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Introduction

In domestic (New Zealand) trading arrangements, ownership and risk in property will often pass from the seller to the buyer at the same point in time – for example when the buyer either collects the goods from the purchaser or when the seller has delivered the goods to the buyer’s business premises.  This is particularly the case when the goods are paid for in advance, rather than on credit.

The approach with international shipping can be very different.  In arrangements for the carriage of goods overseas, it is common for the transfer of ownership and risk to be treated separately and for these to occur at different points.

International carriage of goods

In most cases, the starting point for establishing the rules around ownership and risk is the terms of the contract for the sale and international carriage of goods – often the seller’s standard terms of trade.  In most cases the terms of trade will naturally favour the seller.  These terms of trade are often incorporated into normal business procedures such as an online sales purchase process or an account application form.

Where the goods are particularly valuable it would be prudent for a prospective buyer to review the terms of trade carefully.  In particular, the buyer should satisfy itself that it is comfortable with the arrangements for the transfer of risk and ownership.  The buyer should pay close attention to any provisions relating to insurance of the goods;  if the buyer is to take the risk in the goods then it should ensure that adequate insurance is in place.  Your insurance broker may be able to advise on the appropriate insurance arrangements.  Ideally such discussions should take place before you contract for the goods.

The buyer should also review the terms of trade from a practical perspective, for example to ensure that the delivery/collection arrangements are workable.

Having considered these issues, in some circumstances it may be necessary for the buyer to negotiate some amendments to the terms of trade – although a seller may take the opportunity to seek a change in price to reflect the altered risk allocation.

Incoterms 2010 rules

As an alternative to individual terms of trade, contracting parties (particularly those involved in international transactions) might consider the International Commercial Terms (commonly referred to as “Incoterms”).  Incoterms are a set of commercial terms published by the International Chamber of Commerce.  The Incoterms govern how costs and risks are to be allocated between the parties to a contract for sale of goods.  They came about as a means of providing clarity for businesses engaged in complex transactions, where the meanings of certain terms can often vary across different industries.  They govern the costs, risks and practical arrangements for the sale of goods.

Incoterms are commonly used amongst shipping and logistics industries and are recognised worldwide.  Incoterms specify: which party has the obligation to make carriage or insurance arrangements;  when the seller is to deliver the goods to the buyer;  the allocation of costs between each party (including transportation, insurance, taxes and duties); and when the risk of loss or damage transfers from the seller to the buyer.

The agreed Incoterms may be incorporated into the contract negotiated between seller and buyer.  The Incoterms do not regulate issues such as payment, ownership transfer, consequences for breach of contract, the mechanisms for settling disputes and governing law – these matters should still be addressed separately in the contract.

Incoterm rules are expressed by three-letter acronyms, and are grouped into four categories – denoted by the first letter of the acronym.  In order for Incoterms to apply to an agreement, the chosen rule should be explicitly stated in the contract (it is also crucial to indicate which edition of the Incoterms rules apply – the current rules were issued in 2010).  A summary of each category is as follows:

• E term (EXW):  where the seller only makes the goods available to a buyer at the seller’s premises.  Risk transfers to the buyer when the goods are made available to them, and they must also arrange for carriage of goods.
• F Term (FCA, FAS and FOB):  where the seller delivers the goods to a buyer-appointed carrier, from which point the buyer takes on all risk and costs.
• C Term (CFR, CIF, CPT and CIP):  where the seller has to contract for carriage, but does not assume risk of damage or loss to goods after shipment or dispatch.  Risk is transferred to the buyer after export clearance.
• D Term (DAT, DAP, and DDP):  where the seller bears all costs and risks necessary to bring the goods to the place of destination.

Each category brings with it its own merits.  A buyer should bear in mind that Incoterms which involve the seller paying freight and insurance costs will likely result in an inflated contract price.  Guidance notes are published for each rule, to assist with selecting the most appropriate arrangements.

Conclusion

Whether parties are contracting for goods domestically or internationally, it pays to review the ownership and risk provisions carefully.  Whilst these provisions are often glossed over by parties as just “boilerplate” provisions, in the event of loss or damage to goods they may have significant implications.

If you would like further information please contact Laura Monahan on 07 958 7479.

Introduction

As technology continues to become further integrated into our lives, it is increasingly the norm for documents to be prepared and reviewed entirely in their digital format.  Generally speaking, however, the use of electronic signatures has not yet replaced the practice of signing documents by hand.  This article summarises some key aspects of the law in New Zealand relating to the use of electronic signatures on legal documents and also compares the approach in other jurisdictions.

The Electronic Transactions Act 2002

The Electronic Transactions Act 2002 (the “Act”) was introduced in New Zealand as a means of facilitating the use of electronic technology.  Its aim (with certain exceptions) was to promote:

• “Functional equivalence”, meaning the law will not discriminate between paper-based transactions and electronic transactions; and
• “Technological neutrality”, meaning the Act does not specify or favour any particular technology platform.

So long as certain requirements are met, an electronic signature will be considered just as valid as a written signature.

Under the Act, an electronic signature can meet the legal requirement for a signature (other than the signature of a witness) if:

• It adequately identifies the signatory and adequately indicates the signatory’s approval of the information to which the signature relates;
• It is as reliable as is appropriate given the purpose for which, and the circumstances in which, the signature is required; and
• The person receiving the signed information consents to receiving a signature of that nature.

If there is a legal requirement for a signature to be witnessed, that witness can sign by electronic signature if:

• It adequately identifies the witness and adequately indicates the signature has been witnessed;
• It is as reliable as is appropriate given the purpose for which, and the circumstances in which, the witness’ signature is required; and
• The person requiring the witnessing consents to receiving the signature of the witness in electronic form.

For the purpose of the Act, an electronic signature is deemed reliable (subject to rebuttal) if:

• The means of creating the electronic signature is linked to the signatory and to no other person;
• The means of creating the electronic signature is controlled by none other than the signatory;
• Any alteration made to the electronic signature after time of signing is detectable; and
• Where the requirement for a signature is to provide assurance as to the integrity of the information, any alteration made to that information after the time of signing is detectable.

There are some significant general exceptions to the application of the part of the Act that deals with meeting legal requirements by electronic means (Schedule to the Act, Part 3).  Some of the key exceptions comprise:

• Affidavits, statutory declarations or other documents given on oath or affirmation;
• Powers of attorney or enduring powers of attorney; and
• Wills, codicils or other testamentary instruments.

These (and other) important categories of document must still be on paper.

Case law on electronic signatures

The validity of an electronic signature has yet to be fully examined in the New Zealand Courts.  However, the case of Welsh v Gatchell [2009] 1 NZLR 241 demonstrated the Court’s desire to accommodate the use of technology in meeting legal requirements.  In that case, it was held a fax header printed using a fax machine’s capacity to add writing to a document as it is copied and sent could satisfy the legal requirement for a signature if there is evidence that it was specifically inserted for the transaction concerned.

Some comparisons – the Commonwealth approach

Electronic signatures are generally considered valid across a wide number of international jurisdictions.  Australia takes a similar approach to New Zealand in that it requires the person receiving the information to consent to receiving that information in an electronic format.

The framework for electronic signatures in England & Wales is provided by Regulation (European Union) No 910/2014 (otherwise known as the “eIDAS Regulation”), effective in member states of the EU from 1 July 2016.  It establishes that a “qualified legal signature” will have the equivalent legal effect of a handwritten signature.  A qualified legal signature is defined by the eIDAS Regulation as an advanced electronic signature that is created by a qualified electronic signature creation device, and which is based on a qualified certificate for electronic signatures.

Previous to this regulation, the validity of electronic signatures was not codified in English legislation.  It was an established rule of common law that a deed must be in writing.  It is the opinion of leading English counsel that, in light of the eIDAS Regulation and the Courts’ willingness to interpret statutory requirements for writing to include where a document is executed with an electronic signature, deeds can now be signed electronically.  It is still best practice, however, to have witnesses physically present when necessary.

Digital signature software

The most technologically secure signature is a digital signature (popular digital signature technology packages includes DocuSign and RightSignature).  An electronic signature (sometimes referred to as an e-signature) is an electronic symbol or reference that captures the user’s intent, and is commonly used in email software as a means of signing off.  A digital signature is different from an e-signature; a digital signature is a form of encryption technology that is created and verified by code, and provides a platform from which a secure electronic signature can be built.  Its purpose is to provide verification of the authenticity of a signed record.

As robust digital signature software is not available free to users, the cost of obtaining and maintaining a digital signature can be high and may not be viable for lower value and/or lower risk transactions.  However, where a document of significance is to be signed by electronic means, a digital signature offers the highest level of security and reliability, provided the statutory requirements have also been met.

Conclusion

As will be seen from this article, New Zealand law provides a mechanism for the use of electronic signatures on a variety of legal documents.  In most circumstances an electronic signature is a valid way of creating a legal signature where a handwritten written signature would otherwise be used.  For the purposes of security, it is best practice to use encrypted signing software.  There are some significant categories of document where electronic signatures are not yet recognised by the law.  Regardless of the preferred method for signing agreements (whether by hand or electronically), appropriate care should be taken and advice sought before assuming legally binding obligations.

If you would like further information please contact Laura Monahan on 07 958 7479.

Introduction

Aksentijevic v Department of Internal Affairs [2016] NZHC 226 is a recent decision of the New Zealand High Court in relation to breaches of the Unsolicited Electronic Messages Act 2007 (“the Act”).  The District Court (“DC”) found Aksentijevic (“A”) breached sections 9, 10 and 11 of the Act.  The DC imposed a $12,000 penalty under section 45 of the Act.  A appealed to the High Court (“HC”).

Factual background

The key purposes of the Act were to:

• Prohibit the sending of unsolicited commercial electronic messages with a New Zealand link;
• Require that commercial electronic messages have a functional unsubscribe facility and include accurate information about the sender of the message; and
• Prohibit address-harvesting software or a harvested-address list from being used to send unsolicited commercial electronic messages in contravention of the Act.

An unsolicited “commercial electronic message” was defined in section 4 of the Act as a commercial electronic message that the recipient has not consented to receiving.

In the case, the Department of Internal Affairs (“DIA”) had received various complaints regarding electronic messages individuals had received.  These messages contained links to Google Play, CrazyTilt (an app A developed), and included statements about the benefits of CrazyTilt and others which were disparaging about other apps.  A said he had sent the messages in response to an abusive campaign against him – 2,230 messages had been sent.  The DIA obtained and carried out a search warrant of A’s home.

There was no argument that the emails were electronic messages, sent from A, and contained a New Zealand link.  The issue on appeal was whether the DC was correct in concluding that the messages were unsolicited “commercial electronic messages”.

Finding

Were the electronic messages “commercial electronic messages”?

Section 6(a) of the Act defined a “commercial electronic message” as an electronic message that markets or promotes goods or services or a business/investment opportunity, or which assists or enables a person to dishonestly obtain a financial advantage or gain from another person.  The HC found that the word “commercial” was not intended to colour the meaning of “commercial electronic message”, but rather the words were a label, with meaning to be determined from the definition.

While section 6 of the Act contained no definition of “market” or “promote”, the HC found that both were words with reasonably plain meanings.  “To market” could be “to offer for sale”, while “to promote” was to present something as worthwhile.  On those terms and based on the electronic messages A had sent, CrazyTilt had been promoted on the Google website.

The HC found that the purposes of the Act:

• Supported a broad interpretation of “to market” and “to promote” – had Parliament wanted a narrow meaning, to the effect of “sale” or “exchange for value”, it would have used such wording; and
• Were not expressed so as to restrain unsolicited electronic messages designed to sell goods or services, but rather were protective in relation to recipients of messages and organisations transmitting messages, with a further objective of reducing costs to businesses in the wider community.

The HC referred to the Electronic Messages Bill 2005 (281-1) (“Bill”), which provided that the definition of “commercial electronic message” in the Bill was “an electronic message that has, as its primary purpose … marketing or promoting” of goods or services.  While the Bill provided that promotional electronic messages could be sent, there had to be provision for the recipient to later opt out.  As enacted, the definition of commercial electronic message had been broadened, but the opt out feature had been removed.

The HC was satisfied that proof of a commercial/business objective, or an intention to make money, or a requirement for A to be engaged in trade, was not required.

Did the recipients of the messages consent to receiving them?

Section 9(1) of the Act prohibited a person from sending, or causing to be sent, unsolicited electronic messages with a New Zealand link.  Section 9(3) of the Act provided that the onus of proof in respect of consent lay with the person who contended that a recipient had consented to receiving a commercial electronic message.

As such, A had to prove, on the balance of probabilities, one of the three alternatives in the definition of “consented to receiving” set out in section 4, being:

• Express consent had been given by the relevant electronic address-holder;
• Consent had been reasonably inferred through the conduct, business and other relationships of the persons concerned; or
• Deemed consent was present, which applied where an electronic address was consciously published by a person in their official business/capacity, the publication was not accompanied by a statement requesting that unsolicited electronic messages not be sent, and the message was relevant to the person’s official business/capacity.

A had to establish consent existed from all 439 individual recipients in respect of all emails received.  There was no proof of consent from them and consent could not be inferred from the parties’ relationship.  In cross-examination, A acknowledged that the recipients had not wanted to receive the messages.  The absence of consent could be inferred from the abusive nature of A’s messages (i.e. inferred consent could not extend to such abusive emails).  It was no defence that A may have received abusive emails from the recipients first.  The HC was satisfied there was no error by the judge in his conclusion that section 9(1) was established.

Section 14 of the New Zealand Bill of Rights Act 1990 (“NZBORA”)

A argued the DIA breached section 14 of NZBORA, being A’s right to freedom of expression.  The HC found that A was not entitled to any relief from the proceedings based on this, which extended to actions taken by the DIA in issuing and prosecuting the proceeding.

Sections 10 and 11 of the Act

Section 10 of the Act required that accurate sender information be included in each message.  None of the 2,230 messages included such information – A was not clearly identifiable as the person who had authorised the sending of the messages, and there had been no way to contact him.  This information had to be contained in the message itself – it did not matter what could be obtained through the link.  The HC found that if it accepted the contrary, this would have significantly extended the scope of section 10 beyond what the clear words indicated, undermining the objectives of the Act.

Section 11 required that every commercial electronic message sent contain a functional unsubscribe facility.  The Court was satisfied section 11 was breached as none of the messages included a facility that recipients could use to instruct A that they did not want to receive further emails.  The facility could not be sent in a separate email, but had to be included in the message itself.

Validity of the search warrant

A argued the DIA’s search warrant did not satisfy section 6 of the Search and Surveillance Act 2012 (“SS Act”), requiring that suspected offences by punishable by imprisonment.  He believed the warrant was issued under section 51 of the Act, meaning section 6 had no application.

Section 51 of the Act makes provision for an enforcement officer to apply for a search warrant under the SS Act.  A contended that, because of this reference, and section 107 of the SS Act, section 6 of the SS Act did not apply.  A had misinterpreted its application.  Section 107 prescribes when a search warrant is invalid and is directed to two types – those issued by police for offences punishable by imprisonment, and those issued pursuant to other enactments, which includes section 51 of the Act.  Section 51 of the Act is the provision determining invalidity, while section 6 of the SS Act has no application.

Penalty

Section 45 of the Act allowed the HC to order a person pay a pecuniary penalty (maximum $200,000) for “a civil liability event”, being a breach of sections 9(1), 10 or 11(1).  Section 49 provided that such proceedings were civil proceedings, with the standard of proof being the balance of probabilities.  In the alternative, the DIA could have issued a civil infringement notice.

A’s appeal against the penalty was an appeal against a civil proceeding decision.  Such an appeal was only allowed where there was an error of principle, relevant considerations were not taken into account, irrelevant considerations were taken into account, or the decision was wrong.  The HC also took account of A’s submissions and financial means.

Regarding the gravity of the breach, the first enquiry was in relation to the number of messages sent and addresses to which those messages were sent.  These were mandatory considerations.  2,230 emails were sent to 439 addresses.  The HC described these numbers as “trifling” in comparison to other cases such as:

• Mansfield – 1,000,000 emails sent to 80,000 addresses, starting point was $100,000.
• Atkinson #1 – 2,000,000 emails sent, with the defendant taking a $1.6 million commission.  Starting point was $200,000 with a penalty of $100,000 given.
• Image Marketing – 45,000 texts sent in a month and 519,000 emails the next year.  Starting point was $160,000, which was reduced due to co-operation.

An assessment required that numbers be viewed in absolute terms and comparatively with other cases.  The HC referenced using percentages based on the above comparative figures.  Using that method, the HC thought that the DC imposed starting point of $12,000 for A was too high – it compared A’s case with Mansfield and calculated that the messages sent by A were only 0.25% of that in Mansfield, with 0.25% of the Mansfield $100,000 starting point being $250.

Further, there was no evidence A had sought to make money, which either substantially reduced the gravity of offending, or was a significant mitigating circumstance.  The evidence was that A was having an argument with a small number of people, which was a long way removed from the activity the legislation was directed at.

In the alternative, the DIA could have issued a civil infringement notice, which the HC saw as being more relevant to the assessment of penalty.  The HC looked at the penalties for a civil infringement notice, being $200 for an individual and $500 for a company, which was further indication that the DC $12,000 starting point was too high.  Taking this all into account, the HC considered the maximum penalty should be $1,000, but given that it was low level offending and A had modest financial means, the penalty was determined at $250.

Conclusion

A’s appeal against the liability decision was dismissed, but the appeal against penalty was allowed and a $250 penalty was substituted.  The decision demonstrated the importance placed on the purpose under the Act, and the intention of the party sending the commercial electronic message.

If you would like further information please contact Laura Monahan on 07 958 7479.

Introduction

Honey New Zealand (International) Limited v. Director General of the Ministry for Primary Industries [2016] NZCA 141 considered the interpretation of the Food Standards Code (the “Code”) relating to a honey product exported under the “Manuka Doctor” trademark.

The New Zealand Court of Appeal (the “Court”) held that the “Manuka Doctor” trademark did not constitute a “health claim” within the scope of the Code.  This article examines the decision, and considers its implications for the food industry.

Facts

Honey New Zealand (International) Limited (“Honey NZ”) produced and exported honey under the “Manuka Doctor” trademark.  However, the Ministry for Primary Industries (“MPI”) was unwilling to issue export certificates for the product, on the basis that Honey NZ’s labels breached the Code because the wording “Manuka Doctor” constituted an impermissible “health claim” under the Code.

A “health claim” for the purposes of the Food Act 1981 (the “Act”) is a claim which states, suggests or implies that a food or a property of food has, or may have, a health effect.  The Code imposes a general prohibition on a “health claim” unless it meets nutrient profiling scoring criteria and complies with the requirements of a high level or general level health claim.

MPI argued that “Manuka Doctor” was a general level health claim, which can only be permitted if the food complies with the Code or the maker of the health claim notifies MPI of the food and health effects to be established by a process of systematic review set out in the Code.

Honey NZ sought a declaratory ruling from the High Court that it was not in breach of the Code.  The High Court Judge declined on the basis that the wording implied Manuka honey had properties making it “good for your health”, finding that unsubstantiated and insufficiently ratified claims about the health benefits of food are not permitted.  Honey NZ challenged this finding in the Court.

Ruling

The issue was whether “Manuka Doctor” was a “health claim”, which essentially requires that there be an effect on the human body.  The Court found that the Act and Code had a consumer protection purpose.  Consumers are to be properly and accurately informed so they can make appropriate choices.  Misleading statements are to be prevented.

While claims of health effects must be made in line with the Code, it did not follow that general claims of unidentified health claims were prohibited.  The Code targets claims of specific, measurable health effects.

The Final Assessment Report of Food Standards Australia New Zealand reports that while a “broad capture” of claims was intended, the Code would not cover claims that “did not explicitly or implicitly indicate the presence or absence of a property of the food or claims that do not describe or indicate the relationship between food or a specific component of food and a health effect”.  Examples include: “this food is organic”, “halal food”, and “farm fresh”.  The Court found close parallels between “farm fresh” and “Manuka Doctor”, which implied it would be “good for you”.

The Court also referred to the statutory purpose of the Code, which included the desirability of avoiding unnecessary restrictions on trade.  To interpret the Code as applying to general claims of unidentified benefits or effects would not achieve this aim.  The Court thought it very unlikely that a claim that “Manuka Doctor” was “good for you” (if established) would mislead consumers into buying the product when they would not have otherwise done so.

The High Court was wrong to conclude that the use of “Doctor” carried a connotation the product was “good for you” and therefore implied a general level health claim.  The Court Justices opposed the lower court’s findings by referencing trademarks such as “Dr Pepper”, “Doctor Kracker” and “Rug Doctor” as examples of brands that referenced “doctor” for purposes other than health claims.  While it was possible some members of the consumer public would associate “Doctor” with health, healing and medicine, it was thought unlikely that a substantial number of relevant consumers exercising reasonable care would make that association.

Furthermore, “Manuka Doctor” was intended to signify that Honey NZ was a specialist in honey purity and quality, evidenced by the back of the label, which had information relating to product testing.  The Court thought that consumers exercising reasonable care would have regard to the label as a whole, and conclude that the wording related to Honey NZ’s expertise and its assurance of purity and quality.  It was also thought unlikely that substantial numbers of the consumer public would make the connection between the health benefits of honey as a wound dressing and the wording “Manuka Doctor”, so as to conclude that honey would be “good for you”.

The Court concluded that the words “Manuka Doctor” did not constitute a health claim within the meaning of the Code, and consequently the appeal was allowed.

Conclusion

It is important to note the emphasis placed by the Court on consumer protection under the Act and Code throughout this judgment.  The regulations in question exist primarily for the benefit of the consumer public, and a fine balance must be struck between those interests and that of New Zealand businesses to trade freely.  In reaching its decision, the Court bore in mind the perspective of what a reasonable consumer would expect and assume from the “Manuka Doctor” claim.

For clients in the food industry, this case particularly demonstrates the importance of ensuring that representations to the consumer public are honest and accurate in order to enable informed decision making.

If you would like further information please contact Laura Monahan on 07 958 7479.