) 2 Sri LR 194 at 212 per Colin-Thome J

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important in connection with the production and supply of goods.8 Copyright and related rights became major factors in the supply of certain types of services, and information is fast becoming the most valuable commodity in the market place. The internet has brought about vast changes in international trade by expanding the potential geographic business market while reducing the cost of access. Contract formation and performance can be conducted over electronic media and can occur without using a single sheet of paper or a drop of ink.9 In fact, cyberspace is not only the biggest shopping center on earth, it also provides a world of opportunities.10 The automation of businesses, financial institutions and governmental records have become so widespread that many everyday transactions, such as the sale of goods, the transfer of cash from one bank account to another, and even the purchase of an air ticket could be done electronically. With electronic media offering so many benefits to mankind, methods of doing business evolved on par with the latest electronic and communication technology in what is now known as „e-commerce‟.11 With these developments, data that are electronically recorded have also acquired great significance in modern litigation. While in the past laws were introduced to compel the recording of transactions into writing and to facilitate the enforcement of paper or documentary transactions, these very laws appear to hinder and obstruct the enforcement of electronic transactions.12

There is now an urgent need to reformulate existing laws in order to keep pace with the new developments in technology and the manner in which the modern man does business, and to introduce new laws that facilitate the recognition and enforcement of electronic transactions, and provide for data protection. In Sri Lanka, the Evidence (Special Provisions) Act of 199513 was introduced and fresh legislation such as the Information and Communication Technology Act of 2003,14 the Payment and Settlement Systems Act of 2005,15 the Electronic Transactions Act of 200616 and the Payment Devices Frauds Act of 200617 were enacted as part of the process of transforming the law to meet the challenges of the modern world. As part of this process, the Cabinet of Ministers authorized the preparation of the necessary electronic

8 Earlier Sri Lankan legislation on the subject such as the Patents Ordinance, No. 15 of 1906 (CLE 1956 Official Ed. Cap. 152) and the Copyright Ordinance, No. 20 of 1912 (CLE 1956 Official Ed. Cap. 154) were replaced by the Code of Intellectual Property Act, No. 52 of 1979, which in turn has been replaced by the Intellectual Property Act No. 36 of 2003 9 Harding, C.W. Trends in Electronic Commerce: Doing Business over the Internet, PLI Pat., Copyrights, Trademarks & Literary Prop. Course Handbook Series No. G4-3988 (1996) 509 at p.512 10 A striking example is the Internet company „CDNow‟. Following unsuccessful attempts to locate Miles Davis recordings, the „CDNow‟ founders spent $1,500 to buy an Internet server they set up in the basement of their parents' home and began an on-line music store. Today, „CDNow‟ is a multimillion-dollar enterprise and at one point owned one-third of the market share for on-line music retailing. See, Venditto G., Building a Better Music Store, Internet World, Dec. 1997 at p.52. 11 See, Ryder, R.D. Intellectual Property and the Internet (2002) Ch 2 (headed: „Global Electronic Commerce: Its Emergence and Growth) 12 Simply stated, „law lags technology‟. See, Anecki, J Selling in Cyberspace: Electronic Commerce and the Uniform Commercial Code, 33 GONZ. L. REV. 395 (1998) (quoting Perritt, H.H Jr., Law and the Information Superhighway (1996)) 13 Evidence (Special Provisions) Act, No. 14 of 1995 14 Information and Communication Technology Act, No. 27 0f 2003 15 The Payment and Settlement Systems Act, No. 28 of 2005 16 The Electronic Transactions Act, No. 19 of 2006 17 The Payment Devices Frauds Act, No. 30 of 2006


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transactions legislation with legal and policy inputs from the Information and Communication Technology Agency of Sri Lanka (ICTA),18 ensuring that the draft legislation is in conformity with international standards and practices and the requirements of the IT industry. Thus, ICTA took the lead role in formulating and giving policy inputs in the preparation of the Electronic Transactions Act of 2006.19 By the said Act, the ICTA is charged with the responsibility of submitting further proposals in respect of matters which need to be included in the national policy and action plan and preparing strategies for their implementation in both the government and the private sectors. In pursuance of the national policy and action plan, a few more draft Bills and other legislative measures20 are in the process of being prepared for submission to Parliament.

Adapting the law to eCommerce and Electronic Transactions

One of the major problems with e-commerce is that the ease at which transactions can be entered into through the electronic media is not extended to the recognition and enforcement of such transactions. The „best evidence‟ rule found in the Evidence Ordinance and the requirements of „writing‟ and „signature‟ embodied in some of the laws in force, had made the proof and enforcement of electronic transactions almost impossible. While the „best evidence‟ hurdle was somewhat overcome by the Evidence (Special Provisions) Act of 1995,21 the Electronic Transactions Act of 2006 was enacted to facilitate domestic and international e-commerce by eliminating legal barriers and establishing legal certainty, by encouraging the use of reliable forms of electronic commerce and promoting public confidence in the authenticity, integrity and reliability of data messages, electronic documents, electronic records and other communications.22 The provisions of the Act apply with respect to all transactions other than those specific areas that have been excluded by § 23 of the Act, namely, wills or other testamentary dispositions, powers-of-attorney, sale or conveyance of immovable property, trusts (excluding constructive, implied and resulting trusts), bills of exchange, telecommunication licences, and any other acts, transactions or documents that may be specified by the Minister by regulation made under § 24. The provisions of this important piece of legislation merit detailed discussion.

The requirements of ‘writing’ and ‘signature’

The main obstacle in regard to the proof and enforcement of an electronic transaction was the requirement that certain contracts must be made in writing or should be in writing and signed by the parties thereto. While under the laws in force in Sri Lanka

18 registered under the Companies Act No. 17 of 1982 19 See, Fernando, J Electronic Transactions Legislation – Background and Features (2005) Vol XI Bar Association Law Journal 82 20 such as the Computer Crimes Bill 21 Evidence (Special Provisions) Act, Supra note 13. See, Marsoof S., Electronic and Computer Evidence in Criminal and Civil Proceedings, [2003] 1 Sri Lanka L.C.L. Rev 53 22 §2 of the Electronic Transactions Act Supra note 16


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„writing‟ is required to enforce a promise to marry,23 no contract relating to immovable property “shall be of force or avail in law unless the same shall be in writing and signed by the party making the same…and unless the execution of such writing, deed or instrument be duly attested by such notary and witness.”24 Similarly, any other type of promise, contract, bargain or agreement is of no force or avail in law “unless it be in writing and signed by the party making the same, or by some person thereto lawfully authorised by him or her”.25 In the context of the sale of goods, it is provided that:

“A contract for the sale of any goods shall not be enforceable by action unless the buyer shall accept part of the goods so sold, and actually receive the same, or pay the price or a part thereof, or unless some note or memorandum in writing of the contract be made and signed by the party to be charged or his agent in that behalf.”26

It is worth noting that according to § 17 of the Registration of Documents Ordinance27 no bill of sale or movable property shall be valid unless it is in writing and signed by the seller or his authorised agent and is registered within 21 days. A bill of sale is necessary only where the possession of the goods sold is not delivered to the buyer, the object being to pass property in the goods without delivery.28 Although the terms „writing‟ and „sign‟ are not defined in these legislation, one may argue that these terms would have their literal or grammatical meaning, and would not extend to electronic writing or electronic signatures. Accordingly, in Sri Lanka most paperless contracts would have been of no force or avail in law or unenforceable under the law.

This problem is sought to be overcome by § 4 of the Electronic Transactions Act of 2006 by a deeming provision which reads as follows:

“Notwithstanding the fact that the provisions of written laws for the time being in force in Sri Lanka attach legal validity to certain instruments, only if such instruments have been reduced to writing, such requirement shall be deemed to be satisfied by a data message, electronic document, electronic record or other communication in electronic form if the information contained therein is accessible so as to be usable for subsequent reference”29

23 See, §20(3) of the Marriage Registration Ordinance No. 19 of 1907 (CLE 1956 Official Ed. Cap 112) as amended by Act No. 11 of 1963, Act No. 3 of 1970, Act No. 18 of 1995, Act No. 12 of 1997, Act No. 11 of 2001, Act No. 36 of 2006 and Act No. 38 of 2006 24 § 2 of the Prevention of Frauds Ordinance, Supra note 1 25 ibid., §18 26 § 5 of the Sale of Goods Ordinance, Supra note 2 27 The Registration of Documents Ordinance No. 23 of 1927 (CLE 1956 Official Ed. Cap 112) as subsequently amended 28 See, David v Mendis 53 N.L.R.337. The requirement does not apply to a sale of future or unascertained goods. See, Darley Butler & Co. v Silva 11 N.L.R.316 29 Article. 6 of the UNCITRAL Model Law on Electronic Commerce (1996) is much simpler, and provides that “where the law requires information to be in writing, that requirement is met by a data message if the information contained

therein is accessible so as to be usable for subsequent reference.” The Model Law is available at:: <http://www. law.upenn.edu/bll/ulc/ucita/ucita200.htm>


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This deeming provision equates any information contained in a data message, electronic document, electronic record or other communication to an instrument reduced into writing, if the information contained therein is:

(a) rendered or made available in an electronic form; and

(b) accessible so as to be usable for a subsequent reference.

Some, but not all, of the terms used in the above provision have been defined in the Act.30 For instance, the term „data message‟ means “information generated, sent, received or stored by electronic, magnetic, optical or other similar means” Similarly the word „electronic‟ has been defined to mean “information generated, sent, received or stored by electronic, magnetic, optical, or similar capacities regardless of the medium”. Accordingly, an „electronic document‟ would include any “documents, records, information, communications or transactions in electronic form” and an „electronic record‟ means “a written document, or other record created, stored, generated, received, or communicated by electronic means”. Neither the phrase „electronic form‟ nor the term „accessible‟ have been defined in the Act, but it may be inferred from the definition of „electronic‟ found in the Act that the phrase „electronic form‟ will extend to information generated, sent, received or stored by electronic, magnetic, optical or similar capacities regardless of the medium. Any such information will be deemed to be in writing only if it is accessible so as to be usable for a subsequent reference through a computer or some similar device. For instance, electronic mail (or e-mail) is clearly a “communication in an electronic form” which is accessible for future reference, and would satisfy the dual test for a “instrument in writing” laid down in § 4 of the Electronic Transactions Act.

Electronic Signatures

In Sri Lanka and in many other jurisdictions statutory obstacles exist with regard to the enforceability of transactions entered electronically not only because of the requirement of writing but also because of the additional requirement of a signature. As has already been noted, many laws in force in Sri Lanka require the relevant person or persons to sign in order to give legal efficacy to their transactions31. The concept of „signature‟ has been given narrow interpretations in our courts. For instance, in Meyappan vs. Manchanayake32 Sansoni J. stated that:

“As a matter of language, giving the words their ordinary meaning, when a document is required to be signed, or when a person's signature is required on a document, the person's name should be written by hand with a pen or pencil.”

30 See, § 26 of the Electronic Transactions Act Supra note 16 31 See, for instance, §§ 2, 4 and 18 of the Prevention of Frauds Ordinance, Supra note 1 and §§ 3(1), 23 and 24 of the Bills of Exchange Ordinance, Supra note 4. 32 62 NLR 529 at 533


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What is the status of the digital or electronic signature which is purely computer generated? On the test adopted by Sansoni J, a digital or electronic signature will have no validity. It is with a view of overcoming this legal hurdle that § 7 of the Sri Lankan Electronic Transactions Act33 provides as follows:

“Where any Act or enactment provides that any information or communication shall be authenticated by affixing the signature, or that any document should be signed or bear the signature of any person, then, notwithstanding anything contained in such law, such requirement shall be deemed to be satisfied, if such information or matter is authenticated by means of an electronic signature.”

The phrase „electronic signature‟ has been defined in the Act to mean “any letters, numbers, symbols, images, characters or any combination thereof in electronic form, applied to, incorporated in or logically associated with an electronic document, with the intention of authenticating and, or approving the same, in order to establish authenticity or integrity, or both”34 Understood in the light of the Explanation to § 7, what the section means is that where an enactment requires a person to affix his handwritten signature or any mark on any document, it would suffice if the information is found in an electronic form and is authenticated by means of an electronic signature. „Electronic signature‟ is a generic, technology-neutral term that refers to the universe of all of the various methods by which one can „sign‟ an electronic record. Although all electronic signatures are represented digitally (i.e., as a series of ones and zeroes), they can take many forms and can be created by many different technologies. Electronic signatures provide a mechanism to reliably and securely prove the origin, receipt and integrity of information, to identify the parties involved and to associate those parties with the contents of the communication transacted over the electronic medium. Electronic signature technologies ensure security and certainty to electronic commerce. The most common and time-tested technology is the Digital Signature. A digital signature can be defined to mean a transformation of a record using an asymmetric crypto system and a hash function so that a person having the initial message and the signer's public key can accurately determine whether the transformation was created using the private key that corresponds to the signer's public key. Although the keys of the pair are mathematically related, if the asymmetric crypto system has been designed and implemented securely it is virtually impossible to derive the private key from knowledge of the public key. So, although many people may know the public key of a

33 Compare, Article. 7(1) of the UNCITRAL Model law on Electronic Commerce (1996), Supra note 29, which provides that “where the law requires a signature of a person, that requirement is met in relation to a data message if (a) a method is used to identify that person and to indicate that person‟s approval of the information contained in the data message; and (b) that method is as reliable as was appropriate for the purpose for which the data message was generated or communicated, in the light of all the circumstances, including any relevant agreement.” See also, the UNCITRAL Model

Law on Electronic Signatures (2001) available at::<http:// www.uncitral.org/pdf/english/texts/electcom/ml-elecsige .pdf> 34 See, § 26 of the Electronic Transactions Act, Supra note 16


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given signer and use it to verify the signer's signatures, they cannot discover the signer's private key and use it to forge his digital signature. The mathematics involved ensure that the probability of two persons having the same key pair or two messages having the same hash is low enough for both to be considered to be substantially unique.35 In an electronic transaction where Digital Signature technology is used, the recipient of the message has to have access to the signer's public key in order to verify the identity of the signer and the integrity of the message. The recipient must also have assurance that the signer's public key corresponds to the private key. Since a public and private key pair has no intrinsic association with a particular individual, being simply a pair of numbers, an additional mechanism is needed to securely and reliably associate a particular person or entity to a particular key pair. This is done through the use of a Certification Authority (CA) and Certification Service Providers (CSPs), the elaborate provisions relating to which found in the Electronic Transactions Act will be discussed later. Electronic Contracts The Electronic Transactions Act of Sri Lanka seeks to facilitate the making of contracts in cyberspace. Adapting earthly law to cyberspace does not seem to create too many problems, and it has been observed that “the principles of law that have been developed by the courts in regard to offer and acceptance can be applied unaltered to the modes of communication that have evolved in the Information Era.”36 § 11 of the Act expressly provides that “….unless otherwise agreed by the parties, an offer and the acceptance of an offer may be expressed in electronic form. A contract shall not be denied legal validity or enforceability on the sole ground that it is in electronic form.”37 This simply means that a contract could be made not only by an exchange of e-mail but also on-line through the internet. The Act contains certain deeming provisions pertaining to the authenticity38 and receipt39 of data messages, electronic documents, electronic records and other communications. In Entores Ltd v. Miles Far East Corporation40 Lord Denning distinguished between contracts entered into inter praesentes or inter absentes.41 The distinction has particular

35 See, Kamath N., Understanding Digital Signatures, Law Relating to Computers, Internet & E-Commerce, (2000) Ch.3. See also, Ryder R.D., Intellectual Property and the Internet, (2002), pp.55 to 61 36 Marsoof M.A.A., Offer and Acceptance in the Information Era, (2005) Meezan 137 See also, Fernando, J Electronic Transactions Legislation – Background and Features (2005) Vol XI Bar Association Law Journal 82 37 The language of this section appears to be influenced by Art. 11 of the UNCITRAL Model Law on Electronic Commerce (1996), Supra note 29, which provides that “……unless otherwise agreed by the parties, an offer and the acceptance of an offer may be expressed by means of data messages. Where a data message is used in the formation of a contract, that contract shall not be denied validity or enforceability on the sole ground that a data message was used for that purpose.” 38 § 12 of the Electronic Transactions Act, Supra note 16 39 ibid., § 13 40 [1955]2QB327(CA) 41 Parties are said to be inter absentes when they are separated by time and/or space. Where the parties are in the presence of each other they are said to be inter praesentes, However, telecommunication technology has developed to such an extent that parties are deemed to be in the presence of each other when they are communicating by phone


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relevance to the question whether a contract is formed at the time when an offer is accepted or at the time when the acceptance is communicated to the party making the offer. Where the parties are inter praesentes as when they are present at the same place or are linked by telephone, actual communication of the acceptance is essential for the formation of the contract. This is not so where the acceptance was effected by post with the prior actual or implied authority of the offeror as illustrated by the decisions in Adams v. Lindsell42and Household Fire and Carriage Accident Insurance Co. v. Grant43 In these cases it was held, applying the “expedition theory”, that the mere act of posting the letter containing the acceptance brought about the contract. In this context the question arises as to which side of the line an exchange of offer and acceptance by e-mail would fall, and the answer appears to be that the exchange of e-mail should be treated in the same way as the use of post for acceptance and the expedition theory would apply. However, as an e-mail can only be sent by activating the „send‟ key while being on-line, it has been suggested that an acceptance by e-mail would be complete if and when the offeree sends the acceptance email, while being online. 44 It is also important to note that § 14 of the Electronic Transactions Act seeks to clarify many issues which had astounded legal analysts. For instance, it makes it clear that (unless otherwise agreed to by the parties) if I make an offer to you by e-mail using my own computer, the e-mail is deemed to have been dispatched when it enters an information system outside my control.45 Similarly, if you have designated an information system for receiving such e-mail, the e-mail sent by me is deemed to have been received by you when it enters your designated information system, but if the e-mail was sent to an information system of yours which is not so designated, only when you actually retrieve the e-mail.46 If I have stipulated that my e-mail shall be binding only on receipt of an acknowledgement of receipt from you, then unless acknowledgement has been so received, my e-mail is deemed never to have been sent by me.47 Where there is no such stipulation and if I have not got an acknowledgement from you for my e-mail within the time stipulated in my e-mail or within a reasonable time, I can give you notice specifying a reasonable period of time for acknowledgement, and if there is no acknowledgement of receipt even within the aforesaid time limit I may, after giving notice to you, treat my e-mail as though it has never been sent.48 It is also provided in the Sri Lankan Act that (unless otherwise agreed to by the parties) the e-mail is deemed to have been dispatched at the place where the sender has his place of business, and is deemed to be received at the place where the receiver has his place of business.49 It is further provided that if either one of them has more than one

42 [1818] 1 B & Ald 681; 106 ER 250 (KB) 43(1879) 4 EX D 216 44 Marsoof M.A.A., Supra note 36 at p.144 45 § 14(2)(a)(i) of the Electronic Transactions Act, Supra note 16 46 ibid., § 14(2)(a)(ii) 47 ibid., § 13(2) 48 ibid., § 13(3) 49 ibid., § 14(3)


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place of business, the principal place of business shall be regarded as the place of business, and if one or both of them has no place of business, then the place of residence will be deemed to be the place of business.50 These rules are of great significance not only for making a decision in regard to the existence of a contract from an offer and acceptance made electronically, but for also deciding knotty questions of jurisdiction that could arise in cyberspace. The rules set out in §§. 13 and 14 and discussed in this and the preceding paragraphs will apply not only to e-mail but also with respect to other data messages, electronic documents, electronic records or other communications. In § 17 of the Act, certain statements of law have been included with a view of avoiding doubts. Of these, the most interesting is the one contained in sub-paragraph (d) of that section which is to the effect that a contract formed by the interaction of an automated message system and a natural person or by the interaction of two or more automated message systems, shall not be denied validity or enforceability solely on the ground that there was no review by a natural person of the final contract or of each of the actions carried out by the automated message system. The automated system is in a way the agent or tool of the person who installed it, but the terminology of “electronic agent”51 used in certain other legislation has been avoided in the Sri Lankan Act, perhaps advisedly so as not attribute the status of “agent” to a non-human agency. Perhaps, a shortcoming of the Sri Lankan legislation is that it does not provide an answer where something goes wrong with the automated system such as an ATM machine when it interacts with an individual such as a customer of a Bank. It is instructive to note that in certain jurisdictions express provisions have been made to deal with problems of this nature. For instance, in South Africa it is expressly provided that “a party interacting with an electronic agent to form an agreement is not bound by the terms of the agreement unless those terms were capable of being reviewed by a natural person representing that party prior to agreement formation.”52 The solution provided by the British Columbia legislation is to treat the electronic record created by an individual with an electronic agent of another person as “invalid and unenforceable if the individual made a material error in the record and –

(a) the electronic agent did not provide the individual with an opportunity to prevent or correct the error;

50 ibid., § 14(5) 51 Defined in § 1 of the South African Electronic Communications and Transactions Act, 2002 as “a computer programme or an electronic or other automated means used independently to initiate an action or respond to data messages or performances in whole or in part, in an automated transaction.” See also § 20 of the Act for the effects of an agreement formed through an electronic agent. See further, § 16 of the British Columbia (Canada) Electronic Transactions Act, 2001, which simply provides that “a contract may be formed by the interaction of an electronic agent and an individual or by the interaction of electronic agents.” See also, § 17 of the Saint Vincent and Grenadines Electronic Transactions Act, 2007 52 § 20(d) of the South African Electronic Communications and Transactions Act, 2002


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(b) the individual notifies the other person of the error as soon as practicable after the individual learns of the error and indicates that he or she made an error respecting the electronic record; (c) the individual takes reasonable steps, including steps that conform to the other person's instructions, to return the consideration received, if any, as a result of the error or, if instructed to do so, to destroy the consideration; and (d) the individual has not used or received any material benefit or value from the consideration, if any, received from the other person.”53

It might be useful to consider these provisions carefully with a view of making the necessary amendments to the Sri Lankan Act. These are salutary provisions consistent with the fundamental purpose of the Act, which is, to remove barriers to electronic transactions while leaving the substantive law, e.g., law relating to mistake, unaffected to the greatest extent possible.54 Where two or more automated systems interact without any human intervention to review or approve the final contract, more fundamental questions could arise. Suppose the members of the Bar Association consume a large amount of junk food, and the Modern Cafeteria of the Association continuously stocks its vending machines. The supplier who stocks these machines uses an EDI system to accept orders and process them electronically for immediate supply. In an effort to avoid frequent inventorying, the Bar Association installs a programme for the vending machines that will keep track of the supply of food in the machines. When the inventory reaches a low level, the programme automatically dials the supplier‟s EDI system and places an electronic order to refill the machines. The vending supplier‟s EDI system confirms the order and transmits a purchase order to the warehouse for immediate delivery. This is a case where there is no human review of, or intervention in, the final contract for the sale of the goods in question. In view of § 17(d), the contract is valid despite the absence of human intervention in the making of the final contract, and the question can be posed as to whether this is a statutory repudiation of the common law requirement of consensus ad idem. An astute jurist might find that the requisite consensus existed in the minds of the supplier and the Bar Association who installed the automated systems knowing fully well what they can achieve. The provisions of the Electronic Transactions Act only seek to negate any claim that the lack of human intent, at the time of contract formation, prevents contract formation. When machines are involved, the requisite intention flows from the programming and use of the machine. But what happens if there is an error that occurred due to technical reasons that has made the

53 § 17 of the British Columbia (Canada) Electronic Transactions Act, 2001. Provisions of similar import are also found in the South African and Saint Vincent and Grenadines legislation referred to in Supra note 51 54 Extract from the overview of the Uniform Electronic Transactions Act (1999) which was approved by the National Conference of Commissioners on Uniform State Laws, USA at the Annual Conference held in Denver Colorado, 23rd to 30th July 1999


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resulting contract unacceptable to one or more of the parties? Neither the Sri Lankan Act nor the legislation enacted elsewhere provide a solution to the problem, and a court might hold the parties to the contract (however distorted it might be) which is in every way their own making.

Use of Electronic Records and Signatures, filing of Applications, grant of Licences and Permits and payment of Fees and Charges in the Government Sector

Ancient man wrote his history in stone before he stumbled on to paper. It appears that the history of the future man will be written on the electronic medium. To facilitate this process, the Electronic Transactions Act provides for the maintenance of records in Government Departments and other Institutions in the electronic form. It is expressly provided in the Act that where any written law for the time being in force requires the filing of any form, application, or any other document with any Government Department, office, body or agency owned or controlled by the Government or a Statutory Body in a particular manner, the grant or issue of any license, permit, approval or any receipt for payment of money, procurement or other transaction to be effected in a particular manner, then “notwithstanding anything to the contrary contained in any other law for the time being in force, such requirement shall be deemed to have been satisfied if such filing, creation, retention, issue, grant, receipt, payment, procurement or transaction, as the case may be, is effected in the form of electronic records as may be specified by the relevant Ministry, Government Department, Institution, statutory body or public corporation or other similar body.”55

The Minister is empowered under § 8(2) read with § 24 of the Act, on the recommendation of the relevant authority requiring the use of electronic records, to make regulations specifying:

(a) the manner and format in which such electronic records shall be filed, created, retained or issued ;

(b) where such electronic documents or electronic records have to be signed, the type of electronic signature required ;

(c) the manner and format in which such signature shall be affixed to the electronic documents or electronic records and the identity of, or the criteria which, a Certification Authority or Certification Service Provider used by such person filing the document should possess ;

(d) the control process and procedures required in order to secure confidentiality, authenticity and integrity of electronic documents, records, procurements, transactions or payments ;

55 § 8(1) of the Electronic Transactions Act, Supra note 16


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(e) the manner or method of payment of any fee or charges for the filing, creation, retention or issue of any electronic record under paragraph (a) ;

(f) the manner of doing anything which under any such provisions is required to be done as evidence in writing or otherwise using a document, notice or instrument ;

(g) the manner of doing anything which under any such provision, is required to be or which may be, done by post or other specified means of delivery ;

(h) the doing of anything which under any such provision is required to be, or which may be, authorised by a person‟s signature or seal ;

(i) the making of any statement or declaration which under any such provision is required to be made under oath ;

(j) the making of any payment that is required to be, or which may be, made under any such provision ;

(k) any other matter relating to electronic records or payments that are presently specified for the corresponding paper documents.

In this context, a question of some interest to lawyers as well as to notaries is whether where it is required by any law for a signature or a document to be notarised, acknowledged, verified, or made under oath, such requirement may be fulfilled through the electronic medium? It is interesting to note that §11 of the United States Uniform Electronic Transactions Act (1999)56 provides that:

“If a law requires a signature or record to be notarised, acknowledged, verified, or made under oath, the requirement is satisfied if the electronic signature of the person authorised to perform those acts, together with all other information required to be included by other applicable law, is attached to or logically associated with the signature or record.”

Under the Uniform Electronic Transactions Act (UETA) provision, a notary public or other authorised officer may act electronically. The provision while preserving the other requirements of notarial laws, simply allows the signing and information to be accomplished in an electronic medium57. For example, if a buyer wishes to send a notarised Real Estate Purchase Agreement to a seller via e-mail, the Notary must appear in the room with the buyer, satisfy him/herself as to the identity of the buyer,

56 The Uniform Electronic Transactions Act (UETA) approved by the National Conference of Commissioners on Uniform State Laws, U.S.A at the Annual Conference held in Denver, Colorado, July 23-30, 1999 57 Comments on the UETA ibid


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and swear to that identification. All that activity must be reflected as part of the electronic Purchase Agreement and the notary‟s electronic signature must appear as a part of the electronic real estate purchase contract. On the other hand, Art. 11(2) of the UNCITRAL Model Law on Electronic Commerce58 has allowed some amount of discretion to States to decide, in accordance with prevalent public policy, what amount of electronic notarisation should be permitted. In Sri Lanka, as already noted last wills, contracts of sale or conveyances of immovable property or any interest in such property, express trusts and powers-of-attorney are expressly excluded from the ambit of the Electronic Transactions Act, but for other transactions and instances electronic means of notarisation will become effective when the relevant Minister makes regulations for this purpose as contemplated by paragraphs (f),(h) and (i) of the above quoted § 8(2) of the Electronic Transactions Act.

These provisions are important for lawyers in particular as they could be shaped up to provide for not only an electronic land registry but also an electronic court system in which pleadings could be electronically transmitted from a law office to the Court Registry and maintained therein electronically. It significant that the Electronic Transactions Act also provides for electronic publication of proclamations, rules, regulations, orders, by-laws, notifications, or other matter required by law to be published in the Gazette. This means that even legislation enacted by Parliament and draft bills required to be published in the Gazette could be available in electronic form as well as on-line, and the publication of the Gazette in the traditional way by the Government Printer may be dispensed with. Matters of Evidence: The Dual Regime Undoubtedly, the Electronic Transactions Act of 2006 will precipitate the process of transforming a paper based society to an electronic society (e-Society) and pave the way for greater electronic commerce (e-Commerce) and electronic governance (e-Governance). The information that will accumulate in Government Departments, Banks, Financial Institutions and Business Establishments, not to mention lap top computers, mobile phones and other such devices will be enormous, and immensely valuable. They can also be useful evidence, the reception of which would have inevitably posed a number of problems for the courts. This is largely because rules of evidence contained in the Evidence Ordinance59 were evolved long before the advent of modern electronic equipments and computers, and those rules have not always proved adaptable to evidence emanating from such modern devices. Of course, the term „document‟ is defined in the Evidence Ordinance in a rather futuristic way, and it is arguable that the recording of a transaction within the memory of one or more computers is an expression or description “……upon any substance by means of letters, figures, or marks or by more than one of those means, intended to be used, or which may be used, for the purpose of recording that matter.”60 However, difficulties could

58 The UNCITRAL Model Law on Electronic Commerce (1996) Supra note 29 59 Evidence Ordinance No. 14 of 1895(CLE 1956 Official Ed. Cap. 14) as subsequently amended 60 ibid., § 3


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arise in the proof of an electronic transaction by reason of the necessity to produce the original document in Court. The Evidence Ordinance expressly lays down the general rule that “documents must be proved by primary evidence”.61 The Ordinance also declares that “primary evidence means the document itself produced for the inspection of the court”62. This is problematic in an electronic medium. For example, as one drafts a document on a computer the „original‟ is either on a disc or the hard drive to which the document has been initially saved. If one periodically saves the draft, the fact is that at times a document may be first saved to disc then to hard drive, and at others vice versa. In such a case the „original‟ may change from the information on the disc to the information on the hard drive. Indeed, it may be argued that the „original‟ exists solely in RAM and, in a sense, the original is destroyed when a „copy‟ is saved to a disc or to the hard drive. The document may also be transmitted from one computer to another electronically, for example by e-mail. Here too, the question could arise as to whether the original document is the one saved in the sender‟s computer or the receiver‟s computer.

Another obstacle for the production of electronic evidence would be the „hearsay‟ rule. The rule, which has been described as “an instance of application of the „best evidence‟ rule”,63 is not expressly referred to in the Evidence Ordinance, but the whole structure of the Ordinance leaves no room for doubt that hearsay is meant to be excluded as a rule in criminal as well as civil proceedings. Thus, in Benwell v Republic of Sri Lanka64 which was a habeas corpus proceeding arising in the context of an application for extradition made by the Australian Government, three computer sheets purporting to be entries of books of accounts maintained in an Australian Bank tendered in terms of § 34 of the Evidence Ordinance, were held to be inadmissible in evidence. Colin Thome J. in the course of his judgment made the following observation:

“Computer evidence is in a category of its own. It is neither original evidence nor derivative evidence and in admitting such a document a Court must be satisfied that the document has not been tampered with. Under the law of Sri Lanka computer evidence is not admissible under any section of the Evidence Ordinance and certainly not under Section 34.”

The Electronic Transactions Act seeks in Chapter V thereof, to overcome these obstacles by expressly providing that “any information contained in a data message, or any electronic document, electronic record or other communication –

(a) touching any fact in issue or relevant fact; and

61 ibid., § 64 62 ibid., § 62 63 Peiris G.L, The Law of Evidence in Sri Lanka, p.42. For an interesting illustration of the application of the rule see, D.Somasiri v The Queen 75 NLR 172 64 (1978-1979) 2 Sri L.R. 194


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(b) compiled, received or obtained during the course of any business, trade or profession or other regularly conducted activity,

shall be admissible in any proceedings.”65

There are two qualifications to the aforesaid rule of admissibility found in § 21(2), namely, that:

(1) Electronic evidence is admissible only in circumstances when direct oral evidence of such fact in issue or relevant fact, if available, would have been in law admissible; and

(2) Electronic evidence is admissible only if there is no reason to believe that the information contained in the relevant data message, electronic document, electronic record or other communication is unreliable or inaccurate.66

In § 21(3) of the Electronic Transactions Act, there are three important presumptions, which shall apply in all cases “unless the contrary is proved.” The first of these presumptions is that, all information contained in any data message, electronic document, electronic record or other communication, is true. This is a dramatic turn-around of the famous hearsay rule. The second of these presumptions relates to the identity of the maker of an electronic document, and is to the effect that unless the contrary is proved, a court of law will presume that any data message, electronic document, electronic record or other communication was made by the person “who is purported to have made it”.67 The third presumption is to the effect that a court will presume the genuineness of any electronic signature unless the contrary is proved.68 §21(1) clearly states that these provisions of the Electronic Transactions Act will apply notwithstanding any thing to the contrary in the Evidence Ordinance and any other written law. § 22 of the Act also very clearly shuts out the application of the provisions of the Evidence (Special Provisions) Act of 1995.

It is significant to note that Chapter V of the Electronic Transactions Act would not apply to wills or other testamentary dispositions, powers-of-attorney, sale or conveyance of immovable property, trusts (excluding constructive, implied and resulting trusts), bills of exchange, telecommunication licences, and any other acts, transactions or documents that may be specified by the Minister by regulation made under § 24.69 In the event it becomes necessary to lead electronic or computer evidence in regard to any fact coming within these excluded areas, it will be the provisions of the Evidence (Special Provisions) Act of 1995 that will be applicable.70 Hence, in regard to electronic

65 § 21(2) of the Electronic Transactions Act, Supra note 16 66 ibid., § 21(2) first proviso 67 ibid., § 21(3) 68 ibid., 69 ibid., § 23 70 Evidence (Special Provisions) Act, No. 14 of 1995. For a detailed discussion of the provisions of this Act, see Marsoof S., Electronic and Computer Evidence in Criminal and Civil Proceedings, [2003] Sri Lanka L.C.L. Rev 53


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and computer evidence, there would appear to exist in Sri Lanka two regimes, one governed by the Electronic Transactions Act, and the other governed by the Evidence (Special Provisions) Act of 1995.

Certification Authority and the Certification of Service Providers

The Electronic Transactions Act of 2006 empowers the relevant Minister, in consultation with the Minister in charge of the subject of Information and Communication Technology, to designate any Government Department, Public Corporation, Statutory Body, Institution, or authority or any branch or unit thereof as the Certification Authority (CA) for the purposes of the Act, by an order to be published in the Gazette.71 It appears to be the scheme of the Act to bring Certification Service Providers (CSPs) under the control and supervision of the Certification Authority (CA) so designated. While no order has so far been made for designating the CA, it is necessary to stress that in doing so, the Minister is required to consider the overall ability of the Government Department or other Institution to be designated as the CA “to discharge the obligations under this Act in ensuring the proper functioning of certification services by accredited Certification Service Providers (CSPs).”72

It is significant that the Electronic Transaction Act of Sri Lanka differs from similar legislation enacted in India73 and elsewhere74 in one important respect. While in most countries CSPs are required to be licenced to engage in the business of providing certification services, the Sri Lankan legislation does not generally insist on a licence, and even accreditation appears to be optional. Although § 20(1) of the Act provides that “no person shall function as an Accredited Certification Service Provider (ACSP) unless he holds a valid Certificate of Accreditation75 issued under the Sri Lanka Accreditation Board for Conformity Assessment Act of 200576,” § 20(2) expressly states that “nothing in this Act shall be construed as impeding or in any way restricting the rights of any certification service provider to engage in the business of providing certification services without being accredited.” In this context it is relevant to note that the Certification Authority (CA) has the power to “issue licences or any other form of authorisation to CSPs to provide prescribed services” but obviously those licences will be special licences to perform special services over and above the general business of providing certification services. In the result, there could be three kinds of

71 § 18(1)of the Electronic Transactions Act, Supra note 16 72 ibid., § 18(2) 73 §§ 21-26 of the Indian Information Technology Act, 2000 provide for the procedure for licensing of service providers in India, and § 19 provides for the recognition of foreign certifying authorities. The Act contains elaborate provisions for investigations of contraventions of the Act and also sanctions stringent penalties 74 See, for example, the Singapore Electronic Transactions Act of 1998; the Australian Electronic Transactions Act of 1999; the UK Electronic Communications Act of 2000 and the South African Electronic Communications and Transactions Act of 2002 75 § 20(3) of the Electronic Transactions Act, Supra note 16, provides for the issue of a Certificate of Accreditation in terms of the Sri Lanka Accreditation Board for Conformity Assessment Act No. 32 of 2005 to CSPs in accordance with the provisions of the latter Act “in keeping with the criteria for accreditation specified by the Certification Authority….” 76 The Sri Lanka Accreditation Board for Conformity Assessment Act, No. 32 of 2005


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CSPs under the Act, namely Licenced Certification Service Providers (LCSPs), Accredited Certification Service Providers (ACSPs) and ordinary Certification Service Providers (CSPs) who will provide certification services without any licence or accreditation.

In terms of §19 of the Electronic Transactions Act, the Certification Authority has the power to not only identify criteria which will form the basis for accreditation of CSPs and the qualifications they should possess, but also to specify the procedure for the granting of accreditation and for hearing of appeals in the event of a refusal to grant or renew accreditation under § 20. § 19 also empowers the CA to issue licences or any other form of authorisation to CSPs to provide prescribed services. In fact, the relevant Minister is specially empowered by the Act to specify by regulation, the procedure for the recognition of CSPs, the issue of licences to such providers and the categories of services required to be provided by them.77 With respect to all CSPs, irrespective of whether they are accredited or specially licenced, the Certification Authority (CA) has the power to require that they maintain such records and registers as may be prescribed, to call for information as may be necessary from time to time and issue directions.

Considering the fact that the CSPs, irrespective of whether they are accredited or specially licenced, perform an important service which is in many ways similar to the work of a Notary Public who is required to attest signatures placed on deeds and certain other instruments, the question arises as to whether the regulatory and supervisory provisions of the Electronic Transactions Act are adequate to maintain public confidence in the authenticity, integrity and reliability of data messages, electronic documents, electronic records and other electronic communications. While the policy of avoiding over-regulation is understandable in the light of the experiences of other nations, particularly India, which had to face difficulties due to the excessive rigidity of their legislation,78 what is disturbing is the absence of any penal provisions in the Sri Lankan Act to deal with errant service providers who may cause serious loss or damage to members of the public due to fraudulent, reckless or negligent conduct. In fact, the Act has gone the other way to protect service providers through an immunity clause,79 which restricts the obligations of CSPs to those that may arise from a contract entered into with a customer80 or arising from a “licencing or other regulatory regime established under any written law.”81 The omission to provide for penal sanctions is glaring in the context that, as noted above, while the Act contemplates the establishment of a licencing regime through regulations to be made by the relevant Minister, it has not provided any penal mechanism to deal with CSPs who violate terms of any licence that may be issued. Any offences sought to be created, or punishments

77 See, § 24(2)(g) of the Electronic Transactions Act, Supra note 16 78 See, Duggal, P Harmonization of E-Commerce Laws and Regulatory Systems in South Asia available at: <http:// www. nescap. orgtidpublicationtipub2348_part1ii.pdf > See also, Satola, D; Sreenivasan, S and Pavlasova, L Benchmarking Regional E-

Commerce in Asia and the Pacific and Assessment of Related Regional Initiatives which is available at: : <http:// www. nescap. Orgti dpublicationtipub2348_part1i.pdf > 79 See, § 16(1) of the Electronic Transactions Act, Supra note 16 80 ibid., § 16(2)(a) 81 ibid., § 16(2)(b)


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sought to be prescribed, by regulations may also turn out to be invalid in the absence of enabling provisions in the Act. Furthermore, the Act also contemplates CSPs functioning without any licence or accreditation,82 which may not be desirable in view of the serious nature of their functions. To sum up, the Act follows a technology neutral and a minimalist approach, as regards the use of electronic signatures and the legal structure associated with the licensing or accreditation of Certification Service Providers83

Conclusions The Electronic Transactions Act is one of the most important pieces of legislation enacted by the Parliament of Sri Lanka in recent times. It has succeeded to a great extent in facilitation electronic transactions, which will in turn help to transform a paper-based society in which all important records had been maintained for centuries in registries and record rooms to an electronic society (e-Society). This will help us make vast strides not only in electronic commerce (e-Commerce) but also in electronic governance (e-Governance). Provisions of the Act, supported by carefully drafted regulations can help bring about vast changes in how day to day affairs are conducted by government agencies, business establishments and individuals. The provisions of the Act are so flexible that they can be utilised even to conduct general and local authorities elections through electronic means, and one problem that can crop up, to which technology would no doubt provide the answer, is how to preserve the secrecy of the ballet. Electronic systems will make it easier for the public to interact with government departments, local authorities, Banks and business entities, and electronic documentation will facilitate the accumulation of a large mass of information which will be accessible on the press of a button. Such information could be vastly valuable. There are, however, two important concerns that have to be addressed by policy makers and legislatures. The first concern relates to privacy. Although initially it was thought that the Electronic Transactions Act will be accompanied by another piece of legislation on Data Protection, it appears that the Information and Communication Technology Agency (ICTA) is now considering the formulation of a Code of Conduct to deal with these issues. There is no doubt that with technological development, and in particular the advent of cookies,84 web bugs85 and net spies,86 invasion of privacy on a systematic basis has become a common occurrence. When action is taken as contemplated by the Electronic Transactions Act to maintain records in Government

82 The Sri Lanka Accreditation Board for Conformity Assessment Act, Supra note 76, in terms of which accreditation to CSPs may be granted, does contain some penal provisions which apply over the board for laboratories, certification and inspection bodies, training institutions and other persons required to carry out conformity assessments, does contain certain penal provisions(vide §§ 437-39), but they are of no relevance in the present regulatory context 83 See , Fernando, J Electronic Transactions Legislation – Background and Features (2005) Vol XI Bar Association Law Journal 82 84See, the Double Click case154 F.Supp.2d 297 (S.D.N.Y. 2001) 85The term „web bug‟ was coined by Richard M Smith to refer to GIF files used to monitor internet use. Richard Smith‟s web bug FAQ is available at: <http://www.privacyfoundation.org/> 86Sterling B., The Hacker Crackdown: Law And Disorder On The Electronic Frontier, (1992)

http://www.privacyfoundation.org/


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Departments and other Institutions in the electronic form, further inroads would be made to personal privacy. In view of the major issues relating to privacy and data protection that could arise from the implementation of the Electronic Transactions Act, it will be necessary to enact legislation with the objective of protecting individuals against invasions of their privacy through electronic means. The establishment of a Data Protection Authority which will ensure the recognition, promotion and protection of the privacy of individuals, and the conferment to all individuals of a right of access to information relating to them and to correct errors or inaccuracies therein, is very necessary. It is also essential to provide remedies for interferences with the information privacy of an individual. Information privacy is of great importance to building confidence amongst traders, consumers and the public in regard to electronic transactions. Privacy indeed is a right that is to be treasured. The other concern is the lack of uniformity and certainty in the law relating to e-Commerce. While, increased use of electronic communications improves the efficiency of commercial activities, enhances trade connections and allows new access opportunities for previously remote parties and markets, thus playing a fundamental role in promoting trade and economic development, there is an increasing and urgent need for uniformity and certainty in the law. With the objective of achieving the desired level of uniformity and certainty, the United Nations Commission on International Trade Law (UNCITRAL) has drafted the Convention on the Use of Electronic Communications in International Contracts (e-Contracting Convention).87 It is heartening to note that Sri Lanka is in the forefront of this effort to bring greater harmony to the law, which has been hailed as one of the most significant recent developments in international electronic commerce law. The enactment of the Act enabled Sri Lanka to be amongst the first three countries to sign the Convention.

87 See, the UN Convention on the Use of Electronic Communications in International Contracts, adopted by the UN

General Assembly on 23rd November 2005 available at::<http:// www.uncitral.org/pdf/english/texts/electcom/06-57452_Ebook . pdf > Central African Republic, China, Lebanon, Madagascar, Senegal, Sierra Leone, Singapore, Sri Lanka and Paraguay have become signatories to this Convention as on 27th April 2007

http://www.uncitral.org/pdf/english/texts/electcom/06-57452_Ebook%20.%20pdf

http://www.uncitral.org/pdf/english/texts/electcom/06-57452_Ebook%20.%20pdf

Electronic Transactions in the Modern World: An Analysis of Recent Sri Lankan Legislation

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