Contracting in a Digital Environment

It is surely correct to say that the elimination of the need for filing cabinets holding masses of paper is one of the long term goals of the current information technology age. The field of E-commerce offers us a working example of how this goal is being achieved on a daily basis. It is recognised and accepted that E-commerce is based on speed, convenience and efficiency. This basis drives the business and technology communities to constantly upgrade and develop the art of trade with “cutting-edge” innovations.

The problem with this fast paced evolution is that they “often outrun the regulatory regimes which they are bound by”1. The area of electronic contracts is possibly one of the best examples of such a situation. The laws which govern contracts, a legally binding agreement between two or more people or organisations, were developed when the visions of an information technology age were that “Computers in the future may weigh no more than 1. 5 tons”2 and even when Charles H. Duell thought that “everything that can be invented has been invented”3. Thus there is little doubt that despite the obvious advantages of E-commerce it does pose certain legal problems, certainly in the area of E-contracts. It is in looking at how governments around the world, from Hong Kong to Germany, have scrambled to resolve the problems posed by E-contracts that it is apparent how difficult the elimination of pen and paper is. A contract can be made in a number of different forms.

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They can be made for example by deed, in writing, evidenced in writing or it may be oral, or indeed a combination of these. For example, section 4 of the Sale of Goods Act 1979 states that a contract for sale “… may be made in writing (either with or without seal), or by word of mouth, or partly in writing and partly by word of mouth, or may be implied from the conduct of the parties”. As regards E-contracts these are believed to fall into two categories, those being contracts by e-mail and “clickwrap” method.

The contracting by e-mail method is fairly self explanatory whereas the “clickwrap” method originates from the old software-licensing agreements printed on the outside of software boxes, often referred to as “shrinkwrap” agreements. Due to the popularity of downloading software from the Internet, the shrinkwrap agreement is rapidly being replaced by the clickwrap agreement, with users clicking on the “I Agree” button rather than removing the shrinkwrap packaging.

The question that remains to be answered is can these methods fulfil the traditional requirements of a contract4 even in a case where a purely programmed response is used. I feel that the USA is always a good place to look when it comes to advances in technology and how they have coped as these advances usually occur there first. It must first be said that the obvious worldwide goal in this process is harmonisation which would eradicate many of the difficulties faced.

UNCITRAL recognised this and in 1996 a model law was adopted by them to serve as “a reference aid for the interpretation of existing international conventions and other instruments in order to avoid impediments to E-commerce”5. These model laws have had a great influence in the attitudes and initiatives adopted in the US and indeed on the opposite side of the Atlantic ocean. The traditional writing and signature requirements found in the United States have steadily been eroded by legislation and judicial interpretation to “keep law abreast with technology”6.

At national level E-sign7 took effect in October 2000 and granted electronic contracts the same legal validity as written ones by stating that form may not be the sole basis for denying the document or signature validity8. As regards the outlook at state level the UCITA9 and the UETA10 ensure that electronic contracts are valid if it is shown that “the party against which enforcement is sought authenticated a record sufficient to indicate that a contract has been formed and which reasonably identifies the copy or subject matter to which the contract refers”.

They also go beyond the model laws by explicitly deeming electronic signatures and documents to be in satisfaction of laws requiring signed and/or written contracts. The US courts took the opportunity in Hotmail v Van$ Money Pie11 to say that a clickwrap agreement was a legally binding form of Internet-based contract. It also determined that Van$ Money was bound by the clickwrap agreement solely by clicking on “I agree” after having the opportunity to view the terms of service.

This may lead us to believe that all electronic contracts will be enforced in the US, however this would be a mistake12. It appears that in the US while the legislative trend is to enforce such contracts, care must be taken in “drafting and implementing electronic contracts to ensure that assent is clear and that the terms are reasonable”13 Before taking a look at the EU attitude a little aside could be perhaps to take a look at the Hong Kong position as regards electronic contracts.

Here the legal point of view is based on case laws “analogous to on-line sales contracts”14. Also the Electronic Transactions Ordinance has now provided that a contract cannot be denied validity on the ground that it was made electronically. Thus, an on-line sales contract is as valid as a paper sales contract. A look at a jurisdiction which may seem far removed from our own is useful when taken in the context of the global nature of E-commerce.