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Te Aka Matua o te Ture

Report 50

Electronic Commerce

Part One

A guide for the legal and business community

October 1998

Wellington, New Zealand

The Law Commission is an independent, publicly funded, central ad­visory body established by statute to undertake the systematic review, reform and development of the law of New Zealand. Its pur­pose is to help achieve law that is just, principled, and accessible, and that reflects the heritage and aspirations of the peoples of New Zealand.

The Commissioners are:

The Honourable Justice Baragwanath – President
Joanne Morris obe
Judge Margaret Lee
DF Dugdale
Denese Henare onzm
Timothy Brewer ed

The office of the Law Commission is at 89 The Terrace, Wellington

Postal address: PO Box 2590, Wellington 6001, New Zealand

Document Exchange Number: sp 23534

Telephone: (04) 473–3453, Facsimile: (04) 471–0959



Report/Law Commission, Wellington, 1998

issn 0113–2334 isbn 1–877187–25–9

This report may be cited as: nzlc r50

Also published as Parliamentary Paper E 31AK

1 October 1998

Dear Minister

I am pleased to submit to you Report 50 of the Law Commission, Electronic Commerce Part One: A guide for the legal and business community.

Yours sincerely

The Hon Justice Baragwanath

The Right Hon Douglas Graham mp
Minister of Justice
Parliament Buildings


In October 1997 the Law Commission started a new project on the subject of international trade. New Zealand is reliant on exports for much of its income and its economy is becoming in­creasingly integrated into a global market for goods and services. Our domestic legal infrastructure must not be an impediment to international trade.

This is the first of four reports which will deal with international trade issues. It addresses, in a preliminary way, the subject of electronic commerce. Our second report will address matters on which submissions have been requested in this report and, in addition, will consider whether further changes are needed to the law to accommodate the needs of those who do business domestic­ally. Our second report will also concentrate on some of the wider issues which have been raised for discussion in this report. Our third report will be more general in its application. It will address international trade issues arising out of other reports and model laws prepared by organs of the Untied Nations to which New Zealand has not yet subscribed. These matters are referred to in more detail in para 9 of this report. In addition, the Commission is scheduled to complete a discrete report on whether New Zealand should adopt the United Nations Commission on International Trade Law (UNCITRAL) Model Law on Cross Border Insolvency: that report is expected to be released later this year.

This report has been prepared to enable business people and their advisors to consider the impact of electronic commerce. Of necessity we have restricted our discussion of applicable law to the law of New Zealand. Some transactions entered into with entities overseas will be governed by New Zealand law; others will not. In some cases there will be a contest as to which law applies and/or as to the state in which litigation should take place. These issues are dealt with by the rules concerning conflict of laws. Again, however, it is important to recognise that the rules which are applied in New Zealand are those of New Zealand’s domestic law and that the laws of other countries may be different. There is also an international dimension. Ultimately, because of its global nature, the internet will need to be regulated through international rather than purely territorial means. This report addresses the type of matters that will need to be considered in advancing a global strategy to deal with these issues.

Electronic commerce is a generic name for business transactions which are entered into through electronic rather than paper-based means. It is not limited to the commercial use of the internet, although that is an important example of electronic commerce. The growth of electronic commerce holds much potential for New Zealand’s economy, but for that potential to be realised it is vital that the legal infrastructure is modern enough to cope with new challenges.

This report has been structured to examine the substance of com­mercial transactions and risks in an electronic environment, and to analyse the application of existing commercial law in that context. In doing so we have taken an elementary approach, because it is necessary to understand how a transaction operates in law before asking how the outcome will be influenced by any move to an electronic medium. We have adopted principles for reform which place emphasis on the need to clarify existing law rather than introduce specific legislation. This approach recognises the commercial need for a predictable legal environ­ment, regardless of the medium used to conduct trade. But in the longer term, it also recognises that electronic commerce is global in its nature: ultimately, the laws which govern electronic com­merce will need to be international rather than domestic in their application. In conjunction with the Ministry of Commerce, and with assistance from the Ministry of Foreign Affairs and Trade, the Commission will continue to monitor developments in inter­national commercial law and practice.

In this report we have raised issues for comment and asked for submissions in a number of areas. Apart from the law of evidence, in which the Commission has a pre-existing reference from the Minister of Justice, we do not make firm recommendations for reform. Any other recommendations will be made in our second report on electronic commerce which will take into account sub­missions received in response to this report.

We have released this report in the Commission’s report series, rather than as a preliminary paper, in recognition of the fact that its analysis is likely to be useful as a guide to practitioners and those engaged in business. We intend that the two parts of the electronic commerce report be used as a lasting reference work.

The Law Commission has been assisted by a number of individuals in preparing this paper, including Elizabeth Longworth, Barrister and Solicitor of Longworth Associates, Auckland; Christopher Nicoll, Senior Lecturer in Commercial Law, University of Auckland; David Goddard of Chapman Tripp Sheffield Young, Wellington; and Peter Jones, Senior Lecturer in Law, University of Waikato. We gratefully acknowledge their assistance.

The Commissioner in charge of the International Trade Law project is Mr DF Dugdale. Mr Paul Heath qc of Hamilton is a Consultant to the Law Commission on Commercial Law. We also acknowledge the work of Nicholas Russell and Megan Leaf, researchers at the Commission.

Submissions or comments on this paper should be sent to Nicholas Russell, Law Commission, PO Box 2590, DX SP 23534, Wellington by 18 December 1998, or by email to We prefer submissions to be made by email if possible. Any initial inquiries or comments can also be directed to Nicholas Russell: phone (04) 473 3453 or fax (04) 471 0959. This paper is also available from the Commission’s website:

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