DATE DOWNLOADED: Fri Feb 2 12:17:27 2024

SOURCE: Content Downloaded from HeinOnline

Citations:
Please note: citations are provided as a general guideline. Users should consult their preferred
citation format's style manual for proper citation formatting.

Bluebook 21st ed.

F. R. Malan, Legal Implications of Electronic Storage, 1 STELLENBOSCH L. REV. 153
(1990).

ALWD 7th ed.

F. R. Malan, Legal Implications of Electronic Storage, 1 Stellenbosch L. Rev. 153
(1990).

APA 7th ed.

Malan, F. R. (1990). Legal implications of electronic storage. Stellenbosch Law
Review, 1(2), 153-170.

Chicago 17th ed.

F. R. Malan, "Legal Implications of Electronic Storage," Stellenbosch Law Review 1,
no. 2 (1990): 153-170

McGill Guide 9th ed.

F. R. Malan, "Legal Implications of Electronic Storage" (1990) 1:2 Stellenbosch L Rev
153.

AGLC 4th ed.

F. R. Malan, 'Legal Implications of Electronic Storage' (1990) 1(2) Stellenbosch Law
Review 153

MLA 9th ed.

Malan, F. R. "Legal Implications of Electronic Storage." Stellenbosch Law Review,
vol. 1, no. 2, 1990, pp. 153-170. HeinOnline.

OSCOLA 4th ed.

F. R. Malan, 'Legal Implications of Electronic Storage' (1990) 1 Stellenbosch L Rev
153 Please note: citations are provided as a general guideline.
Users should consult their preferred citation format's style manual for proper
citation formatting.

-- Your use of this HeinOnline PDF indicates your acceptance of HeinOnline's Terms and
Conditions of the license agreement available at
https://heinonline.org/HOL/License
-- The search text of this PDF is generated from uncorrected OCR text.
-- To obtain permission to use this article beyond the scope of your license, please use:
Copyright Information
LEGAL IMPLICATIONS OF ELECTRONIC
STORAGE
F R Malan
BA LLD
Professor, Rand Afrikaans University

1 Introduction
The ingenuity of the bill of exchange lies in its tangibility. It is a
movable corporeal creating and recording rights. It is also the vehicle
by which these rights are conveyed or transferred to others. It does
not allow for doubt: the holder who takes it in good faith and for
value knows his entitlement-the bill speaks for itself. The
achievement of the medieval merchants was to incorporate their
intangible rights of action against their trading partners in the
corporeal paper and to make transfer of these rights dependent on
the fate of the instrument. They flouted existing and traditional legal
norms and subjected them to the requirements of the market place.
They made law and lawyers have never ceased to wonder at their
audacity.
Equally ingenious was their treatment of claims for the delivery of
goods shipped abroad. At first the bill of lading served as a mere
receipt: the merchant accompanied his goods. But later, when
commerce became more "sedentiary",' it evolved as a document of
title representing the goods so that property in them passed on
2
transfer of the instrument itself.
A third example also illustrates modern man's dependence on the
tangible and corporeal. Shares in a company consist in "a bundle, or
conglomerate, of personal rights entitling the holder thereof to a
' 3 Of
certain interest in the company, its assets and dividends.
course, this is not enough and modern man requires a certificate to
prove his holdings. He still, so it seems, needs tangible evidence of
his wealth. It is true, as Roscoe Pound says, 4 that "[w]ealth, in a
commercial age, is made up largely of promises", but proof of our

See De Roover L'Evolution de la Lettre de ChangeXIV-XV111 Sicles (1953) 39 on

a similar development in the history of the bill of exchange.
2 See generally Giles Chorley and Giles' Shipping Law 7 ed (1980) 187.
3 Standard Bank of South Africa Ltd v Ocean Commodities Inc 1983 1 SA 276 (A) 288.
4 An Introduction to the Philosophy of Law (1922) 236.

153
154 STELL LR 1990 2
riches is needed. It is no wonder that a somewhat cynical observer5
remarked that "[t]he great majority of stockholders are like aunt
Lizzie, individuals who own only a few shares and who keep their
certificates in a safe deposit box until they die. They want a
certificate, something they can see and feel, preferably engraved, in
color, and bearing a glamorous picture." Not surprisingly, current
legislation contains exhaustive provisions concerning the legal effect
of share certificates. The certificate is used to transfer and pledge the
shares of their owner and proves his entitlement. It is an
indispensable part of commerce.
But all is changing. New technology has made reliance on paper
cumbersome and expensive. Not only in banking but in all disciplines
has the advent of new technology posed challenges. At issue is much
more than the replacement of paper. The very transformation of
society into one centering on the computer is an evolving process, a
very real but at times a silent phenomenon. It is not always noticed:
the evolution is subtle but bound to affect legal theory profoundly.
The imminent legal evolution is not the first. Technology, changes in
society and demands of commerce have in the past also caused a
re-orientation of ideas. The appearance of the bill of exchange-
necessitated by the changing patterns in international trade-was a
revolutionary event calling for a complete re-orientation of the
traditional legal norms. The merchants emphasised the inadequacies
of the received legal system. Lochau, 6 an eighteenth century Dutch
author, wrote eloquently:
"alle genen vergeefsche moeite doen, welken allerlei handelingen, die
tegenwoordig in burgerlyke zaken voorkomen, op den leest van het
R. Recht willen schoeijen. Alle volkeren toch hebben van hunne
voorouderen verscheidene dingen, als by overlevering van hand in hand,
bygehouden: vele zaken zyn vervolgens by die nakomelingen, 't zy uit
nuttigheid, 't zy uit noodzaak, uitgevonden, waarop de Romeinen nimmer
(zelfs in 't minste) gedacht, ik laat staan, iets daarvan geweten hebben, by
voorbeeld de Leenen; Erfpacht: Verzekering; Lyfrenten: die onderhan-
deling van huur en verhuur, welke die Duitchers in bastaard Latyn
Contractus socidae noemen; Lotery; en honderd anderen, waaromtrent
Papinianus zelf, hoe groot een rechtskundige hy ook geweest zy, soude
moeten bekennen, dat hy weder in de waereld komende, van nieus de
rechten behoorde te leeren."
In some cases the computer brought a new perspective to old
questions. Take the example of privacy. An individual's right to be
let alone is not of recent origin: primitive societies recognised the
need of members to withdraw from society. It was only with the
growth of the population, progressive industrialisation and urbani-
sation that privacy as a legal phenomenon became an acute legal
5 Christie The Transfer of Stock (1975) 5 ed par 22.
6 Verhandeling over de Feilen en Gebreken in den Wisselhandel 1 16 (undated and
published in Heineccius Grondbeginselen van het Wisselrecht (1770)).
LEGAL IMPLICATIONS OF ELECTRONIC STORAGE 155
problem. Technological advances acted as a catalisator. The
development and perfection of the camera was one such factor
highlighting the need of modern man to be left alone; the computer
is another. The computer with its faultless ability to gather, store,
process and transfer information has more than any other factor
accentuated the threat on privacy. The risk involved is a simple one:
the computer profile could be wrong or misleading or old. If privacy
is "the claim of individuals, groups or institutions to determine for
themselves when, how and to what extent information about them is
committed to others", 7 it follows that the only effective attribute to
an individual's right to privacy is his ability to obtain access to the
computer records relating to him and to control their correctness and
circulation. 8 Our law is still inadequate in this respect and the
continued growth of the information industry and the growing
importance of the stored personal and other information make a
balanced approach to the issue essential. 9

2 Truncation of cheques
A bill of exchange can be transmitted electronically and then
reproduced in writing. It can also be signed electronically. A telex
message has been held to constitute a valid bill of exchange. 10 But
here, it seems, matters end since the bill of exchange is by definition
a document which must be transferred, presented for payment or
acceptance and perhaps even protested. It embodies a whole series
of contracts. It is therefore unlikely that the bill of exchange will be
replaced by a form of electronic funds transfer providing for deferred
payment.1 1 Moreover, its lack of standardisation makes truncation
of the collection and payment process difficult.
The truncation of cheques is easier: cheques are issued by banks
and can therefore be standardised. Their truncation in order to
shorten the "stop-shuffle-and-go paper merry-go-round" 12 of the
collection process is well known and some of the legal problems
arising from it will be referred to.
It is nevertheless possible to simplify the collection of bills by
electronic means as has been done in France since 1973. An LCR (or
lettre de change relevg) avoids the physical transfer of the bill with the
coded magnetic recording of its particulars as soon as it enters the
banking circuit for collection or payment. An exchange of LCR's
7 Westin Privacy and Freedom (1967) 7.
8 Tekens "Privacy en Computer-registratie" in Privacy (1975) 167-15 175-23 (reprinted
from 1975 Ars Aqui).
9 Neethling Databeskerming: Motivering en Riglyne vir Wetgewing in Suid-Afrika in
Huldingsbundel vir WA Joubert (1988) 105.
10 Ellinger Electronic Funds Transfer as a Deferred Settlement System in Goode (ed)
Electronic Banking: The Legal Implications (1985) 29 39.
1 Ellinger Electronic Funds Transfer 41.
12 Dunne "Variation on a Theme by Parkinson or Some Proposals for the Uniform
Commercial Code and the Checkless Society" 1966 Yale Law Journal788 792.
in0 STELL LR 1990 2
takes place via clearing centres and the paying bank prepares a
statement of the bills to be paid at maturity. This statement is sent to
the debtor for approval or rejection.13 The LCR's amounted to 7 %
in number and 4 % in value of recorded drawings in 1980.14
The truncation of cheques, a process which is already used on a
wide scale in South Africa, is not without legal problems. The
15
obvious question is the one relating to presentment for payment.
Other questions concern the risk and proof of forgery, the liability of
the collecting bank, the time of payment, countermand of payment,
aspects of the bank and customer relationship and evidential
16
matters.
It is said that "[in our present 20th century world of print and
paper, we tend to think of information in terms of documents. In the
future our information machines will permit us to enjoy more
immediate access to all kinds of information gathering capabilities.
Documents will become only occasional by-products of information
access, not the primary embodiment of it."17 This changing process
poses new questions for the law of evidence.
Since truncation involves the "immobilisation" and in some cases
destruction of cheques, it is often necessary to provide for the
photographing of the items truncated. The admissibility of these
photographs could well be raised in litigation concerning the
genuineness of a signature or an alteration of the instrument.
However, no major obstacle would appear to stand in the way of
their admissibility. Barclays Western Bank v Creser18 concerned the
admissibility of a microfilm copy of a hire purchase agreement which
was destroyed after being filmed for lack of office space. The court
said the following:19
"The best evidence rule is that no evidence is ordinarily admissible to
prove the contents of a document except the original document itself. The
exception to the rule is that on proof, inter alia, of the destruction of the
document the contents of the document may be proved by secondary
evidence. The only significance of the fact, if fact it is, that the party
concerned deliberately destroyed a document, is that, if it appears that that
was done in contemplation of legal proceedings, possibly with a fraudulent
objective, the court may decline to dispense with the requirement of
production of the original. There was no question of anything of that sort

'3 Systeme des Zahlungsverkehrs in elf Industrielandern (1980) 137.

14 Systeme des Zahlungsverkehrs in elf Industrielandern133.
15 See on this question Van Zyl Tjekretensie in die Suid-Afrikaanse Wisselreg (1986) 59
et seq.
16 See Van Zyl Tjekretensie 60 et seq and "Tjekretensie in die Suid-Afrikaanse
Wisselreg" 1988 MB 25 79.
17 Boss The Library Manager's Guide to Automation (1984) 2 cited by Eckhard "Die
Bewysreg in die Elektroniese Eeu-Die Outokassier" 1985 De Jure 384 386.
1982 2 SA 104 (T).
19 106F-H.
LEGAL IMPLICATIONS OF ELECTRONIC STORAGE 157
in the present case. Litigation was not contemplated when the original was
destroyed. And the destruction was done in the ordinary course of
business."
The court allowed the copy as proof of its contents and added:
"It has, I think, been judicially recognised that systematic recording in the
ordinary course of business is a feature of modern commercial
procedures. "20
A microfilm copy is admissible as evidence but whether it is
admissible under the Computer Evidence Act 21 is disputable.
However, it is clear that a computer image of a cheque is.22
Unfortunately, this act applies to civil proceedings only, but
computer images could possibly be admitted in criminal proceedings
being business records storing or recording information. 23 It can be
stated that, generally, computer print-outs are admissible evidence
even if the legal structure governing their admissibility is not very
satisfactory.24
The smart card is a "standardsized plastic card with a micropro-
cessor chip embedded in it, giving ability to store large amounts of
data and process information. '25 It can communicate with another
card or computer, can process, store and transfer information. The
data stored in its memory can be printed through a computer. It is
useful in point-of-sale transactions. 26 It is suggested that 27
a print-out
of data stored by a smart card is admissible in evidence.
3 Reforming the bill of lading
The physical transfer of the various shipping documents, such as
the invoice, insurance certificate, certificate of origin and the bill of
lading itself, from the port of export to the port of import, amounts
to a cumbersome process which carries with it the risk of loss and
20 107A.
21 57 of 1983. See Van Zyl Tjekretensie 93 et seq who doubts whether a microfilm camera
is a computer. However, see Eckhard 1985 De lure 387 et seq.
22 Van Zyl Tjekretensie 94-97. The American Bankers Association Check Safekeeping-
A Task Force Report on Check Truncation (1978) 14 describes "imaging" as follows:
"Financial transactions from customers, businesses and other banks are imaged soon
after receipt at teller area, lock box area or other imput point. A digitized image of the
back and front of each document is lifted, enhanced to highlight the processing of
information while suppressing the background, and compressed to reduce the digitized
image to its lowest bit presentation. A machine readable control number is printed on
the document. The image is transmitted to an entry processing centre and is then
stored."
23 Criminal Procedure Act 51 of 1977 s 221. See Zeffertt The South African Law of
Evidence 4 ed (1988) 140-142.
24 See Law of Evidence Amendment Act 45 of 1988 s 3; Criminal Procedure Act 51 of
1977 s 221 and the Computer Evidence Act 75 of 1983. See Zeffertt Law of Evidence
126 et seq.
25 Frazer Plastic and Electronic Money. New Payment Systems and their Implications
(1985) 80. See further Meiring "ATM's and EFTPOS: Some Legal Considerations"
1987 MB 115 117.
26 Frazer Plastic and Electronic Money 80.
27 See n 21 22 23 and 24. See also Meijboom Evidence in Poullet Vadenberghe
Telebanking, Teleshopping and the Law (1988) 33 42-43.
158 STELL LR 1990 2

theft. It is also a process that can lead to delays and consequent

liability of the parties. To avoid these objections, the immobilisation
of the bill of lading and the other shipping documents was resorted
to. 28 This is only one of the several methods employed to simplify
29
shipping transactions and "eliminate" the bill of lading.
The Seadocs Central Registry system involves the issue of a bill of
lading and its delivery to the Registry where it is held, first on the
instructions of the shipper and thereafter the consignee or indorsee.
The Central Registry makes the necessary indorsements and holds
the instrument in a changing capacity. This system reduces the
movement of paper, but does not eliminate it. It is small wonder that
it was followed by entirely electronic forms of processing. 30 These
attempts to replace the bill of lading have not been particularly
successful and the main reason appears to be that it and the
documents used in conjunction with it are referred to for customs
and exchange control purposes. 3 1 The immobilisation of the
instrument is nevertheless a valid method by which reliance on paper
can be reduced. It is also resorted to in other cases, particularly by
securities depositories.

4 Securities depositories
Securities depositories have existed in some or other form since
the end of the nineteenth century. 32 They have all developed along
similar lines. At first the safe custody of securities involved the
deposit of certain securities certificates which had to be returned to
the owner. Later, the collective deposit of securities became the
rule. This meant that securities were treated as fungibles and that the
whole body of depositors of a specific security became the co-owners
of all the securities of that kind held by the depository in safe
custody. This is the position in the Federal Republic of Germany
where practically all outstanding securities are held in safe custody
by the Wertpapiersammelbanken. All the depositors are co-owners
of the securities so held. This remark requires explanation.
A securities certificate is a negotiable instrument in German law.
This means that the certificate itself has to be transferred or pledged
when the securities are disposed of or used as security. A purchaser
in good faith, the "holder in due course", must take the certificate
itself. Thus where the securities are deposited in safe custody with a
28 Goode Proprietary Rights and Insolvency in Sales Transactions (1985) 70 et seq.
29 See Goode ProprietaryRights 70 et seq and Urbach The Electronic Presentationand
Transfer of Shipping Documents in Goode (ed) Electronic Banking: The Legal
Implications 111.
o See Goode ProprietaryRights 73-74.
3' Bergsten "Paperless Systems: the Legal Issues" 1988 6 Computer Law and Security
Report 23 24.
32 This section is based on Malan Collective Securities Depositoriesand the Transfer of
Securities (1985).
LEGAL IMPLICATIONS OF ELECTRONIC STORAGE 159
depository, the actual physical certificate must be held. Without the
certificate neither the pledge of the securities nor their purchase in
good faith is possible. The consequence of all this is that the
certificate, often in the form of a block or global certificate, becomes
immobilised in the vaults of the depository. Transfers and pledges
are therefore effected by means of entries in the books of the
depository or in the books of the depository banks, the members of
the depository. The obvious question is whether it is necessary to
hold the certificate at all. What possible function can the immobil-
ised block certificate have? It is, as a German lawyer puts it,
"ein Denkbehelf, eine geistige Kriicke, die mit den historischen und
praktischen Grundlagen des Wertpapierwesens, den Wert an eine dem
Inhaber zugangliche und von ihm selbst wenigstens m6glicherweise
33
innegehaltene Sache zu kniupfen, nichts mehr zu tun hat."
The obvious development was to dispense with the certificate and
to "dematerialise" the securities. Denmark, in 1980, became the first
country to convert the issuing of securities into a computerised
registration system, so eliminating the certificate completely. More
spectacular was the French "d6materialisation" of securities which
became effective in November 1984 and by which securities then
ceased to exist in material form and had to be inscribed in the
securities accounts of the issuer or an authorised intermediary. 34 All
transfers of securities so held must take place by entries in the
accounts and SICOVAM, originally the French securities deposi-
tory, came to supervise the creation of new securities and monitor
their transfers and pledges. Similar developments took place in the
United States where the "certificateless security" was born out of the
"paper crunch" of the 1960s. In Germany there are constant cries for
"dematerialisation" and in the United Kingdom TAURUS shows
considerable promise in this respect. In South Africa, as early as
1971, the President of the JSE called for the introduction of a "scrip
bank" or "central electronic registry of share ownership". Today
considerable progress seems to have been made towards a
depository where securities will be immobilised and held as
fungibles. Transfers and pledges will, in other words, be made by
entries in electronic registers.
It is clear that none of the above would have been possible without
advanced computer technology. This creates new problems: instruc-
tions to transfer or pledge securities as well as the creation of new
securities will now have to be given by electronic means, but
comprehensive agreements between participants will undoubtedly
govern the functioning of the depository.
33 Zolner "Die Zuriickdrangung des Verk6rperungselements bei den Wertpapieren"
Funktionswandel der PrivatrechtinstitutionenFestschrift fur Ludwig Raiser (1974)
249 255.
3' Loi de Finance pour L'exercise 1982 a 94 II.
160 o STELL LR 1990 2
5 Aspects of privacy
In the leading United States case of California Bankers Associa-
tion v Schultz 35 1Douglas J said:
"[iln a sense a person is defined by the checks he writes. By examining
them the agents get to know his doctors, lawyers, creditors, political allies,
social connections, religious affiliation, educational interests, the papers
and magazines he reads and so ad infinitum."
Banking secrecy is ancient but has become one of the burning
issues in banking law today. Secrecy is essential for the proper
conduct of banking business. Banking requires a customer to
disclose certain personal and financial information to his bank. This
disclosure is not entirely "volitional" since it is impossible to
participate in economic and financial life without maintaining a bank
account. In the course of his dealings with his bank a customer, of
necessity, reveals many aspects of his personal life, habits, opinions
36
and associations.
The collection and particularly the electronic storage of personal
and financial information has become an industry threatening privacy.
Information is stored, processed and transmitted by financial
institutions, credit agencies, detective agencies, insurance compa-
nies, medical practitioners, state departments, schools, universities
and the like. Information is often exchanged between these
institutions. 37 In most cases the storage of information serves the
legitimate interests of the institution concerned. The question,
however, is to define their legitimate interest and the reasonable
expectations of the customer who treasures his privacy. Involved in
all this is the public interest and the requirements of the police and
prosecuting authorities. Banking secrecy has changed from ancient
times, primarily because the scene has changed so fundamentally.
There is no doubt that a bank is legally obliged to keep personal
and financial information of a customer confidential. This duty of
secrecy is enforced by contractual and delictual remedies and, in
some cases, by legislation. 38 South Africa, however, does not have
comprehensive data protection legislation such as exists in the
United Kingdom and in Europe. This kind of legislation regulates
the collection and storage of personal and financial information.
The fundamental principles of effective data protection are the
following:
(a) the subject must be aware and be informed of the existence of
a data profile concerning him;
(b) he must be informed of the purpose of the data profile;
(c) he must be given access to this profile;
(d) he must be able to ascertain who had access to his data and
35 416 US 21 85 (1974).
36 California Bankers Association v Schultz supra.
37 See Neethling Databeskerming 106 et seq.
31 See Faul Die Bankgeheimnis in die Suid-Afrikaanse Reg (1984) 72 et seq.
LEGAL IMPLICATIONS OF ELECTRONIC STORAGE 101

(e) he must be able to 39cause the deletion or amendment of data

concerning himself.
It is clear that the traditional legal remedies are insufficient for
these purposes and that adequate remedies can only be introduced
by legislation. South Africa still has a long road ahead.
In Britain the Banking Services: Law and Practice Report by the
Review Committee40 has made instructive recommendations and
findings on the extent and nature of bank secrecy. Since our law is
closely linked to English banking law, a brief review could be
41
helpful.
English law allows a bank to disclose confidential information of
his customer
(a) under compulsion of law;
(b) in the public interest;
(c) in the interest of the bank and 42
(d) where the customer has given his express or implied consent.
These four exceptions overlap somewhat and were formulated in
the 1920s. The Committee therefore thought it necessary to review
43
them:
"The picture today is very different indeed. The last two decades has seen
a torrent of new legislation, which has become a spate in the last few years,
requiring or permitting bankers, in a wide range of specified situations, to
disclose confidential information in the public interest. Disclosure may be
to the Government, or in some cases to the courts."
These statutes deal with subjects ranging from terrorism and drug
smuggling to insider trading and tax evasion. The Committee did not
question the fact that these breaches of confidentiality were in the
public interest, but nevertheless remarked that "it cannot be
doubted that, cumulatively, they amount to a formidable burden on
bankers ...- 44Although in the public interest, these legislative
exceptions undoubtably constitute inroads on bank secrecy.
Another aspect of concern 45 arises "from the growing perception
by some banks . . . that they are entitled to release confidential
information about customers, without those customers' express
consent, to other companies within their own group." A further
matter is the tendency of banks to release more and more
46
information to credit agencies.
39 Neethling Databeskerming 122.
o Chairman Professor RB Jack (1989) Cm 622 HMSO.
41 See 28 et seq of the Jack Report. The Report is summarised by Andrews "Customer
Care and Banking Law" 1989 3 JIBL 101 and Stockwell Petkovic "The Jack
Committee Report on Banking Services: Law and Practice" 1989 3 JIBL 134.
42 Tournier v National Provincial & Union Bank of England 1924 1 KB 461.
43 Par 5 07.
4 Par 5 08.
45 Par 5 12.
46 Par 5 15 et seq.
162 STELL LR 1990 2
The Committee emphasised the need for banking secrecy and
said:
"the principle of confidentiality applied to a customer's private financial
affairs is placed by the common law tradition at the heart of the
banker-customer relationship. It is a tradition which should be respected
and, under threat, emphasised the more strongly, because its roots go
deeper than the business of banking: it has to do with the kind of society
in which we want to live."47
A specific recommendation is that the rules of banking secrecy be
codified. With regard to companies within the banking group the
recommendation is that disclosure should only be with the express
consent of the customer, although disclosure to banking subsidiaries
for defined purposes, excluding the marketing of services, without
the customer's consent should be permissible. Moreover, where a
bank is sold, common sense clearly requires that information 48
pertaining to the identity and extent of debtors be disclosed.
These particular instances are perhaps not so important. What
emerges is a trend, from which South Africa cannot escape, to fortify
banking secrecy and to emphasise the privacy of the individual.
Perhaps the road ahead is much longer.

6 Trade secret protection

An increasing number of trade secrets are stored electronically.
The protection of trade secrets in our law, of course, does not
depend on the manner in which they are stored. Their electronic
storage, however, emphasises the potential risks run by business
enterprises. A trade secret is secret or confidential information
relating to a business which is of economic value. 49 The nature of the
information is not decisive and customer lists, know-how, formulas,
processes, techniques and other types of business information are all
regarded as trade secrets.50 Of some importance are customer lists.
Since the list is not a material object, it cannot be stolen. The making
of a copy is neither penalised, nor can the perpetrator be convicted
of forgery when he alters the list, the reason being that a disk and not
a document is involved. The obtaining of access to the computer is
also not criminalised. The hacker, in our law, is not a criminal per se.
Despite the inadequacies of the criminal law, the owner of a trade
secret is not without legal recourse.
It would have been surprising if the law did not protect trade
secrets. Our important assets are no longer natural resources.
Rather information and ideas have become key elements in the
success of a business. There is thus a growing trend to protect trade
47 Par 5 26.
48 Par 5 31-5 32.
49 Van Heerden & Neethling Onregmatige Mededinging (1983) 132.
0 See Brown & Swanson "Maintaining the Competitive Edge-Lawful Protection of
Trade Secrets" 10 Employee Relations Law Journal 374.
LEGAL IMPLICATIONS OF ELECTRONIC STORAGE 163
secrets agressively. One reason is that employers are dealing with a
highly skilled and mobile workforce.
The wrongful and unauthorised disclosure of confidential infor-
mation is often a consequence of employee mobility. The unautho-
rised disclosure of a list of customers is actionable as an instance of
unlawfull competition. In a judgment 5 it was said that:
"[W]here ...a trader has by the exercise of his skill and labour compiled
information which he distributes to his clients upon a confidential basis
(i.e. upon the basis that the information should not be disclosed to others),
a rival trader who is not a client but in some manner obtains this
information and, well knowing its nature and the basis upon which it was
distributed, uses it in his competing businesss ... commits a wrongful act
vis-d-vis the latter and will be liable to him in damages."
In an appropriate case an interdict can be obtained restraining
disclosure of the information.
It is clear that the law would have to balance rather delicate
interests on the termination of an employee's employment.5 2 The
interest of the owner lies in his investment; that of the employee in
the skills he has acquired in the course of his employ. The following
3
approach was suggested:
"An employee, upon the termination of his employment, is free to draw
upon his general knowledge, experience, memory and skill, howsoever
gained, provided he does not use, disclose or impinge upon any of the
secret processes or business secrets of his former employer."

7 Electronic data interchange

Writing is a legal requirement for contracts for the sale of land,
credit agreements and the like. Writing is often a useful and reliable
record or evidence of a transaction. It has many advantages: it is
durable and informative; it evidences the agreement or other legal
act and, in some cases, symbolises the rights inherent in it. On the
other hand, writing is also slow and expensive and tends to breed. To
replace it by electronic means is no easy matter, nor is it always
necessary to do so.
"Instead, the requirements of paper-based documents will 54have to be
reviewed and changed, if change is desirable, one at a time."

5' Dun & Bradstreet (Pty) Ltd v SA Merchants Combined Credit Bureau (Cape) (Ply) Ltd
1968 1 SA 209 (C) 221C-D. Cf also Stellenbosch Wine Trust Ltd v Oude Meester
Group Ltd 1972 3 SA 152 (C) 162 where it was said: "I have no doubt that a trader
who filches information from a competitor which he knows to be secret and
confidential, and which has been developed by the competitor's skill and industry, is
acting unfairly and dishonestly ifhe uses the information for his own profit and to the
detriment of his rival."
52 See Van Heerden & Neethling Onregmatige Mededinging 139-140.
53 Van Heerden & Neethling Onregmatige Mededinging 139 n 15 citing Callmann.
5' Bergsten 1988 6 Computer Law and Security Report 23.
164 STELL LR 1990 2

What "writing" is, depends very much on the enactment in which

the requirement is set. The Interpretation Act 55 provides that in
every law expressions relating to writing shall, unless the contrary
intention appears, be construed to include references to typewriting,
lithography, photography and all other modes of representing or
reproducing words in visible form.
In addition to the ways referred to, writing can be made in
handwriting, whether in pencil or ink. Words can also be reproduced
electronically on a monitor. The substances on which words can
appear vary: a bill can be written on soap, sand, metal, paper and
indeed on the well-known negotiable cow. But not all these
instruments will comply with the requirement of writing set by the
Bills of Exchange Act. 56 Bills and notes are intended for circulation
and the material used should be reconcilable with this function. 5It7
follows that a bill cannot be created on a monitor or screen only.
Nor would a contract for the sale of land or a credit agreement
produced electronically comply with the legal requirement that they
be in writing. One might add that there is little need for change in
these respects but new perspectives may widen the applicability of
electronic means. For example, it might not be unrealistic to provide
for an electronic will or a testament on video.
Electronic data interchange replaces standard paper documenta-
tion with standardised electronic messages-it involves the
computer-to-computer transmission of data in structured form. 58 It is
frequently used in international trade but also increasingly in
domestic transactions. It avoids costly documentation and because of
its growing importance, international rules for its use have been
formulated. 59 Two major legal questions are raised by EDI, namely
the problem of "signature" or authenticity and the issue concerning
the conclusion of legal transactions. The first question is one of much
wider import and clearly does not concern only EDI. The second one
concerns the place and time of contracting.

8 Authenticity and signature

Sometimes a signature is required for the validity of a legal act. An
example is the bill of exchange which must be signed by the drawer.
"Signature" is not defined in the Bills of Exchange Act. The Wills
Act, 60 on the other hand, defines "sign" as including the making of
a mark by the testator. It also provides for a will to be signed by
5 33 of 1957 s 3.
56 34 of 1964.
5 Malan Bills of Exchange, Cheques and PromissoryNotes in South African Law (1983)
42.
58 Walden & Savage "The Legal Problems of Paperless Transactions" 1989 Journal of
Business Law 102.
s See the discussion of the Uniform Rules of Conduct for Interchange of Trade Data by
Teletransmission 1988 6 Computer Law and Security Report 26.
60 7 of 1953.
LEGAL IMPLICATIONS OF ELECTRONIC STORAGE 165
someone in fhe presence of and at the direction of the testator.
"Signature" must therefore be interpreted in view of the consider-
ations relevant to the specific enactment in which the word appears.
In the case of bills and notes, 61 a wide interpretation is given. It does
not mean a person's usual signature nor his surname and initials,
although it obviously includes these, but rather any mark placed on
the instrument with the intention of identifying the person signing. A
signature need not be witnessed and the signatory need not be able
to write. Thus, a mark, such as a cross, or a stamp, seal or a signature
by way of facsimile or by mechanical means will be sufficient.
The functions of a signature, apart from fulfilling any legal
function, are to identify the document it is affixed to, to confirm the
information contained in it and to evidence the acceptance of
liability. 62 It proves a willingness-an undertaking-to be bound.
An electronic "signature" may take one of two forms: it is either
a personal identification number or code, often used in conjunction
with a card, giving the user access to a system or computer; or a
quality linked to a person, such as his fingerprint, retinal structure or
voice giving the user such access. 63 An electronic signature is not a
"signature": it is not necessarily an expression of an individual's will
to be bound by the writing, but merely gives the user access to the
system without the subsequent transactions being defined. 64 There
are other differences: the electronic "signature" can be perfectly
duplicated; it is not necessarily the personal creation of the
"signatory"; a person can have many electronic but only one classic
signature; criminal sanctions apply to the forgery of the classic
signature but not always to the "forgery" of the electronic
"signature".
The unauthorised use of an electronic "signature" can, of course,
lead to the liability of the owner of a card or the user of a system.
This, however, is not the result of the "signature" per se but rather
and most often a consequence of the comprehensive agreement
between, for example, the issuer and the holder of the card. The
signature as such does not impose liability, only its authorised use,
unless liability has been provided for in any controlling agreement.
However, despite the above reservations, there can be no objection
to the use of the term "electronic signature" since "the access
procedure that has succeeded has the same value as a classic
signature and may thus be called an 'electronic signature', the word
'signature' designing both the procedure and the positive result of it.
In opposition to the classic signature this new kind of signature
61 See Malan Bills of Exchange 86 et seq.
62 Vandenberghe Signature in Poullet & Vandenberghe (eds) Telebanking Teleshopping
and the Law (1988) 59 62.
63 Vandenberghe Signature 62.
64 Vandenberghe Signature 65.
166 STELL LR 1990 2
cannot be visualised but leaves its traces in the registration of the
'65
accesss procedure by the system.
Where electronic messages are considered, it may become
necessary to determine whether a particular message is authentic.
Where a comprehensive agreement covers the interchange of data,
provision can be made for the binding effect of messages emanating
from a specific terminal. This is likely in the case of collective
securities depositories where the participants would be limited to the
participating banks and also in the case of an EFTS network as well
as between the users of homebanking services and their banks.
Comprehensive user agreements will no doubt become necessary 66
providing also for such aspects as network and apparatus security.
But electronic data interchange is also used between trading
partners who have not concluded a framework agreement regulating
the electronic transmission of messages. Much can be gained by the
acceptance of model rules in this regard. The Uniform Rules of 67
Conduct for Interchange of Trade Data by Teletransmission
addresses the problem of authorisation or authenticity by stating that
the contracting parties need to ensure that "a complete log is
maintained of all trade data as they were sent and received" so as to
determine the nature of the data transferred. A person who can
certify the correctness of the log should furthermore be appointed.
Other ways in which the authenticity of messages can be assured is
by an exchange of messages, the use of codes, call-back procedures,
passwords, personal identification numbers or codes, encoded cards
and test keys.

9 The formation of contracts by electronic data interchange

The place and time of contracting is important for the purposes of
jurisdiction, of the. applicable legal system and a variety of other
matters. Consensus or agreement is a fundamental element of a
contract. 68 Usually agreement is reached by offer and acceptance
although it is not always easy to determine who offered and who
accepted. 69 Following from this, acceptance, to be effective, must be
communicated to the offeror: "[Olur law requires not only
acceptance, but that the acceptance should be communicated to the
offeror. ' ' 70 As a general principle it follows that a contract is
concluded at the time and place where the offeror is notified of the
65 Cited by Vandenberghe Signature 63.
66 Wheble International Trade Data Interchange Systems in Goode Electronic Banking:
The Legal Implications 123 128.
67 A 10. See Walden & Savage 1989 Journalof Business Law 106.
68 Lubbe & Murray Farlam and Hathaway Contract Cases, Materials and Commentary

(1988) 27 et seq.
69 Anglo Carpets (Pty) Ltd v Snyman 1978 3 SA 582 (T) 586.
70 Dietrichsen v Dietrichsen 1911 TPD 486 494 and see the authorities collected by Lubbe
& Murray Contract Cases 39 et seq.
LEGAL IMPLICATIONS OF ELECTRONIC STORAGE 167
acceptance of his offer. Before such time no contract exists. Of
course, an offeror can indicate the manner in which his offer may be
accepted; he can also waive notification of acceptance. 71 But special
rules govern the formation of contracts concluded by post. In the
leading judgment 72 it was said that "where in the ordinary course the
Post Office is used as the channel of communication, and a written
offer is made, the offer becomes a contract on the posting of the
letter of acceptance." It is suggested that this approach should not be
extended to contracts concluded by electronic data interchange. It is
73
unlikely that it applies to contracts agreed to by telex.
In fact, in an English judgment, the possible effect of a technical
or human failure on the non-receipt of a telex message was
considered. 74 Failures of this kind as well as a failure in the receiving
apparatus were discussed in the judgment. Lord Denning dealt with
75
the formation of contracts generally and said:
"When a contract is made by post it is clear law throughout the common
law countries that the acceptance is complete as soon as the letter is put in
the post box, and that is the place where the contract is made. But there
is no clear rule about contracts made by telephone or by Telex.
Communications by these means are virtually instantaneous and stand on
a different footing.
The problem can only be solved by going in stages. Let me first
consider a case where two people make a contract by word of mouth in the
presence of one another. Suppose, for instance, that I shout an offer to a
man across a river or a courtyard but I do not hear his reply because it is
drowned by an aircraft flying overhead. There is no contract at that
moment. If he wishes to make a contract, he must wait till the aircraft is
gone and then shout back his acceptance so that I can hear what he says.
Not until I have his answer am I bound....
Now take the case where two people make a contract by telephone.
Suppose, for instance, that I make an offer to a man by telephone and, in
the middle of his reply, the line goes 'dead' so that I do not hear his words
of acceptance. There is no contract at that moment. The other man may
not know the precise moment when the line failed. But he will know that
the telephone conversation was abruptly broken off: because people
usually say something to signify the end of the conversation. If he wishes
to make a contract, he must therefore get through again so as to make sure
that I heard. Suppose next, that the line does not go dead, but it is
nevertheless so indistinct that I do not catch what he says and I ask him to
repeat it. He then repeats it and I hear his acceptance. The contract is
made, not at the first time I do not hear, but only the second time when I
7' Bloom v American Swiss Watch Co 1915 AD 100.
72 Cape Explosives Works Ltd v South African Oil & Fat Industries Ltd, Cape Explosives
Works Ltd v Lever Brothers (South Africa) Ltd 1921 CPD 244 266. See the critical
discussion by Vorster "Waar Kom 'n Kontrak Inter Absentes Gesluit tot Stand?" 1984
TSAR 196.
7 Radesich "The Formation of Telex Contracts" 1987 MB 40.
74 Entores Ltd v Miles Far East Corporation 1955 2 0B 327.
71332-334. See Harvey & Newman "Contracts by Electronic Mail: Some Issues
Explored" 1988 6 Computer Law and Security Report 2 4.
168 STELL LR 1990 2
do hear. If he does not repeat it, there is no contract. The contract is only
complete when I have his answer accepting the offer.
Lastly, take the Telex. Suppose a clerk in a London office taps out on
the teleprinter an offer which is immediately recorded on a teleprinter in
a Manchester office, and a clerk at that end taps out an acceptance. If the
line goes dead in the middle of the sentence of acceptance, the teleprinter
motor will stop. There is then obviously no contract. The clerk at
Manchester must get through again and send his complete sentence. But it
may happen that the line does not go dead, yet the message does not get
through to London. Thus the clerk at Manchester may tap out his message
of acceptance and it will not be recorded in London because the ink at the
London end fails, or something of that kind. In that case, the Manchester
clerk will not know of the failure but the London clerk will know of it and
will immediately send back a message 'not receiving'. Then when the fault
is rectified, the Manchester clerk will repeat his message. Only then is
there a contract. If he does not repeat it, there is no contract. It is not until
his message is received that the contract is complete.
In all the instances I have taken so far, the man who sends the message
of acceptance knows that it has not been received, or he has reason to
know it. So he must repeat it. But suppose that he does not know that his
message did not get home. He thinks it has. This may happen if the listener
on the telephone does not catch the words of acceptance, but nevertheless
does not trouble to ask for them to be repeated: or if the ink on the
teleprinter fails at the receiving end, but the clerk does not ask for the
message to be repeated: so that the man who sends an acceptance
reasonably believes that his message has been received. The offeror in such
circumstances is clearly bound, because he will be estopped from saying
that he did not receive the message of acceptance. It is his own fault that
he did not get it. But there could be a case where the offeror without any
fault on his part does not receive the message of acceptance, yet the sender
of it reasonably believes it has got home, when it has not, then I think there
is no contract.
My conclusion is, that the rule about instantaneous communications
between the parties is different from the rule about the post. The contract
is only complete when the acceptance is received by the offeror: and the
contract is made at the place where the acceptance is received."
In a later judgment 76 the position was qualified somewhat although
the same approach is followed. Lord Wilberforce said:
"Since 1955 the use of telex communications has been greatly expanded,
and there are many variants on it. The senders and recipients may not be
the principals to the contemplated contract. They may be servants or
agents with limited authority. 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."

76 Brinkibon Ltd v Stahag Stahl und Stahlwarenhandelsgesellschaft mnbH 1982 1 All ER

293 296.
LEGAL IMPLICATIONS OF ELECTRONIC STORAGE toy
77
Lord Frazer added the following significant statement:
"[O]nce the message has been received on the offeror's telex machine, it
is not unreasonable to treat it as delivered to the principal offeror, because
it is his responsibility to arrange for prompt handling of messages within his
own office."
Although there are similarities between the post and electronic
data interchange such as, for example, the "electronic post box", it
is preferable to apply the ordinary principles of the formation of
contracts to contracts concluded by electronic data interchange. An
acceptance communicated by electronic data interchange must be
communicated to the offeror. It is true that communication by means
of electronic data interchange is not always instantaneous, but this
alone does not justify the adoption of the postal rule-a rule which
is in any event subject to the criticism that it validates a contract even
where there is no real agreement. The sending of a message is
furthermore not the true equivalent of posting: in some cases it is
possible to recall the message before receipt. But the real problem
concerns "receipt". Is a message received when entered into the
receiver's electronic "mailbox" or only when he in fact acquires
knowledge of it, that is "collects his mail"? Parties can, of course,
agree on a method of communication and an offeror can stipulate-
expressly or impliedly-the means of communication. Electronic
data interchange will often be the agreed or authorised manner of
communication. But it will be necessary even in these cases to
determine whether, when and where a message had been received.
No universal rule applicable to the variety of cases is possible or
necessary: the issues must be solved "by reference to the intentions
of the parties, by sound business practice ' 78
and, in some cases, by a
judgment where the risks should lie.

10 Conclusion
An evolutionary pattern is apparent from the cases referred to. At
first rights were incorporated in a document so that the instrument
became their symbol and the method by which they could be
transferred and pledged. This occurred in the case of the bill of
exchange, the bill of lading and the share certificate. The emphasis
on paper, however, lead to its proliferation, caused administrative
delays and increased costs. It became necessary to immobilise the
instrument as is done with securities certificates, the bill of lading
and, partly, with bills of exchange and cheques. The next
development was to discard the instrument and replace it with
electronic media. This evolution is not yet complete but is apparent
in the "dematerialisation" of securities, the growth of electronic
77 297.
71 Uniform Rules of Conduct for Interchange of Trade Data by Teletransmission a 10.
See also Walden & Savage 1989 Journal of Business Law 106.
170 STELL LR 1990 2
fund transfers and in the tentative steps taken to eliminate the bill of
lading. Through this evolution the continued emphasis on privacy is
remarkable. Its growing importance illustrates man's independence:
he is not an adjunct to the machine but its master.

OPSOMMING
In hierdie verkennende artikel karteer die skrywer sekere terreine waarop
regsprobleme (kan) ontstaan as gevolg van die toenemende gebruik van
rekenaars en ander elektroniese hulpmiddels in saketransaksies.
Skrif en ("tasbare") dokumente het tradisioneel 'n sleutelrol in die reg
gespeel met betrekking tot byvoorbeeld wissels/tjeks of waardepapiere oor die
algemeen, die testate erfreg, die verskeping van goedere, sekerheidstelling en
die sluit van sekere kontrakte.
Elektroniese hulpmiddels (soos die rekenaar) is besig om konvensionele skrif
in baie opsigte te vervang. Dit skep 'n vreemdsoortige kommunikasiemilieu wat
op regsgebied eiesoortige uitdagings meebring. Kommunikasie word makliker
maar ook meer problematies. Gerieflike prosedures soos tjekbewaarneming
(-afknotsing of truncation) en kontraksluiting deur middel van rekenaar-
netwerke word "alledaagse" prosedures.
Aan die ander kant bedreig gesofistikeerde elektroniese databerging die
privaatheid van die individu. In die sakesfeer skep dit groter moontlikhede vir
"onregmatige toegang" tot vertroulike inligting (en sakegeheime) wat teens-
woordig van die belangrikste bates van die meeste sakeondernemings is.
Die skrywer identifiseer nie alleen regtens tersaaklike probleemterreine nie
maar plaas hulle ook in regsvergelykende perspektief. Hy poog ook om op 'n
regskundige wyse maniere te soek om die mens se onafhanklikheid en vryheid
behoue te laat bly. Die mens is nie 'n blote verlengstuk van die masjien nie,
maar meester daarvan.