Electronic Contracting: Legal Issues

[Raymond T.Nimmer, (1996) 14 J.Marshall J.Computer & Info]

I Introduction

Electronic commerce is simply commerce conducted electronically. In the past, this has included
technologies such as the telegraph, telex, telephone and even the fax. In the present, the focus is
increasingly on networked computers.

Whether they are buying or selling tangible goods or intangible information, consumers and businesses
alike are increasingly capitalizing on the speed and cost benefits of conducting business via computer. In
1994, 4.5% of purchases, or $245 million, were made electronically.[1] This is predicted to grow to
16.2% of purchases, or $1.6 billion, by 2000, fuelled in part by the growth of Internet commerce. In 1995,
the Internet's economy was about the size of Holland's economy and growing exponentially.[2] This
growth in electronic commerce will undoubtedly be matched by a growing concern over the legal issues
surrounding this method of transacting business.

Although electronic commerce is only now entering common parlance, computerized transactions have
been around since the 1970s with the birth of electronic data interchange (EDI). EDI is the electronic
exchange of standard business forms -- quotations, purchase orders, invoices, receipts, etc. The exchange
usually occurs between trading partners with a pre-existing business relationship. Lawyers usually
recommend that trading partners execute a trading partner agreement (TPA) to contract around the legal
issues and provide certainty where the law does not. This single agreement provides ground rules that
govern subsequent electronic transactions. Many observers suggest that the lack of litigation over the
legal issues is more likely due to the value of trading relationship outweighing potential gains from
disputing a single transaction than the effectiveness of a TPA.[3]

The growth of the Internet and other on-line services has brought network connectivity to the masses.
Once epitomized by EDI between large corporate trading partners, electronic commerce is evolving due
to a growing number of `one-off' transactions by individuals. The lack of continuing relationship between
the parties has several effects. The value of preserving a relationship may no longer be a factor in dispute
avoidance. In addition, the cost of negotiating a TPA prior to trading electronically, which was once
spread over a large number of transactions, is now too costly in the `one-off' context. The result is that the
legal issues that have been around since the birth of EDI may need a new solution.

While an exhaustive treatment of every legal issue surrounding electronic commerce is not possible, this
Chapter attempts to deal with several major issues. The first issue explored the potential impact of
statutory formalities on electronic messaging. Existing legislation often requires documents to be written
and/or signed. Next, contract formation issues are raised by the use of computers as a method of
communication as well as an automated contracting agent. Finally, this Chapter addresses the challenges
of using computer records as evidence in legal disputes.

II Statutory Formalities

Issue

Over three hundred years ago, the Statute of Frauds was introduced in England to introduce formal
requirements into contractual relations. The Statute required certain classes of contracts to be signed and

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in writing to be legally enforceable. Throughout the years, these formal requirements have found their
way into a wide variety of legislation. In Ontario statutes alone, there are more than 4,000 occurrences of
the terms "writing" and "written" and more than 1,200 occurrences of the terms "signature" and "signed".
The main issues raised by electronic commerce is whether an electronic message is "written" and whether
it is capable of being "signed".

The Interpretation Act definition of `writing' refers to words "represented or reproduced by any mode in a
visible form."[4] While electronic messages are capable of being made visible using computer displays
and printers, they are not themselves visible. As a result, there is no consensus on whether electronic
messages come within this definition.[5]

A related, often overlooked issue, is whether courts are bound by the Interpretation Act's definition to
electronic messages. Some Interpretation Acts, such as Ontario's, provide that every definition is subject
to the intent of the Act being examined and the context. Therefore, the court could simply conclude that
the intent or context allows for electronic messaging without entering a metaphysical debate over whether
the message is "visible". The Interpretation Acts of other provinces, such as British Columbia and
Alberta, are not so flexible. These Acts do not have a contextual qualification and state that the definition
applies "unless a contrary intention appears" in the Act. However, the B.C. Court of Appeal has read in
the Ontario Act's flexibility:

The contrary intention need not be found in express words, but may be inferred from the scheme of the
enactment, its legislative history and other circumstances which surround the use of the word in question.
Although the Interpretation Act does not use the words "the context otherwise requires", the conclusion
that a contrary intention appears may be based on the fact that the context otherwise requires.[6]

In any event, no court has ever dealt with the issue of applying the Interpretation Act definition of
`writing' to electronic messages.

In contrast to `writing', there is no definition of `signature' in the Interpretation Act. A common source for
debate is whether a plaintext name appearing at the end of an electronic message is a legally binding
signature.[7] While the courts have never dealt with this specific issue, there have been many cases on the
meaning of `signature'. Case law has been clear that `signature' does not always require a handwritten
name. Instead, courts generally look for the intent to authenticate the document as being that of, or as
legally binding on, the signer.[8] The signature should also establish an evidentiary connection to the
signatory.[9] Without intent or evidentiary connection, a contract dispute could regress to a credibility
battle. A party may try to avoid legal obligation by claiming either not to have intended the document to
be legally binding or not to be the source of the document.

Some lawyers are of the opinion that a plaintext name would not be considered a `signature' and more
sophisticated digital signature technology is required.[10] Since plaintext names are often appended to
electronic messages automatically by the `signature' feature of e-mail programs, a plaintext name, by
itself, only tenuously demonstrates intent. The evidential link to the author is also limited. The origin of
an electronic message sent over the Internet can be forged with ease. A hundred years ago the word
"phoney" came into use to describe orders received by telephone.[11] Today, with features such as call
display, it is easier to link telephone calls to a source than e-mail messages. E-mail forgery was recently
demonstrated in the Ontario government. Not long after the Premier of Ontario announced his address on
the Internet[12] an e-mail message made to look like it came from the Premier's account caused an uproar
in the legislature.[13]

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Others believe that if plaintext names are accompanied by common sense precautions, they should
accommodated.[14] Uncertainty surrounding intent can be eliminated by using express statements such as
"Signed: John Doe" or "My name appearing at the end of this message is my signature."[15] Even if the
plaintext name provides little evidential value, evidence linking the message to its author may be found in
the circumstances surrounding the transmission of the message. Private EDI network services have
standard features such as message tracing, tracking, delivery receipts and acknowledgements. Lessor
features on telex transmissions have been held in some circumstances to satisfy the signature requirement.
[16] Although the Internet has no equivalent features, other circumstantial evidence may provide the
requisite link. A simple example would be that shortly after the person told you he would send you an e-
mail, one arrived with his name on it, containing the information he said it would contain.[17]

A survey of the mostly U.S. case law dealing with telegrams and telexes appears to validate the
circumstantial view of `signature'. On its surface, the case law is inconsistent about whether a typed
signature is a signature. But, looking deeper reveals that it was the difference in surrounding
circumstances that led to differing results.

On the whole, case law dealing with prior communications technology has been generally
accommodating. For example, in Beatty v. First Explor. Fund 1987 & Co.[18], the B.C. Supreme Court
dealt with whether a proxy sent by fax was written and signed as required by a company's Charter.
According to the court:

The conduct of business has for many years been enhanced by technological improvements in
communication. Those improvements should not be rejected automatically when attempts are made to
apply them to matters involving the law. They should be considered and, unless there are compelling
reasons for rejection, they should be encouraged, applied and approved.[19]

The accommodation of business practices has been so prevalent in the U.S. case law on Statute of Frauds
formalities that it has been suggested that the courts have effectively "read the statute off the books."[20]
In the U.S. case of Apex Oil Co. v. Vanguard Oil & Service Co.[21] the court held that the only
requirement is that a writing offer a basis for believing that the oral evidence rests on a real transaction,
the court commented:

We recognize that we are permitting a substantial transaction to be consummated on fragmentary

conversation and documentation. However, it is the practice in many fields to transact business quickly
and with a minimum of documentation. ... Parties doing business with each other in such circumstances
take the risk that their conflicting versions of conversations will be resolved to their disfavor by a fact-
finder whose findings, even if incorrect, are immune from appellate revision.[22]

Given the trend of acceptance, it would be easy to conclude that electronic messages should not present a
problem.[23]

Despite this accommodating trend, there is cause for concern. While EDI generally takes place between
businesses, electronic commerce has a broader scope. The business efficacy argument of the court in
Apex is clearly inappropriate for consumer transactions. In this context, consumer protection legislation
exists, in part, to allocate the very risks the court in Apex is content to leave to the parties.

It has also been suggested that electronic messaging is inherently different from the telegraph, telex, and
fax technologies previously considered by the court because new computer technologies are not just more
efficient means of communicating paper.[24] In the oft quoted U.S. case of Howley v. Whipple[25], the
court stated:

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[W]hen a contract is made by telegraph...that constitutes a contract in writing under the statute of
frauds;...it makes no difference whether [the telegraph] operator writes the offer or the acceptance...with a
steel pen an inch long attached to an ordinary penholder, or whether his pen be a copper wire a thousand
miles long. In either case the thought is communicated to the paper by the use of the finger resting upon
the pen; nor does it make any difference that in one case common record ink is used, while in the other
case more subtle fluid, known as electricity, performs the same office.[26]

When the message exists only briefly in a communications system that is centrally controlled and
generally secure and reliable before being fixed on paper, the significance of the system can easily be
overlooked. But, in contrast to previous technologies, electronic messages may never be fixed on paper.
Since their existence within the system may not be as fleeting, the evidential value of messages are much
more subject to the variabilities and vagaries of the system in which they reside. If `electricity' was the ink
of the telegraph, networked computer systems are now the ink, the pen, and the paper. Whether these
systems perform the `same office' as the real world counterparts is open to debate.

Legal Response

As one would expect, the uncertain situation created by a lack of case law has been met by some degree
of legal response. This response has taken many forms, from contractual to legislative.

Trading Partner Agreements

Trading partners engaging in EDI are encouraged to enter a Trading Partner Agreement (TPA) with the
aim of creating certainty.[27] Both the American Bar Association and the EDI Council of Canada have
published model agreements.[28] Included in these agreements is a clause in which the parties deem
properly constituted electronic messages to be signed writings in satisfaction of any legal requirement.
For added protection, the parties also waive any right to raise a defence for lack of a signed writing.[29]
However, the enforceability of these agreements, like the electronic transactions they govern, is uncertain
and untested.

Law Reform

Fortunately for businesses engaging in EDI, the legislature has also responded. In 1992, Canadian
provinces adopted the United Nations Convention on Contracts for the International Sale of Goods
(International Sale of Goods Act).[30] This convention eliminates the formality requirements in
international sales contracts.[31] However, this convention does not apply to consumer sales or sales of
many financial instruments[32] and allows certain countries to retain formality requirements.[33]
Furthermore, application of the International Sale of Goods Act is optional and is routinely excluded.

Reform of the formality requirements for domestic sale of goods contracts followed soon after. In 1994,
the Ontario government, under pressure from a government department that used EDI[34], repealed the
two most problematic occurrences of Statutory formalities[35] -- the Sale of Goods Act's signed writing
requirement for sales over $40[36], and the Statute of Frauds' application to contracts not to be performed
within a year.[37]

The Ontario government's `law reform' was an easy `quick fix' that appeased businesses engaging in EDI.
The change was uncontroversial since law reformers had long agreed that the repealed sections had
outlived their usefulness in commercial transactions.[38] While two occurrences of statutory formalities

4
were removed, there are thousands remaining which regulate many areas, including consumer
transactions.

Consumer transactions pose a particular problem. Unlike business-centric EDI, most Internet transactions
are consumer transactions.[39] Some suggest on-line shopping will ultimately have pervasive, long-term
effects on commerce, tax systems and national economies.[40] But, as legal scholar Jacob Ziegel
observes, "while the movement in commercial transactions has been away from formal requirements, the
trend in consumer transactions has been strongly toward them."[41]

Consumer transactions are governed by provincial consumer protection legislation which is fraught with
formalities.[42] The trading partner agreements that businesses employed to combat formalities are not
practical in the consumer setting due to the lack of a prior relationship[43] and the `one-off' nature[44] of
consumer transactions. In any event, such an agreement would be unenforceable since, unlike the Sale of
Goods Act, the Consumer Protection Act "applies despite any agreement or waiver to the contrary."[45]

While formalities may inhibit Internet commerce, removing them may not be as uncontroversial as the
previous legislative changes. Formalities play a significant role in consumer protection and there is no
indication that consumers require less protection in the information age. According to consumer advocate
David Horowitz, "Some things never change. Consumers ask the same questions in cyberspace they asked
more than two decades ago when I began my career as a consumer reporter."[46]

For now, those selling their wares on the Internet to consumers should be aware that in some provinces,
such as Ontario, a sale may not be a sale until the consumer receives and accepts the goods.[47]

Regulation Reform

An alternative to legislative reform is the accommodation of technology through regulation. Legislation

often gives Ministers and Agencies the ability to pass regulations or rules governing how the laws they
oversee are applied. These regulations provide a means for government officials to adapt the application
of the law to new technology where to change the laws themselves would invoke the sometimes onerous
legislative process.

For example, under the authority of the Public Hospitals Act, the Lieutenant Governor in Council passed
regulations which expand the meaning of `writing' in that Act to include entries in a computer.[48] More
recently the Ontario Securities Act was amended to give the Ontario Securities Commission the power to
create rules regulating electronic filing.[49]

Digital Signature Legislation

An alternative to reforming legislation one Act at a time, is to pass a general statute deeming electronic
messages to be signed writings. In Canada, the EDI Council of Canada's proposals for modifying the
Interpretation Act to accomplish this result were rejected.[50] However, in the U.S. several State
legislatures have introduced or are considering legislation explicitly granting electronic messages with
digital signatures legal status.[51] A digital signature uses encryption technology to verify the identity of
the signature's creator and to verify that a message has not been modified since being signed.

The U.S. trend started with the publication of Digital Signature Guidlines by the Information Security
Committee of the American Bar Association's Section of Science and Technology.[52] Utah's Digital
Signature Act [53], which is based on these guidelines, was the first digital signature legislation enacted

5
in the U.S., taking effect on May 1, 1995. This Act recognizes and regulates Certification Authorities
(CA) who independently certify digital signatures. More importantly, the Act deems messages with
properly certified digital signatures to be signed and as valid as if written on paper.

This general deeming approach to settling the uncertainty surrounding electronic messages is not without
its drawbacks. The digital signature legislation focuses solely on the evidential purpose of written
documents. The evidential link between a digital signature and the signer is very strong. However, in
some contexts, written documents, such as notices and disclosures, may be prescribed by law because of
the superiority of written words over spoken words in conveying information. Deeming digitally signed
documents to be as valid as if written on paper could defeat this purpose by allowing technology poor to
be taken advantage of.[54]

Consider the application of Utah-like legislation to Ontario's Mortgages Act. Before exercising the power
of sale, a mortgagor must give notice to the mortgagee specifying the time and terms by which the
mortgagee can avoid the power of sale. A mortgagor seeking to militate against this avoidance, could
surreptitiously send a computer disk containing a digitally signed notice to a technology-poor mortgagee.
Unable to read its contents, the mortgagee would likely ignore this `Trojan' disk. With no response to the
notice, the mortgagor can proceed with the sale, since the notice was "as valid, enforceable, and effective
as if it were written on paper."

The EDI Council of Canada recognized the consumer-context issue when it proposed changes to the
Interpretation Act. As a result, it admitted that its proposed amendment would have to be restricted in
scope because "few consumers are capable of receiving EDI messages."[55]

III Electronic Contract Formation

In the traditional notion of contract formation, negotiating parties must come to a "meeting of the minds"
on the terms of an agreement. In the course of negotiation, there may be invitations to make offers (e.g.,
price lists are generally not offers, but invitations) and counter-offers, but the general rule is that
formation requires an offer and acceptance to be communicated between the parties.

Communication of Acceptance

Issue

Generally, a contract is formed when acceptance is communicated to the offeree. In face-to-face

negotiation, this rule provided few problems. However, the development of methods of communicating
over distances, and the associated reliability problems, the case often arises when the offeree has
dispatched an acceptance which either is never received by the offeror or arrives after the expiry of the
offer. The issue to be resolved in each case is whether the acceptance is communicated to the offeree
when it was sent or when it arrives. Case law tends to distinguish between delayed forms of
communication, such as mail and telegrams, and virtually instantaneous forms of communication, such as
the telephone, telex and fax machine. The courts have yet to consider the electronic message.

Early case law saw the development of the "mailbox rule" for ordinary mail, wherein acceptance is
deemed to be communicated to the offeree when it enters the postal system.[56] This rule has been
extended to telegrams[57] and even couriers.[58] The offeror, however, is free to put conditions on the
communication of the acceptance (e.g., offer must be received; must be by telephone).

6
In contrast to the "mailbox rule", acceptances communicated using instantaneous or virtually
instantaneous means, such as the telephone[59], telex[60], and fax[61], are formed when the offeror
receives the acceptance. These means are analogous to face-to-face communications; presumably both
parties will be aware of any break in the connection and be able to take corrective action.[62]

There is little case law on acceptance by electronic message. On the one hand, some cases suggest the
general rule is that the acceptance must be received by the offeror and that the mailbox rule is only a
narrow exception.[63] On the other hand, receipt of electronic messages may not be instantaneous and
since the mailbox rule has been extended to telegrams, it could be argued that it should be extended to
electronic mail. Although some electronic message systems, such as private EDI networks, provide
almost immediate transmission, anecdotal evidence suggests that Internet e-mail is inconsistent and could
take minutes, hours or even days to reach its destination.

Another justification for a mailbox-like rule for electronic mail is the offeror's role in delivery. While
telexes and faxes are received at the recipient's location almost immediately after they are sent, some
electronic mail systems use mail servers operated by third parties that are not located at the recipient's
location.[64] Even after receipt by the mail server, the recipient has to take steps to connect to their
`mailbox' on the mail server before the communication is complete. Since the offeror is partially
responsible for ensuring delivery, it may not be appropriate to allocate the entire risk in the delivery of
electronic mail to the offeree.

It is also quite possible that no simple rule will govern electronic messages. In a recent case involving
telex communication, England's House of Lords seemed to be backing away from the application of a
general rule:

The message may not reach, or be intended to reach, the designated recipient immediately: messages may
be sent out of office hours, or at night, with the intention, or on the assumption, that they will be read at a
later time. There may be some error or default at the recipient's end which prevents receipt at the time
contemplated and believed in by the sender. The message may have been sent and/or received through
machines operated by third persons. And many other variations may occur. No universal rule can cover
all such cases; they must be resolved by reference to the intentions of the parties, by sound business
practice and in some cases by a judgment where the risks should lie.[65]

Legal Response

Trading Partner Agreement

As with the contract formality issue, EDI trading partners try to resolve the communication of acceptance
rule in their trading partner agreement. The standard TPA has an interesting way of balancing the risk.
The TPA states that no document is legally binding until received, thereby eliminating the possibility of
the "mailbox rule" being applied.[66] The sender, therefore, bears the risk of transmission failure.
However, this risk is reduced by provisions requiring recipients to promptly acknowledge receipt of any
message as well as notify the sender of any communication it reasonably suspects is incomplete,
inaccurate, corrupted in transmission, or not intended for him.[67]

Law Reform

For transactions caught by the International Sale of Goods Act, the "mailbox rule" does not apply.
Instead, the Act sets out that the acceptance of an offer becomes effective at the moment the indication of
assent reaches the offeror.[68]

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In the U.S., reformers have proposed changes to the U.C.C. to deal with the formation issue specifically
for electronic transactions.[69] The proposal differs from the International Sale of Goods Act by
acknowledging the offeror's role in the delivery process. While the proposal states the contract is created
when the acceptance is received by the initiating party, it goes on to provide rules for determining when
an electronic message is received. When the message reaches the electronic mail system used by the
recipient, it is deemed to be received. Therefore, the offeree does not bear the risk for the time between
the message reaching the mail system and the offeror retrieving the message from the system.

Meeting of the Minds and Human less Contracting

Issue

While much of the contract formation discussion revolves around the use of computer technology as a
means of communication by contracting parties, a far more difficult issue is beginning to emerge with the
automation of the contracting process itself.[70] Traditional contract doctrine centres around the
requirement of a `meeting of the minds'. The involvement of two or more people, negotiating either face-
to-face or through some means of communication is an underlying assumption. However, modern
technology is evolving with a goal of eliminating human involvement in transactions. How traditional
contract doctrine will accommodate situations where the only `minds' that meet are programmed
computer systems is uncertain.

Interactive EDI is already beginning to emerge in business transactions. The following describes a
possible interaction:

...a sending computer, on its own initiative, will make an offer to a recipient computer for the purchase of
goods based on the sender's inventory needs. The recipient computer will accept the offer if the recipient
has the quantity of product in stock. This two-way conversation between computers will further culminate
in negotiations. One computer will make an offer to buy 100 widgets, and the other will respond with a
counteroffer of 50 widgets due to a shortage in stock. The computer that made the original offer will
thereafter decide on its own whether to accept the 50 widgets or reject the counteroffer and search for
another vendor.[71]

Automated transactions will not be limited to business-to-business transactions. According to Colin

Crook, head of technology at Citibank, in the future "You're going to hand off your personal affairs in
cyberspace to automatic agents who represent you."[72]

In a fully automated system, human decisions are involved in creating the system and making it
accessible; humans assent to the system, not specific transactions. Traditional contract doctrine looks at
the intention of the parties surrounding the offer and acceptance of the specific agreement in dispute. As
such, it is not clear whether people can be bound by offers or acceptances made by their computer on
their behalf. They may have had no knowledge of, let alone intention to enter, a given transaction.

The main issue is one of attribution -- when do the actions of an agent become attributed to the principal.
While agency law plays a role in attribution when using human agents, human judgements, such as
voluntary assent and reliance, are major themes in this area of law.[73] Therefore, the existing law of
agency may not be very helpful in determining attribution with automated agents.

With automated transactions, another challenge for the courts is determining where the communication
system ends and the legal agent begins. The challenge is separating responses that are part of the

8
functional communication process, such as those acknowledging receipt of a message, from responses
that are part of the contract formation process, such as an acceptance of an offer.

In a recent U.S. case, the court dealt with an automated order taking system. In holding that the order
tracking was merely a functional acknowledgement of the order, the court stated "Such an automated,
ministerial act cannot constitute an acceptance."[74] However, one can envision a more sophisticated
system that verifies the identity of the orderer, checks the inventory level, allocates a portion of the
inventory to fulfilling the order, then issues the order tracking number. This is no less automated or
ministerial, yet it may be in both parties' interests to consider it a legal acceptance.

Legal Response

As this is an emerging issue, legal response has been limited. Standard trading partner agreements still
assume human involvement in the process. The UN's Draft Model Law on Legal Aspects of EDI includes
a similar assumption.[75] In the U.S., law reformers have begun to address this issue, but the UCC
proposal was admittedly only a first-step to promote policy discussion of many unresolved issues.[76]

In addressing the attribution issue in electronic contracting, the proposal focuses not on humans who
make decisions on specific transactions, but on how risk should be structured in an automated
environment.[77] The object is to create default rules for attributing a message to a party. The party
described in the message as the originator will be bound by the terms of the message if the message was
authenticated using a procedure previously agreed to by the parties. This provision gives primacy to
authentication procedures in trading partner agreements. In addition, a fault provision attributes the
message to a party if the relationship between the wrongdoer and that party enabled the wrongdoer to gain
access to and use the authenticating method.

IV Electronic Evidence

When litigation over transactions consummated electronically occurs, the same electronic records that
created efficiency gains for business may create evidentiary challenges for law. There are several
traditional rules of evidence that may present problems for the admission of computer records as
evidence.

Authentication

To be admissible, evidence must be relevant to an issue that is in dispute. For evidence to be relevant, it
must be authentic -- there must be proof of its source. A general rule of evidence is that the party seeking
to introduce evidence, must provide some evidence of authenticity before it becomes admissible.[78] In
most cases, the dispute is over the meaning of the contents of the message, so authentication is not an
issue. However, given the ease with which the original of an electronic mail message can be forged,
authentication may present a problem should the other party deny authorship of the message.

Simply relying on the e-mail address in the `From:' field of the message or on the person's typed name
appearing at the bottom of the message for authentication may not be enough. However, there are a
number of common-sense measures that can be taken:

 Use a private VAN which provides independent record of message origin.

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  Reply to the stated e-mail address with an acknowledgement of receipt. An unrejected
acknowledgement may be accepted as evidence of authentication. If the order is from a known
customer, send the acknowledgement by fax or regular mail.
 Use special customer codes or passwords known only by the customer.
 Require some form of electronic signature to reduce the chance of forgery and to provide a
greater evidentiary link to the originator.
 Require advanced payment -- up-front payment avoids the requirement to sue for payment; in
addition, many forms of payment can be linked to an individual.

The Iran/Contra Affair provided one example of a case involving authentication of electronic messages
where parties sought to dissociate themselves from the messages.[79] E-mail messages were linked to
John Poindexter and Oliver North through passwords required by the electronic mail system to send
messages.

Best Evidence Rule

The best evidence rule is the requirement that the best evidence available be presented to the court. If an
original is available, a copy is not acceptable as evidence. Since the division between `originals' and
`copies' in the computer world is unclear, many raise this rule as a possible issue.[80] While there have
been cases were parties sought to avoid admission of computer print-outs claiming them to be mere
copies of the original computer records, courts have generally rejected this argument and admitted the
print-outs as original records and not copies.[81] In the United States, the Federal Rules of Evidence
explicitly accord with this result.[82]

Hearsay

The Hearsay rule was summarized by the Supreme Court of Canada in R. v. O'Brien:

It is settled law that evidence of a statement made to a witness by a person who is not himself called as a
witness is hearsay and inadmissible when the object of the evidence is to establish the truth of what is
contained in the statement; it is not hearsay and is admissible when it is proposed to establish by the
evidence, not the truth of the statement, but the fact that it was made.[83]

Therefore, a document, electronic or otherwise, is not admissible to prove the truth of its contents unless
it falls within one of the exceptions to the hearsay rule.

In the contract context, hearsay may present less of a hurdle. A contracting party does not generally offer
an electronic message into evidence for the truth of its contents (hearsay), but instead offers it to prove the
sender obligated himself to buy something or to show the order existed. Courts determine the existence of
a contract based on the reasonable expectations of the party receiving the communication rather than the
truth of the communication. If an offer states "I will pay you $500 to paint my house", whether the offeror
will indeed pay $500 is irrelevant to determining whether contractual obligations are created. If the
recipient of this message accepted the offer and painted the house, but was never paid, the offeree would
not be affected by the hearsay rule since they only need to prove what they were told, not the truth of it.

This is not to say that the hearsay rule plays no part in messages exchanged in the formation of a contract.
Other than the contents of the message, issues that may arise in a contract dispute are when the message
was sent and received, by whom it was sent and received, and whether the message received was the
same as that sent. Introducing the message to prove any of these issues could constitute hearsay.[84]

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There are a number of categorical exceptions to the hearsay rule. The touchstone for these categories are a
"circumstances of necessity and reliability".[85] The most relevant exception is the business records
exception. This exception was originally created by the courts[86], but is now legislated into federal and
provincial Evidence Acts.[87] The result is that records created in the ordinary course of business may be
admitted for the truth of their contents.

Normally records produced in the ordinary course of business are admitted under this categorical
exception. However, with the advent of computer records, there have been signs of retreating to the
underlying principles -- necessity and reliability. While courts have accepted the necessity of accepting
computerized records[88], they are concerned with reliability. As a result, the party seeking to admit the
computer record into evidence may be required to introduce evidence reflecting the entire record-keeping
process -- the procedures and processes relating to the input of entries, storage of information and its
retrieval and presentation.[89] Without providing this foundation of reliability, the courts may refuse to
admit the evidence even if they are deemed to be business records.[90]

The underlying principles may also work to admit computer records where they are otherwise
inadmissible under the Evidence Acts. Under the provincial Evidence Acts, it must be proven that the
records were made contemporaneous with the events recorded. In the Kinsella v. Logan[91] case, the
court held computer generated credit reports to be inadmissible under the New Brunswick Evidence
Act[92] since it is impossible to prove the contemporaneous requirement was met. The problem was that
the credit records are updated by erasing the current record and replacing it with a new one. Despite this
problem, the court admitted the credit reports using the general principles of necessity and reliability.

Guidance for what foundation evidence is required can be found in the legislation and case law from other
jurisdictions.[93] Generally, the foundation evidence is given by testimony of a person who either
controls the record keeping system or is familiar with the manner in which the records are processed and
maintained. The evidence should speak to the reliability of the method of input, storage, and output of the
system, the reliability of the computer system itself, and reliance on the system.

For input reliability, evidence about the manner in which the data was originally entered into the system
and measures taken to ensure accuracy of data entered may be required. Information should be entered
into the system in the ordinary course of business. This is a question of both the type of information and
the timing of its entry. If the system is called upon to prove that something did not occur based on the
absence of a record[94], it is important to demonstrate that all records are recorded in addition to the
reliability of the records that are entered.

Despite the importance of input reliability in determining the value of the computer records, courts have
on occasion been remiss in recognizing this issue. "Garbage in, garbage out" is a common phrase used to
describe the limits of a computers value in processing data -- the value of the output is directly related to
the value of the input. However, recent U.S. case law has lead commentators to conclude that the
treatment of computer record evidence by the court can be described the phrase "garbage in, gospel out".
[95]

In one case, computer entries of licence plates made by border guards were allowed as evidence because
the guards had no motive to fabricate.[96] However, the courts omitted to consider the input reliability
issue. The guards also had no motivation to ensure accuracy since no one routinely relied on the entries
for any reason. There were no procedures for ensuring accuracy. In fact, the GAO tested the computer
system and found it to be incomplete, inaccurate and unreliable.[97]

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Storage reliability is perhaps the most important issue for computer record reliability since input and
output are often fleeting moments in the life of a record compared to its time in storage. The main issue
with storage is alterability -- both unintentional and deliberate. Computer records are subject to accidental
corruption, a phenomenon that is uncommon in the paper world. Computer records are also intrinsically
more prone to untraceable, deliberate alteration. If users are free to modify or delete stored records, the
evidential value of a record or the lack of a record would be marginalized.

Reliability of storage depends not only on the physical media but also access security. With some media,
such as WORM (write once, read many) disks, data cannot be altered once stored. In systems with
alterable storage media, the software that controls the media may have access security features preventing
accidental or deliberate alteration. In the Iran/Contra case, John Poindexter and Oliver North deliberately
erased thousands of electronic mail messages to conceal evidence. However, a backup system that only
accessible to the system administrator contained copies of the deleted messages and provided the
necessary evidence. Whether by physical media, security systems, or redundant copies, it is important that
some level of storage reliability is achieved to ensure that your computer records will have some
evidentiary value.

Although a lesser issue, evidence of how the printout was generated may be important in demonstrating
that the printout is a reliable reflection of the records in the computer.

Finally, evidence of reliance on the records in making business decisions in the period surrounding the
entry of the record in question may also be required. A lack of reliance on the system infers that reliability
of the information is not a priority.

Legal Response

TPA Agreement

The standard Trading Partner Agreement requires parties to keep a transaction log in the specified
manner. Like the provisions related to the writing requirement, the parties agree that the transaction log is
admissible as prima facie proof of the accuracy of the message contents and agree to waive any defence
to the log's admission.[98]

U.N. Model Provision

The U.N. Model law contains the following provision:

Article 9: Admissibility of evidential value of a data record

(1) In any legal proceedings, nothing in the application of the rules of evidence shall apply so as to
prevent the admission of a data record in evidence(a) on the grounds that it is a data record; or,(b) if it is
the best evidence that the person adducing it could reasonably be expected to obtain, on the grounds that
it is not an original document.

(2) Information presented in the form of a data record shall be given due evidential weight. In assessing
the evidential weight of a data record, regard shall be had to the reliability of the manner in which the data
record was generated, stored or communicated, to the reliability of the manner in which the information
was authenticated and to any other relevant factor.

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