Necessities to a Contract

Discuss about the Electronics Contracts for Communications.

Most consumer contracts today are carried out by electronic communications[1] which are defined broadly to include major forms of communications, such as; e-mail, SMS, uploading on websites among others, that are used to facilitate electronic commerce.[2] Electronic commerce is the processing and transmission of data in commercial transactions electronically.[3] From a legal viewpoint, the major challenge arising from contacts effected by electronic means is the application of traditional principles of contract law to a system that is paperless and often encompassing different jurisdictions.[4] The legal issues arising from e-commerce include; identifying the existence of an offer and an acceptance, intention to be legally bound, identification of legal capacity and authority as well as the legislation affecting the alleged contract, especially where various jurisdictions are in place.[5] Enacted as well as unenacted law, by way of statute and judge-made case law, that constitutes Australian Business Law has adapted over the years to encompass e-commerce.[6]This paper aims to outline the creation of contracts by electronic means and the position of Australian law on the validity and enforceability of such contracts. This will be achieved by comparing the formation of electronic contracts to traditional contracts and analysing the difference while focusing on the legal provisions with regard to these differences.

The enforceability of a contract depends on the existence of; an offer outlining the terms, a clear acceptance by the offeree which is related efficiently to the offeror, supporting consideration or a benefit accruing to both parties, the intention to create a legally binding relationship and the legal capacity to contract.[7] According to Cheshire, Fitfoot and Furmston, an offer contains a distinct promise to be legally bound where certain conditions are met.[8] An acceptance, on the other hand, is the communication by the offeree to the offeror that they agree with the conditions set, and they accept to be legally bound by them.[9] Consideration is the price or benefit required in exchange for the promise which can be in monetary terms or otherwise.[10] In addition to consideration, it is important that parties demonstrate an intention to be legally bound by their agreement for it to suffice as a contract.[11] The final essential requirement for a contract to exist is capacity. This is the expectation that contracting parties are of sound mind and have attained the legal age required to take on contractual obligations.[12]

An Offer versus an Invitation to Treat

Generally, electronic contracts consist of the same features as those contained in paper contracts in that they require an agreement, consideration, intent and capacity to contract and for this reason most traditional contract law principles apply.[13] The distinguishing factors, however, lie in identifying when the agreement occurs, identifying intent, verifying identity and legal capacity of parties and determining the laws to apply should a dispute arise.[14] This is mainly because; e-contracts are paperless, not face to face and can easily be formed across borders.[15] An issue that takes up great significance today is whether electronic contracts satisfy the ‘in writing’ requirement that has previously been the norm with contract law.[16] In addition to this, the verifiability of parties, especially where evidence of capacity and intention to contract is required, has proved to be a challenge over the years,[17] Time and dispatch are other distinguishing areas between paper contracts and electronic contracts that create debate with regard to when an offer is accepted. This refers to identifying how, where and when the contract was created.[18] The questions raised in these areas provide the distinguishing features between paper contracts and electronic ones.

It is important to note that with relation to electronic offers, how an offer appears is more important than the intent of the offeror as the existence of an offer is determined by the interpretation of a reasonable person.[19] This, therefore, creates a thin line between what would be construed as an offer but is, in fact, an invitation to treat. It is therefore expected that business owners or vendors be careful with their wording on electronic communications as terms can unexpectedly become enforceable contracts.[20] This was illustrated in Stellard Pty Ltd & Anor v North Queensland Fuel Pty Ltd [2015] QSC 119 where the court found the vendor’s email negotiations to constitute a valid binding contract even if they did not intend it to be so.

In 1997, the Wallis Report identified the need to adopt proper internationally accepted standards of electronic commerce in Australia.[21] It made various recommendations to this effect including amending legislation to permit appropriate use of digital signatures, amending Evidence Acts to recognise electronic transactions and record-keeping as well as endorsing the public key authentication system.[22] In 1999, guided by the United Nations Commission on International Trade Law’s Model Law (UNCITAL’s Model Law), the Commonwealth enacted the Electronic Transactions Act 1999 (ETA) (Cth) so as to develop Australia’s economy.[23] The Federal Attorney General at the time of its enactment stated that it would facilitate the achievement of uniform legislation so as to remove any legal restrictions facing electronic transactions.[24] Over the years, various territories and states in Australia have enacted parallel legislation, such as Electronic Transactions Act 2000 (Vic), to provide a legal framework that ensures equal treatment of paper-based as well as electronic contracts.[25]

The Law on Electronic Contracts

According to the ETA 1999 (Cth), facilitating a transaction electronically does not make it invalid.[26] It further allows for the submission of information electronically where it is required in writing,[27] which includes submission of a signature electronically where such is required.[28] Additionally, where the production of a document is required to facilitate a transaction, an electronic production of the required document is accepted if it can prove to maintain the integrity of the documents contents.[29] Furthermore, if written records are required of certain information, the requirement is considered fulfilled if the information is recorded in electronic form.[30] These are some of the provisions of the ETA 1999 to ensure similar treatment of paper-based commerce and electronic commerce as well as ensure non-discrimination among different technological forms.[31]

As aforementioned, the ‘in writing’ requirement of contract law has posed a lot of debate with regard to electronic contracts. In Mehta v J Pereria Fernandes S.A [2006] EWHC 813 (CL) the court held that an email was a memorandum of alleged agreement and thus satisfied the written requirements of the Statute of Frauds.[32] However in Segal v Donnelly [2012] NSWSC 833, Bergin CJ rejected the notion of an email constituting a memorandum under the Conveyancing Act 1919.[33] However, the position of statute is clear with regard to this requirement that a contract effected electronically, where written means are required will not be void.

In order to determine the moment a contract is formed, time and dispatch of goods are to be considered.[34] The ETA 1999 (Cth) describes the time of dispatch as when electronic communication leaves the information system under the originator’s control;[35] while the time of receipt is when the communication becomes retrievable by the person to whom it was sent.[36]   At common law, two rules have been developed to determine the formation of a contract based on time and dispatch; these are the postal rule and the receipt rule.[37]  Under the postal rule, an acceptance is considered to take effect when the letter is posted regardless of whether the offeror has received notice of the acceptance.[38] This rule was established in Adams v Lindsell (1818) 106 ER 250, where the court held that as soon as the letter of acceptance was posted, the contract was valid regardless of the delay that had causes the defendant to contract elsewhere. The receipt rule, however, considers a contract as created once acceptance is received.[39] In Entorres v Miles Far East [1955] 2 QB 327 CA, the contract was considered formed when the telex was received making it subject to English law. Where communication of acceptance is instantaneous, common law requires that a contract is formed when upon receipt of acceptance.[40] Therefore, in respect to online contracts, it is expected that the receipt rule will apply as they involve real-time instantaneous communications.[41]

The methods of accepting terms and conditions of a contract online include the click-wrap agreement, the browse-wrap agreements and the web-wrap agreements.[42] A click-wrap agreement occurs where the contract terms are located on the same page as the ‘I Agree’ button and the customer is expected to go through them then agree to the conditions in order to continue with the service.[43] They are highly likely to be enforceable unlike the browse-wrap agreements which do not have the terms and conditions on the same page but provide a hyperlink to them.[44] Web-wrap agreements generally indicate that the internet will not interfere with contract formation.[45]

In Forrest v Verizon Communications Inc. District of Columbia Courts Appeals (2002), Verizon customers had signed up for a service online which contained a click-wrap license that appeared partially in a small window on the screen. The court held that the scroll box adequately and reasonably communicated the terms to the plaintiff. The leading decision in browse-wrap cases is Specht v Netscape Communications Corp., 150 F. Supp. 2d 585 (S.D.N.Y. 2001),  where the court held that ‘please review’ found on the defendants site was an invitation and not a condition therefore making it unenforceable. The court in Comb v PayPal Inc. Case Number C-02-1227[46] also dismissed the validity of terms in a browse-wrap agreement where the link to the user agreement was visible but not necessary to process the application.

An electronic signature is any method employed to put a signature into an electronic message.[47] UNCITRAL’s Model Law defines electronic signatures as electronic information, attached to a message and used to identify the signatory of the message and indicate the their approval of the information contained therein’.[48] Under Australian law, electronic signatures are recognised as having the same effect on a contract as handwritten signatures.[49] The Electronic Commerce Expert Group identified the functions of a signature as reliance, record-keeping, evidentiary, channelling and cautionary.[50] However, they must satisfy some qualifications before they are considered useful. These include, consent by the recipient is required to receive information electronically, there should be a method of signing employed to identify the person sending the information and finally, the method of signing must be reliable and appropriate.[51] The qualifications applied are reflected in each of the ETAs.[52]

In Mehta v J Pereria Fernandes S.A [2006] EWHC, a plaintiff, now the respondent, had been awarded £25,000 in an amount allegedly guaranteed by the defendant via an unsigned email. The court held that a contract existed by virtue of the email satisfying the ‘written’ requirements of the Statute of Fraud; however, the email address at the heading did not constitute an electronic signature. A typed name could, therefore, be considered as a signature but the placement of the name on the document should be considered to identify whether it may be construed that the signatory agrees and adopts the contents of the email.

Verification and authentication are still a risk with electronic signatures. It is difficult to prove the identity of the signatory without witnesses and there is also a risk of alteration of the contract content even after signing.[53] In order to minimise these risks, parties are encouraged to apply digital signatures and employ digital signature certification systems.[54] Digital signatures are a subset of electronic signatures which employ encryption technology to associate a signature with hidden information used in electronic communication.[55] With digital signatures, public and private keys are generated to which identity verification as well as ensure that the content of the contracts is not altered.[56] Digital signature certificates are characterised by high-level security and employ stringent identity checks prior to their issue.[57] However, despite these measures, there remains the risk that the data regarding the parties’ identity is incorrect.[58] Additionally, private keys are only useful to the extent that they are kept secret.[59] Biometric authentication, IP address tracking and time stamps, among other techniques, can be applied to mitigate these risks.

The ETA 1999 (Cth) provides for mistakes in electronic contracts where a person creates an error during communication with an automated system and the system does not avail an opportunity to correct the error. The Act gives the right to withdraw the errored portion. This right is to withdraw only a portion of the errored communications does not constitute a right to rescind the contract. However, circumstances may arise that render communication ineffective as a result of a withdrawal.[60]

Conclusion

With the ever-changing fast-developing world of technology, legislation has had to adapt to include the concept of electronic commerce. As defined, electronic commerce is simply conducting commercial transactions via electronic devices such as computers, mobile phones, facsimiles among others. Electronic contracts have emanated from these transactions that have elicited great discourse in the legal field. In an effort to understand the formation, validity as well as enforceability of contracts created by electronic means, the study sought to analyse the formation and execution of these contracts in comparison to the traditional paper-based contracts. It is clear that the law has evolved to embrace electronic contracts. This is evidenced by the fact that an electronic contract is seen to satisfy the ‘in writing’ requirement where written contracts are required. Electronic signatures are also considered in most circumstances where a wet-ink signature would be required. However, it is important to note that not all circumstances allow for an electronic contract to suffice where a written one is required. For example, as aforementioned, wills, codicils among other testaments are still required in writing. As technology continues to develop, it is expected that the law will continue to adapt accordingly.

A Articles/Books/Reports

Matthew Groves, Law and Government in Australia (Federation Press, 2005).

Peter Moran, The Paperless Contract (15 June 2015) Norton Gledhill https://www.nortongledhill.com.au/wp-content/uploads/2015/07/The-Paperless-Contract.pdf

Alan Davidson, The Law of Eelectronic Commerce (Cambridge University Press, 2009)

Philip Argy, Nicholas Martin and Mallesons Stephen Jacques, The Effective Formation of Contracts by Electronic Means (2001) https://www.austlii.edu.au/au/journals/ANZCompuLawJl/2001/33.pdf

Eugene Clark, Cyber Law in Australia (Kluwer Law International, 2010).

Paul Latimer, Australian Business Law (CCH Australia Limited, 2012).

M.P Furmston, Geoffrey Chesire and Cecil Herbert  Fitfoot, Chesire, Fitfoot and Furmston’s Law of Contract (Oxford University Press, 2012).

Julie Clarke, Australian Contract Law:Formation https://www.australiancontractlaw.com/law/formation.html

Eugene Clark, Cyber Law in Australia (Kluwer Law International, 2010).

Ewan Mckendrick and Qiao Liu, Contract Law: Australian Edition (Palgrave Macmillan, 2015).

Alan L Tyree, Electronic Signatures https://austlii.edu.au/~alan/electronic-signatures.html

Aashish Srivastava, Electronic Signatures for B2B Contracts: Evidence from Australia (Springer Science & Business Media, 2012)

Hayden Delaney and Briar Francis, Electronic Signatures and their Validity in Australian Law (2015) https://www.findlaw.com.au/articles/5777/electronic-signatures-and-their-legal-validity-in-.aspx 

Beatson and J. Cartwright, Anson’s Law of Contract (Oxford University Press, 2016)

Andy Gibson and Douglas Fraser, Business Law 2014, (Pearson Higher Education AU, 2013)

Ella Van der Merwe, Sale of Land Email Exchange Forms Binding Contract of Sale (May 2015) https://www.hunthunt.com.au/SiteMedia/W3SVC1265/Uploads/Documents/CaseNote_2015-05-Stellard.pdf

Andrew Lind and James Tan, Enforceability of Online Contracts in Australia Corney & Lind Lawyers https://www.corneyandlind.com.au/resource-centre/commercial/enforceability-of-online-contracts-in-australia/