The advantages of using electronic data are obvious; the disavantageous, however, are less so. In particular, in a highly litigious industry, what are the legal implications of the shift from paper to electronic documents?
Two weeks ago, solicitor Masons held a legal convention for the construction industry, at which the most commonly asked question was whether electronic documents could be used as evidence in a dispute. The firm’s IT partner, Clive Seddon, advises clients to treat electronic documents as paper. For instance, like paper evidence, you still have to prove to the judge that an electronic document is reliable. However, there are legal risks that are peculiar to electronic data interchange.
Defamation, authenticity and hackers
The speed and informality of e-mail can lull users into a false sense of security. A defamatory statement about a rival company sent by e-mail can be used as evidence in a libel case. This was something that Norwich Union discovered the hard way – the company had to pay out £450 000 after staff circulated defamatory material on their internal e-mail.
Tim Cole is community manager at Construction Industry Trading Electronically, the body that sets standards for electronic trading in the industry. He says he is inundated with legal questions about the use of electronic data and that these usually fall into one of two areas. The first is authenticity: users worry that they might be sent bogus information on projects by unauthorised individuals and as a result find themselves in court.
The questions that crop up are along the lines of: “If you are building a millennium tower in Blackpool, how can you be sure the instruction to make it three feet taller is from an authorised person?” Cole advises using an attached authorisation certificate to identify the sender of the instruction, and to encrypt the software.
The other main concern is security: can data be interfered with? Cole says the threat posed by hackers has been exaggerated. “Can people intercept information? Yes – just as they can theoretically attack the postman,” he says.
Establishing the rules
It is easy to think that once an electronic document management system is installed on a project, the information will miraculously look after itself. This is not so. Like paper documents, electronic information needs to be managed. The parties working on a scheme need to set up an archiving system so that drawings and instructions are kept and easy to find later. The same goes for e-mails. These must be archived either on the computer system or in hard copy. “You have to manage the data,” says Cole. “You can’t assume that some mystery e-commerce god has taken control of your business.”
Managing data includes drawing up ground rules about how e-mails and other electronic data will be used. Among other things, these will establish what can and cannot be transmitted by e-mail. Then, if a problem arises on a building contract, the parties will at least have a set of agreed principles to go by – for example, whether a default notice can be accepted by e-mail or whether it should be sent by post. The rules should also define how the data is archived and should insist on the use of encrypted signatures and certificates of authorisation for amendments to sensitive documents.
Is electronic information unfair?
Cole is often asked if the use of electronic methods of communication is fair. For example, if a tender document is sent out in electronic form to six contractors but only three are able to process electronic data, do they have an unfair commercial advantage? The answer is no. It is up to each firm bidding for the contract to ensure that its systems can deal with new technology. In most cases, tender documents are sent out electronically and in paper form – but firms with electronic capabilities will get through the information much quicker.
The JCT has introduced a set of clauses to formalise the contractual status of electronic documents. And CITE is preparing guidance notes on the use of electronic data and its legalities and will post them on its web site by Christmas. As more clients adopt electronic data management on construction projects, the legal issues will become clearer – and more important.