A huge leap forward, but with exceptions 8 min read
The commencement of the Electronic Transactions Act 2021 (the ETA) is a major policy and regulatory milestone in the development of PNG's digital economy.
In many instances, the ETA will allow businesses to do away with paper altogether. However, there remain a number of legal and administrative obstacles that will continue to cast a shadow over the reach and effectiveness of the ETA for many PNG businesses.
- The ETA came into operation on 19 May 2022 (National Gazette No. G393).
- In most instances, formal contracts may now be negotiated, formed and exist electronically, including by way of automated message system. The exception to this is deeds executed by bodies corporate.
- Where information is required to be ‘in writing’ and the law provides consequences if it is not (eg under the Frauds and Limitations Act 1988), must be 'retained' or must be in its 'original form', those requirements are now satisfied by an electronic document or record.
- The requirement at law for a person or a party to provide a signature is now satisfied if a 'reliable' electronic signature is used.
- Parties should consider early on in the transaction what execution formalities the document(s) must incorporate, eg:
- the requirement the document is witnessed—whilst the ETA accommodates witnessing, the act itself will involve a coordinated process;
- the requirement the document takes effect as a deed—the ETA does not assist PNG bodies corporate that are required to execute a deed under seal (company seals are wet-ink stamps that cannot be affixed electronically);
- if the document needs to be filed with a public agency or registry, as a matter of practice, many public agencies still will not accept electronic filings or electronic documents; and
- does the document relate to an exempt transaction, eg affidavits, trust documents, powers of attorney and foreign exchange transactions?
In-house legal, contract managers, company directors.
In general, the ETA applies to any kind of transaction whether it be commercial, non-commercial, domestic or international. The ETA does, however, provide some exceptions.
Certain types of transactions are expressly excluded from the operation of the ETA. They include:
- documents creating or relating to trusts;
- powers of attorney;
- documents required to be attested before a notary public (eg affidavits and statutory declarations);
- transactions on a regulated exchange; and
- foreign exchange transactions.
Broadly speaking, the law tends to categorise contracts into three sub-categories when it comes to execution formalities: (1) simple contracts; (2) formal contracts; and (3) deeds.
Simple contracts do not have any execution formalities to comply with. By way of example, a simple contract is an oral promise or a simple handshake deal to do a job (where the only thing in writing may be a quote on the back of a beer coaster). The ETA's impact on simple contracts is inconsequential.
Formal contacts are contracts that must comply with certain execution formalities imposed by statute or by the parties themselves. For example:
- the Frauds and Limitations Act 1988 and the Copyright and Neighbouring Rights Act 2000 both require that certain types of contracts be in writing and signed; or
- the parties to the contract itself may insist on certain formalities being complied with, eg they may require that the contract is in writing, signed and witnessed.
The ETA's impact on formal contracts is significant.
Deeds are the most solemn form of contract a person can enter into. The law imposes strict formalities on deeds. A deed must be: (1) in writing on paper, parchment or vellum; (2) sealed; and (3) delivered.
The ETA's impact on deeds varies depending on the type of entity contracting (eg a body corporate vs an individual).
Where information is required to be ‘in writing’ and the law provides consequences if it is not (eg under the Frauds and Limitations Act 1988), that requirement is now satisfied by an electronic document or record.
Where a document or record is required to be in ‘original form’, that requirement is now satisfied by an electronic document or record if:
- there exists a reliable assurance as to the integrity of the information from the time it was first generated in its final form as an electronic document (ie the information has remained complete and unaltered); and
- that information is capable of being displayed.
Where certain documents or records are required to be ‘retained’, that requirement is now satisfied by retaining electronic documents or records, provided the electronic document or record is in a format which can be demonstrated to accurately represent the information generated, sent or received.
The Evidence Act (Chapter 48) requires the courts to treat images of seals and signatures that are on an electronic reproduction of an electronic document or record the same as if they were appearing on the original document.
The requirement at law for a person or a party to provide a signature is now satisfied if an 'electronic signature' is used.
An 'electronic signature' is any symbol or other data in electronic form affixed to, or associated with, a document, which may be used to identify the signatory and indicate their intention in respect of the information contained in the document.
An electronic signature must be 'reliable', ie:
- it must be linked to the signatory;
- it must be the under the control of the signatory; and
- any alterations to the signature or information linked to the signature (ie the terms of the contract) after signing must be detectable.
The ETA accommodates witnessing; however, the act of witnessing will involve a coordinated process.
A witness needs to see the act of execution and then must attest that they have done so by signing the document. As a result, the process of witnessing becomes 'clunky' when dealing with electronic documents and electronic signing.
In general, a witness should be present when the signatory is signing and have sight of the screen (and keyboard, mouse, pad or stylus, as applicable) of the signatory. The witness then adds their attestation to the electronic version, by e-signing. It may be possible to establish processes that will allow for remote witnessing (eg by Skype, MS Teams or FaceTime).
Of course, it is possible for a witness to purport to attest without having actually witnessed, but that risk applies equally in relation to a wet-ink process.
PNG law diverges significantly from Australian law in respect of deeds. In Australia, the common law formalities have been largely displaced by statute (eg Corporations Act 2001 (Cth) and Property Law Act 1974 (Qld)). This is not so in PNG.
The ETA addresses some of the formalities associated with deeds, eg it addresses the requirement that a deed be both in writing and delivered; however, it does not necessarily remedy the requirement that a deed be 'sealed', especially in respect of bodies corporate.
Execution of deeds by individuals can be accommodated electronically. For individuals, a 'seal' at common law can be any mark that indicates the signatory intended to execute the document as a deed. This mark can be created electronically.
The requirement that a deed be 'sealed' limits the effectiveness of the application of the ETA for bodies corporate executing deeds.
A company incorporated under the Companies Act 1997 has two potential methods of execution for a deed. Both are inelegant in the context of electronic execution.
- Section 155(1)(a) of the Companies Act requires a company to execute a deed by affixing its common seal, which is a wet-ink stamp. Company seals cannot be affixed electronically, and the ETA does not supplant this requirement.
- Section 156 of the Companies Act allows a company to appoint an attorney to execute documents (including deeds) on its behalf. If the attorney is an individual, the deed can be executed electronically. However, the instrument appointing the attorney (ie the power of attorney) cannot be an electronic document. This is because:
- such instruments are expressly excluded from the ETA (see s5(f) ETA); and
- s156(1) of the Companies Act requires the attorney to be appointed under seal pursuant to s155(1)(a) of the Companies Act.
The ETA allows for the use of 'trust service providers', being persons who provide an electronic service that provides a certain level of reliability in the quality of data, electronic signatures, seals, time-stamps, delivery services and website authentication, as well as any related certificate and their retention.
An example of a trust service provider is DocuSign.
A trust service provider must accept the legal consequences of its failure to satisfy its obligations under the ETA.
A person that uses a trust service must:
- take reasonable steps to verify the reliability of the trust service; and
- where an electronic signature is supported by a certificate, take reasonable steps to verify the validity, suspension or revocation of the certificate.
An express purpose of the ETA is to facilitate electronic filing of documents with public agencies and to support the promotion of efficient delivery by public agencies of services by means of reliable electronic records.
Presently, a majority of government departments and public agencies do not accept electronic filings and will not accept electronic documents. Allens is currently consulting with several of these public agencies and registries to better understand how they intend to implement the ETA.