The ever increasing necessity to ‘seal deals’ electronically – is Sri Lanka ready?

electronic contracting


The COVID-19 pandemic has created situations unprecedented, preventing a physical presence of persons necessary for transacting of business at one time in the same space with a ‘wet signature’ sealing the deal! Technology in the form of the online platforms have facilitated the ‘meeting’ of people at a global level via video conferencing and other mechanisms, making possible the continuation of business, to include negotiation and concluding of transactions; this situation demanding the required tools to implement with legal validity and enforceability the business transacted both at a domestic and global level. Thus, the heightened importance of concluding transactions electronically with reliance on electronic and digital signatures, which although provided for by law in Sri Lanka not being a methodology favoured and so not commonly availed of pre-COVID-19 primarily due to deep rooted cultural issues of ‘trust’ of the unseen processes in the cyber sphere. The country however, having legislated for limited electronic transacting with sector specific laws such as in the financial sector from the year 2004.

Sri Lanka enacting a historical piece of legislation in the form of the Electronic Transaction Act No. 19 of 2006 [ETA] bringing within its scope ‘all business and commercial transactions which are electronic in nature’ in this way, expanding the reach of the electronic medium to ALL sectors. It being the first country in South Asia and the third in the Asian Region to sign the United Nations Convention on the ‘Use of Electronic Communications in International Contracts’ soon after legislating. The ETA is founded on international standards, being modelled on the UNICITRAL model law on E- Commerce (1996) and the Model Law on Signatures (2001), accordingly, the language, key words and definitions being consistent with that in the model laws and so also with many comparative laws in other jurisdictions. The Act having been substantially amended as recently as 2017 is a progressive and enabling piece of legislation, providing for a digital solution to commerce and trade both domestic and cross-border, albeit, in its infancy in Sri Lanka with no available mass of judicial precedent on its practical implementation.

The Act whilst giving legal recognition to electronic communication/ contracts, is seeking to establish a legal structure outside of the existing laws, validating electronic transactions whilst providing for proper regulation to ensure a firm legal foundation and importantly also providing for the much needed digital empowerment of the State sector. It has as its objects ‘the facilitation of domestic and international electronic commerce by eliminating legal barriers and establishing legal certainty, encouraging the use of reliable forms of electronic commerce, facilitating electronic filing of documents with government and to promote efficient delivery of government services by means of reliable forms of electronic communications and to promote public confidence in the authenticity, integrity and reliability of data messages and electronic communications.

The scope of the Act does not bring within it; a Last Will, Power-of-Attorney, Contract for the Sale or Conveyance of or any interest in immovable property, Trust (excluding Constructive, Implied and Resulting trusts) all such documents specifically legislated for and requiring mandatory form and formalities such as notarization. Electronic notarization has been facilitated as a temporary measure in many jurisdictions during this pandemic period; we are hopeful that required amendment to the Act would be considered to allow for it, for although not in nature of ‘commercial’ documentation often relevant to or collateral writings in a commercial deal, considering that the requirement of notarization is an integral part of validating such writings in Sri Lanka; further excluded from the scope of the Act are, A Bill of Exchange, Telecommunication Licence, any financial matter in the nature of (i) transactions on a regulated exchange (ii) foreign exchange transactions (iii) inter-bank payment systems, inter-bank payment agreements or clearance and settlement systems relating to securities or other financial assets or instruments (iv) the transfer of security rights in sale, loan or holding of or agreement to repurchase securities or other financial assets or instruments held with an intermediary- the section also providing for exclusion of any other document specified by regulations with no other documents specified as of date.

With a non-exhaustive definition provided for the term ‘Electronic Communication’ the Act gives express legal recognition to all forms of ‘Electronic Communication in providing that ‘no data message, electronic document, electronic record or other communication shall be denied legal recognition, effect or validity or enforceability on the ground that it is in electronic form’.

The Act, cutting across the entire gamut of law by overriding the necessity in ‘any other law’ inter-alia requirements of ‘writing’, ‘and/or retention and/or ‘original form’ and for ‘ink signature’ by establishing a functional equivalence between electronic communications and paper documents, subject of course to a laid out criteria. The State Sector to allow for the electronic equivalent of paper applications, approval, permits, licenses, procurements, receipts whilst also to implement the necessary processes and procedures in electronic form, with the relevant authority empowered with discretion to specify all such requirements to include types and forms of E-Signatures and methodologies involved.

The Act providing for ‘Electronic Contracts’ by addressing the fundamental requirements under the common law for a valid and enforceable contract, such as an “Offer and an ‘Acceptance’ evidencing a ‘meeting of minds’ central to a formal contract. It further addresses the determination of a party’s location in an electronic environment; the time and place of dispatch and receipt of electronic communications; the use of automated message systems for contract formation thereby establishing legal certainty for international commerce. It strengthens itself by providing expressly that an electronic contract formed with an Offer, Acceptance and electronic signature shall not be denied legal effect SOLELY on the ground of an electronic signature or if such contract was formed with an electronic communication on the ground of the electronic record. Further, the doctrine of ‘freedom of contract’ recognised with the ‘offeror’s right to prescribe the method of acceptance not being affected by the terms of the Act, with the possible lack of ‘intention’ validated by this provision allowing for a contracting between automated systems with no review by a natural person.

A ‘National Certification Authority’ (NCA), with inter-alia the power to determine the criteria for licensing of Certification Service Providers (CSP), issue licenses to CSP’s and authorise CSP’s to issue prescribed e-signatures in accordance with identified security procedures for use of bio metric data and other authentication technologies for verification purposes is provided for under the Act, with no regulatory restrictions on the use of an international certification service providers or electronic signatures. As of date Sri Lanka has as its NCA ‘Sri Lanka Computer Emergency Readiness Team’ (‘Sri Lanka CERT’). Sri Lanka CERT also has as one of its many functions the provision of responsive services in the form of incident handling and digital forensics whilst policing cyber security threats.

Sri Lanka being the first in South Asia to adopt an international standard for digital transactions, by having a National Digital Certificate Authority key ceremony to generate the Root certificate of the NCA, thereby facilitating more secure digital transactions, a necessity with increased use of the digital medium, not only in the domestic sphere but also cross-border transactions. Whilst enhancing international recognition to digital certificates issued by the NCA.

The Act, enabling the admissibility of any data message, electronic document or electronic records or other communications as evidence in legal proceedings with a presumption of truth in such communications and genuineness of an electronic signature unless the contrary is proven, thereby, allowing evidence in the electronic/digital’ form and providing for a specific regime for electronic evidence and expanding the framework of the law on evidence in Sri Lanka.

Sri Lanka is also in the process of enacting further legislation in the form of the ‘Cyber Security Act’ still in draft form in support of its efforts to continue its transformation into a digital society in keeping with current global trends.

It would be apt to conclude that Sri Lanka has in place a sound legal framework duly enabled to international standards to ‘seal the deal’ with the ‘Modern Contract’; having as a foundation the fundamental policy principles of technology neutrality, functional equivalence and party autonomy allowing for broader application.

Related