Warren Cabral reviews Bermuda's new e-commerce enabling legislation, the Electronic Transactions Act 1999.

Bermuda has long enjoyed a reputation as one of the leading offshore jurisdictions in the world. Now, the island is rapidly positioning itself as one of the world's leading e-commerce hubs as well. The island's House of Assembly passed the Electronic Transactions Act (ETA) 1999 on 16 July 1999, which establishes the legal principles for the conduct of e-commerce and the processing of electronic transactions.

Drafted by the Bermudian attorney general's chambers, in close consultation with London firm, Linklaters, and representatives from the local firm, Appleby Spurling & Kempe, the ETA's primary focus is the facilitation of legal relations by electronic means.

It is directly relevant to insurers, since contract formation, performance and enforcement of insurance policies distributed by internet will turn on the matters governed by the act.

The ETA provides a secure legal foundation for the conduct of electronic transactions on a technology neutral basis and is intended to be sufficiently flexible to embrace new technological developments. What is also interesting is the very name of the act: rather than calling it simply the e-commerce act, Parliament styled it the Electronic Transactions Act, in recognition of the act's importance for personal as well as business electronic communications and transactions.The Bermuda law borrows from a variety of sources, including the model e-commerce law of the United Nations Commission of International Trade Law (UNCITRAL) and the European Parliament and Council Directive for a common framework for electronic signatures, as well as from the legislation of other jurisdictions.

The ETA contemplates a high degree of self regulation by setting out a statutory framework for Bermuda's minister of telecommunications and e-commerce to approve a code of conduct that is to be drawn up by the industry.

Scope
In many respects the ETA takes a broad brush approach to enable the market to determine the future of e-commerce on the island. However, it does address many issues directly; principally, the laws of evidence and contract which were, for the most part, formulated long before the digital age was even contemplated as a possibility. Therefore, electronic transactions frequently do not fall comfortably within established legal principles giving rise to legal uncertainty, which in many cases, cannot be addressed effectively by contractual means.

With the exception of the execution or revocation of a will or other testamentary instrument and the conveyance of real property (or the transfer of any interest in real property), the ETA is intended to apply to all legal relationships (including deeds).

The act provides a large degree of flexibility enabling parties to an electronic transaction to vary, by agreement, certain of the act's provisions. This will enable contracting parties to tailor a transaction (or series of transactions) to suit their telecommunication, legal or system requirements.

Recognition of electronic records evidential weight
Validating electronic contracts is a critical element in providing a sound legal base for an electronic transaction. As a matter of practice, a written contract is more often required for evidentiary purposes than to “make” a contract binding. Some argue that an electronic record does not comply with certain rules of evidence and is, thereby, not admissible in court proceedings.

To counteract this uncertainty the ETA provides that information shall not be denied legal effect, validity, admissibility or enforceability solely on the ground that it is in the form of an electronic record, or that, if such evidence is the best evidence, it will not be denied admissibility on the ground that it is not in original form. The provision in the ETA addresses the laws relating to both contract and evidence. Of course, the validity of the contract and its admissibility before a court may still be challenged on any other relevant grounds.

The ETA also addresses the evidentiary weight to be given to information in the form of an electronic record.

The act provides that, for evidentiary purposes, regard shall be given to certain specified criterion. These include the reliability of the manner in which the electronic record was generated, stored or communicated, the reliability of the manner in which the integrity of the information was maintained, the manner in which the originator was identified and any other relevant factor.

Commercial implications
What follows is not an exhaustive analysis of the ETA, but its principal provisions touching on purely commercial matters.

Writing
Some documents are required as a matter of law to be in writing. Broadly, this usually means that the document has to be in a physical form (i.e. on a piece of paper). To address this issue the ETA provides that a legal requirement for writing is satisfied by an electronic record if the record is accessible and capable of retention for subsequent reference.

The provision applies whether the requirement for the information to be in writing is in the form of an obligation or the law provides consequences if it is not in writing, and should be construed closely with the comments above.

Signatures
It is settled at law that, in certain circumstances, a contract is binding even if it is not physically signed. Indeed, a signature is often only required for evidentiary purposes. The ETA provides that where a signature is required by law, an electronic record is acceptable if the method of identifying the signatory fulfils certain requirements (i.e. an electronic signature or electronic certificate). This provision applies whether the requirement for a signature is in the form of an obligation, or the law provides consequences for the absence of a signature.

Original form
Many jurisdictions require individuals or companies to maintain written records. Importantly, the ETA sets out the minimum requirements for an electronic record to be regarded as the functional equivalent of an original. The relevant section provides that where information is required by law to be presented or retained in its original form, an electronic record meets that requirement if the integrity of the information can be reliably assured. Integrity is assessed on whether the information has remained complete and unaltered, apart from the addition of any endorsement or any change that arises in the normal course of communication, storage and display.

Certification service providers
The ETA empowers the minister to authorise certification service providers for the purpose of issuing accredited certificates that confirm the veracity of an electronic signature. The minister is also empowered to recognise certificates and certification service providers in any other jurisdiction. Upon recognition being granted, the certificates are to be treated as equivalent to accredited certificates issued in Bermuda.

It is worth noting, however, that an accredited certification service provider is liable to any person who reasonably relies on an accredited certificate for the accuracy of the information it contains and for assurance that the person identified in the certificate held a signature creation device corresponding to the signature verification device identified in the certificate. Importantly, the service provider is not liable for errors where the information was provided by or on behalf of the person to whom the certificate was issued.

Formation and validity of contracts and acknowledgement
The principle of offer and acceptance is one of the basic requirements for the formation of a contract. Unfortunately, the legal principles relating to offer and acceptance have been developed over many centuries and are more suited to postal, telex and facsimile communications.

The courts have developed complex rules to determine when an offer was made and when an offer was accepted. The growth of e-commerce, both in business to business (electronic data interchange) and business to consumer (purchase of goods over the internet), transactions has forced legislators to address the law of contract in a new context.

The ETA provides that, unless otherwise agreed by the parties, an offer and the acceptance of an offer may be expressed by means of an electronic record. Importantly, the act also sets out rules to be applied in respect of the acknowledgment of receipt of an electronic record. The relevant provision sets out different rules depending on whether the parties have agreed to a form of acknowledgment or relied on the rules specified in the act.

Code of conduct
Historically, Bermuda has always allowed major industries to police themselves. This arises partly out of necessity and partly by design. The necessity lies in the fact that Bermuda's small government could not staff and supervise at the level necessary for “hard” regulation of the thousands of entities doing, for example, insurance business, a major part of the Bermuda economy. Rather, the Bermuda approach has been to control very tightly the entry of persons into the market, to require the appointment of persons duty bound to report on individual companies and, thereafter, to allow businesses to get on with the business of doing business.

In line with this philosophy, the ETA establishes a mechanism for the creation of a code of conduct or standards to be applied to intermediaries and e-commerce service providers. While a high degree of self regulation is contemplated, the act sets out a framework for the code of conduct. For example, it should address the types of services and customers, types of information, information to be disclosed by intermediaries, use of a quality accreditation mark in Bermuda, action to be taken against customers abusing the system, business activities prohibited by the tenth schedule of the Companies Act 1981; obscene material and procedures for dealing with complaints and dispute resolution.

Importantly, the minister may intervene and establish a code if the industry does not develop one itself. Once the minister approves a code, intermediaries and e-commerce service providers must comply with its terms., and the ETA provides for penalties in the event of non compliance.

Conclusion
The ETA puts Bermuda in the front rank of commercial jurisdictions, insofar as it recognizes electronic commerce and its contractual implications. For some years there have been electronic exchanges in Bermuda (CATEX, Commodex) trading insurance risks. The ETA codifies the deals made on such exchanges for the avoidance of doubt as to the contractual effect of the settlement procedures.

The ETA further clears the way for the on line sale of insurance or insurance products from Bermuda, or the conduct by existing insurers of their businesses in a wholly electronic fashion. All of these things were, of course, technically possible before, but the ETA deals with the formation of contracts, the maintenance and admissibility into evidence of electronic records and other matters going to the core of formation, performance and enforcement of insurance contracts.
Warren Cabral is head of insurance, Appleby, Spurling & Kempe. Tel: +441 295 2244; fax: +441 292 8666; e-mail: wcabral@ask.bm.