House of Commons - Trade and Industry

Select Committee on Trade and Industry Fourteenth Report

C. THE DRAFT BILL: PART II

Admissibility of Electronic Signatures

15. DTI proposed a complicated scheme for clarifying the legal standing of electronic signatures in its March 1999 consultation paper. Although legislation was suggested to confirm that any electronic signature could be relied upon in legal proceedings, it was proposed that those electronic signatures backed by a certificate from an accredited TSP and created using an approved signature device would benefit from a "rebuttable presumption" of validity, whereas other electronic signatures would not. We reported significant criticism of the "rebuttable presumption" concept, including that it was ill-suited to the English common law tradition and would reverse the burden of proof in contractual disputes, potentially undermining confidence in electronic commerce, but DTI told us that the reform was, at least in part, inspired by the need to "move in step" with the EU Electronic Signatures Directive.[30] We questioned the rationale of the "rebuttable presumption" proposal and we are pleased to see that it has now been abandoned by the Government. We support the Government's intention to legislate to clarify the admissibility of electronic signatures in legal proceedings, while leaving it to the courts to decide what weight to assign to those electronic signatures which come before them.

16. Although many respondents welcomed clause 7 of the draft Bill, some questioned whether it was absolutely necessary given that the admissibility of electronic signatures was covered by case law.[31] The law firm Berwin Leighton warned that the clause might restrict the admissibility of electronic signatures in court in some situations and a similar point was made by MacRoberts in relation to Scotland, an issue which we explored both in our first Report on electronic commerce and in subsequent questions to DTI.[32] There were also a number of detailed criticisms, including that:

the definition of an electronic signature offered in s7(2)(b) should include reference to a signature's role in demonstrating the intent of a person to be associated with the contents of a document, rather than just to the authentication of the signatory and the integrity of the document's contents[33]
the position of electronic signatures attached to documents which are not communications should be clarified, as s7(2)(a) refers to electronic signatures being associated only with electronic communications[34]
the draft Bill should not offer two different definitions of electronic signatures (in s7(2)(b) and s19(1))[35]
more could be done to ensure that electronic signatures are treated in court on an equal basis with handwritten signatures.[36]

Ministers must ensure that legislation to clarify the admissibility of electronic signatures in court does not inadvertently restrict the existing scope for their admissibility under English or Scots case law.

Electronic Writing

17. The Government has accepted our recommendation that it should take powers in the Electronic Communications Bill for secondary legislation to update the definitions of words such as "writing" and "signature" in law to take account of new information and communications technologies. We were critical of the time it had taken DTI to bring forward proposals in this area, particularly given the detailed academic analyses which had been undertaken to assess what legal changes are required.[37] The Performance and Innovation Unit of the Cabinet Office recently concluded that, once granted, Ministers must use their new power to update the statute book "as swiftly as possible" and DTI told us that the Government was assessing its priorities for the use of the power "as a matter of urgency".[38] DTI told us that its first priority would be to amend the Companies Act 1985 to enable companies to communicate electronically with their shareholders.[39] We note, however, that the draft Bill includes several requirements for communications to be made in writing, which suggests that departments should consider carefully how new, as well as existing, legislation can take account of modern information and communications technologies.[40] We welcome the new sense of urgency with which the Government is now addressing the issue of outdated definitions of words such as "writing" and "signature" in law. We recommend that, during the passage of the Bill, Government departments each publish their priorities for using secondary legislation to update the definitions of such words in law and timetables for implementation.

18. We suggested that the Government could usefully draw on the approach of the Australian Electronic Transactions Bill, which proposes to change only those outdated legal definitions explicitly specified by regulations before 1 July 2001 and to change all remaining such definitions, except those exempted by regulations, thereafter.[41] The advantage of this approach is that it ensures that all outdated statutory definitions, rather than just the immediate priorities, are updated within two years, except for those definitions which it is explicitly intended not to change. By overlooking this option the Government risks updating only a handful of statutory definitions and leaving others, regarded by departments as lesser priorities, unreformed for indefinite periods of time. We are concerned that this could create uncertainty about which definitions departments intend to update and when they intend to act. We also think it would be helpful for the Government to set out which statutory definitions it does not wish to update because of the "fundamental issues of principle" it has identified.[42] A large number of respondents to the draft Bill indicated that they wished to see Departments move quickly to update legal definitions, including by adopting the Australian proposal or by including specific changes to definitions in commercial legislation in the forthcoming Bill.[43] We recommend that, having identified immediate priorities, departments publish details within two years of all the outdated statutory definitions of words such as "writing" and "signature" they wish to update to take account of new information and communications technologies and timetables for action; and details of those statutory definitions which they do not wish to update, including the reasons why not.

OATHS, SEALS AND WITNESSED SIGNATURES

19. The draft Bill includes provision for legal requirements for signatures to be witnessed or authorised under seal and for statements to be made under oath to be satisfied electronically, if authorised by Ministerial order.[44] In answer to our written questions, DTI explained that public key technology, particularly when involving a certification agency, could perform functions which might be equivalent to oaths, seals and witnessed signatures.[45] In response to the Government, the Real Time Club questioned the desirability of allowing these functions to be performed electronically. In particular, it argued that "there are good reasons for requiring personally sworn affirmation, which we do not think should be replaced by electronic communications".[46] We recommend that the Government consults widely on any proposal to allow oaths, seals or witnessed signatures to be performed electronically.

FEES

20. Many of the legal requirements for "writing" or "signatures" which need updating relate to dealings between the Government and private individuals and firms — for instance, the submission of tax returns or applications for various licences or permits.[47] The Government has proposed that, where fees are charged in relation to communications, then different fees might be charged for electronic communications as compared with non-electronic communications.[48] DTI told us that "in the case of a service designed to cover its costs, rather than raise revenue, it might be appropriate for the Government to pass on its cost-savings expected from the electronic handling of data to the fee-payer".[49] Electronic handling of data is typically less expensive than the use of non-electronic systems, implying that those firms and individuals able to communicate electronically with Government will tend to benefit from lower fees than those firms and individuals reliant on more traditional forms of communication. The Inland Revenue has already proposed a financial concession to those taxpayers able to submit their tax returns electronically in future.[50] There is a danger that those sections of society, without access to computers or the skills necessary to use them, will be required to pay relatively higher fees or other charges when dealing with Government because they may not be well placed to exploit the low transaction costs which are a characteristic of electronic communications. The Government should charge different fees for electronic and non-electronic communications and storage only if it can be shown that disadvantaged groups in society are not thereby penalised for their lack of access to computer technology.

Electronic Storage

21. Clause 8 of the draft Bill would allow Ministers to make orders to facilitate electronic data storage as well as electronic communications. Facilitation of electronic storage was not featured in the March 1999 "Building Confidence in Electronic Commerce" paper and respondents to the draft Bill warned that the issue required more thorough consultation. Respondents expressed concern that the legislation might impose additional requirements beyond the present law for records to be kept;[51] and that care would need to be taken to ensure that stored data would be accessible in an intelligible and accurate form in future years.[52] Large-scale projects to replace physical with electronic records, such as the replacement of cheque storage with electronic records in the banking sector, have already thrown up a range of new technical and legal issues. We recommend that, before orders are made for the facilitation of electronic storage, departments consult fully on the implications of replacing physical with electronic records, paying particular regard to future accessibility including by individuals with legitimate concerns or interests.

30 HC187 paragraphs 38-50; there were some supporters of the rebuttable presumption concept - see response to Government from CyberNotary Association (UK) p2 for instance Back

31 Responses to Government from Energis paragraph 2.1, Cable and Wireless Communications p3, Legal and General p5, Association of Private Client Investment Managers and Stockbrokers p3, Loan Market Association p2, Motorola paragraph 1, Bristows p1, Real Time Club p4, Microsoft p2, Gartner Group p2 welcomed clause 7; R. I. Howland p1 and the Post Office p4 questioned the need for clause 7 Back

32 Responses to Government from Berwin Leighton p3 and MacRoberts p6; HC187 paragraph 40; and Ev, p3, part II, Q1 Back

33 Responses to Government from R. I. Howland p3, British Bankers' Association p3, Association of Payment Clearing Services p4, International Chamber of Commerce (UK) p3, the Law Society p3, Foundation for Information Policy Research p3 and a related point by Thus Ltd p3; Mr Howland and the British Computer Society (p3) questioned the reference to integrity in the definition offered of an electronic signature Back

34 Responses to Government from British Telecommunications paragraph 9, Internet Service Providers' Association p4, Foundation for Information Policy Research p3, C. E. Sundt p3, Thus Ltd p2, Institute of Chartered Accountants in Scotland paragraph 3.1.1 Back

35 Responses to Government from Interforum p1, the Post Office p12, Association of Payment Clearing Services pp4, 7, Institute of Chartered Accountants in Scotland paragraph 1.2.3, Institute of Chartered Accountants in England and Wales p3, Internet Service Providers' Association p10, John Brazier p3, C. E. Sundt p6 Back

36 Response to Government from British Computer Society, individual's submission, paragraphs 1-5 Back

37 HC187 paragraph 58 Back

38 PIU Report paragraphs 10.43-10.45; Ev, p4, part II, Q4 Back

39 Cm4417, p7 paragraph 21 Back