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All Hail the Use of Electronic Contracts: Until All Hell Broke Lose

I have a few interesting questions for you.  Are contracts formed on the internet legally enforceable?  More specifically, are contracts formed via websites, email, blogs or chat rooms legally enforceable?  What about contracts formed via PDA communications?  I was asked some of these questions 2 weeks ago whilst in conference with a client from the web-design industry.  These questions are simple questions, yet they have a potentially large impact on a business if stakeholders do not understand the basis upon which they may be contracting.

Since the passage of the Electronic Transactions Act 1999, it has been clear that when web users contract with individuals and businesses over the internet, such contracts are legally enforceable if basic contracting requirements are fulfilled.  They are the elements of an offer and acceptance, consideration for the contract, intention to create legal relations and the capacity of parties to bind themselves to a legal transaction.  If these criteria are satisfied, the fact that a contract was formed via the internet will not prevent it from having a binding effect.  It is recognised by both State and Federal governments that electronic contracts are now a necessity of life.  Every purchase you make on the internet for example, is governed by the basic contracting process and thus, every transaction is potentially a binding transaction.

Discussions on blogs or chat rooms and PDAs may fail the test of "intention to create legal relations" unless evidence to the contrary is provided.  Email transactions and contracts of sale and purchase formed on the internet however, are another matter.  Your last online purchase for example, is likely to be a properly formed contract unless one or more of the necessary elements is missing.

In this respect, design factors for web designers to consider include the following:

• Expressly indicate the terms and conditions which will apply to the transaction;
• The user should not be able to proceed without reading or being given the clear opportunity to read the terms and conditions;
• Include a mechanism which requires the user to actually scroll through the agreement before the user can consent to being legally bound;
• Program the buttons so that the "I Disagree" button is the default choice; and
• Use features such as cookies to capture the clicking of the "I Agree" button.
  

You may also wish to engage a lawyer to draft or review the terms and conditions of the contract to advise further on its enforceability.  The above recommendations will not suffice if the wording of the contract is deficient.

On another note, contracting by email is a common form of creating legally binding obligations.  Our office for example, handled a matter this week whereby an agreement to publish a book was conducted almost solely on the basis of email exchanges between the parties.  These email exchanges clearly indicated an intention to bind each other and had the prerequisites of an offer and acceptance. Consideration was also provided and both parties had sufficient capacity in law to contract with each other.  In these circumstances, email exchanges may form the basis of an agreement between the parties if the essential terms of the contract have been agreed to.  Non-essential terms may be implied into the contract by a Court or Tribunal.  Discussions of contracts and contractual terms or the possibility of entering into a contract therefore should be conducted with care.  This is especially so in a commercial environment.  Email exchanges should be permanently kept in a central repository and backed up as this form of communication can be entered into evidence in the event of a dispute.

At the end of the day, use your common sense and if something sounds, feels, looks, smells or tastes wrong, seek the advice of either your doctor or your lawyer!