THE ROBERT GORDON UNIVERSITY

ABERDEEN BUSINESS SCHOOL

DEPARTMENT OF LAW
Electronic Contracts: Are traditional rules of contracting
still applicable? A study of the EU, US, and International
Legislations
2011
By
Ezeama Chidiebele K. (1012179)
Dissertation Supervisor: Eric Ogilvie
Submitted in partial completion of the requirement for
the award of Masters degree in International
Information Technology Law (LLM)
Word Count: 18,007(Excluding References)

Abstract

On a global level it is truism that trade and commerce has evolved as a tool for economic and
social development of any existing human society. Currently, this has transcended the act of
physical transactions between parties into the electronic world of endless possibilities where
business transactions are preceded by legally binding contracts free from the hassle of
traditional paper contracts.
The internet and electronic contracting has changed the mode of business is transaction
around the world. Despite the huge success recorded from electronic contracting, certain
legal issues have emerged while applying the traditional principles of contract law to a
borderless and paperless electronic jurisdiction. General principles of contract law, such as
invitation to treat, consensus ad idem, offer and acceptance, jurisdiction and form and validity
requirements have become ambiguous when applied to e-contracting.
This work will identify the challenges faced while trying to apply the general rules of
contracts to e-contract agreements. Most importantly, the work seeks to determine if the
principles of e-contracting vary from one jurisdiction to the other. Legislative efforts in
correcting the ambiguity raised by the advent of e-contracting will also be critically analyzed
by this work. Finally, this work will address the question: to what extent can the traditional
and basic rules of contracting be applied to electronic contracting?

Acknowledgements

First and foremost my appreciation goes to God almighty for the gift of life.
To my supervisor Eric Ogilvie, thanks for your support and encouragement, you made me
believe in myself.
To my wonderful parents and siblings, I love you all and thanks so much for your support and
love.
This appreciation goes to all the Lecturers and Staff of the Aberdeen Business School. You
have created yet another Professional. God bless you all.
To Ms. Nwoyi Iwara, who did proof read my work, I appreciate and God bless you.
Finally to my colleagues and classmates especially Cynthia, Alex, Chisa, Chris, and all
others, thanks for your kind advice, I really appreciate.

LIST OF CASES

P.S.G.B vs. Boots Chemists

(1953) 1 All ER 482

Carlill vs. Carbolic Smoke Ball Co.

(1893) 1 QB 256

Hyde vs. Wrench

(1840) 3 Beau 334

The Brimmes

(1975) QB 929

Adams vs. Lindsell

(1880) 1B & Ald 681

Fisher Vs. Bell

(1961) 1 QB, 394

Partridge vs Grittenden

(1968) 2 All ER, 421

Bank of Yolo vs. Sperry Flour Co.

(1903) 141 Cal. 314,

Adams vs. Lindsell

(1818) 250 K.B

Imperial Land Co. of Marseilles, In re (Harris Case)

(1872) LR Ch. App, 587

Household Fire and Carriage Accident

Insurance Co. ltd vs. Grant

(1879) 4 Ex, D 216

Entores Ltd vs. Miles Far Eastern Corp

(1955) 2 Q.B, 326

Brinkibon Ltd vs. Stahag Stahl Und

Stahlwavenhandelgeselischaft mbH

(1982) 1 All ER, 293

Chwee Kin Keong vs. Digiland Mall.Com Property Ltd

(2005) SGCA, 2

Anson vs. Trump

(1998) 1 WLR, 1404

Lockheed vs. Owen

(1993)Q.B, 806,814

In re Clarke

27 LJPM and A, 18,

In re Doed Philips vs. Evans

2 LJ ex 19, 195

Goodman vs. J Eban

(1954) 1 QB, 550

Hull Industrial Tribunal

1803325/97

Golden Ocean Group ltd. vs. Salgaocar

4

Mining Ind. Ltd.

(2011) EWHC 56

ProCD vs. Ziedenberg

1996)

86 F.3d, 1447, (7th Circuit

Bremen vs. Zapata Offshore co.

407 U.S. 1, 12-13 (1972)

Forest vs. Verizon Communications

805 A 2d 1007 ( 2002)

Hughes vs. McMenamon

(2002)

204 F. Supp. 2d 178, 181

I.LAN Systems Inc. vs. NetScout Service Level Corp.

39 (2002)

183 F. Supp. 2d 328, 338-

Williams vs. America Online Inc.

Super.)

2001 WL 135825 (Mass.

Scarcella vs. American Online Inc.

798 N.Y.S.2d 348 (2004)

Comb vs. Pay Pal Inc.

218 F.Supp.2d 1165

Pollstar vs. Gigmania

107 F Supp 2d 974

Specht vs. Netscape Communications Corporation

306 F 3d 17 ( 2002)

Peter Pammer vs. Reederei Karl Schluter

GmbH &Co. KG.

Case C-585/08

Hotel Alpenhof GesmbH vs. Oliver Heller.

C-144/09

Inset System Inc. vs. Institution Set

(1996) 937, F. Supp. 161

Martiz Inc. Vs. CyberGold

(1996) 947, F. Supp, 1328

Zippo Manufacturing Co. vs. Zippo Dotcom Inc.

1997, 42 US PQ, 2d, 1062

Caiazzo vs. American Royal Arts Corporation

(135585)

(2011) FLA. 4th DCA

Wilkens vs. IOWA Insurance Commissioner

457 NW, 21, 1990

LIST OF STATUTES
UNITED STATES LEGISLATIONS

The Fourteenth Amendment (Amendment XIV) of the United States Constitution

adopted on July 9, 1868.

United States Uniform Commercial Code (1952)

United States Uniform Computer Information Transactions Act (UCITA) 2000

The United States Electronic Signatures in Global and National Commerce Act, 2000

Revised edition of the Uniform Commercial Codes of the United States first published
in 1952.

The Uniform Computer Information Transactions Act (UCITA), 1999

EUROPEAN UNION LEGISLATIONS

Council Regulation (EC) No 44/2001 of 22 December 2000 on Jurisdiction and the

Recognition and Enforcement of Judgments in Civil and Commercial Matters

Directive 1999/93/EC of the European Parliament and of the Council of 13 December

1999 on a Community Framework for Electronic Signatures

The EU Electronic Commerce Directive 2000/31/EC of the European Parliament and

of the Council of 8 June 2000 on Certain Legal Aspects of Information Services, in
Particular Electronic Commerce, in the Internal m.

The Uniform Electronic Transactions Act (UETA), 1999

An Act for the Prevention of Fraud and Perjuries (United Kingdom Statute of Frauds
1677)

INTERNATIONAL LEGISLATIONS

United Nations Commission on International Trade Law (UNCITRAL)

Model Law on Electronic Commerce 1996

United Nations Convention on the Use of Electronic Communications in International

Contracts, 2005

Convention on Jurisdiction and the Enforcement of Judgments in Civil and

Commercial Matters (Brussels Convention) 1968

United Nations Convention on the Use of Electronic Communications in International

Contracts 2007

United Nations Convention on the International Sale of Goods, (CISG), 1980

Table of Contents

Page number

Abstract .... ..ii

Acknowledgements .... iii
List of Cases .... iv
List of Statutes ..... vi
Table of Contents ... viii
Introduction .. 1
Aims and Objectives 1
Methodology and Approach . 2
Scope and Structure .. 2
Chapter One: Background and Definitions of Key Terms 4
1.0 Meaning of Contract .. 4
1.1 Basic Principles of Contract Law .. 4
1.1.1 Offer 4
1.1.2 Acceptance . .5

1.1.3 Communication of Acceptance ....5

1.1.4 The Postal Rule ... 5
1.2 Electronic Contracts ... 6
1.2.1 E-mails .... 7
1.2.2 List-Serves and Chartrooms 7
1.2.3 World Wide Web . 7
1.2.4 Electronic Data Interchange 8
1.3 Can Computers make valid offers and acceptances? ...8
1.3.1 Making offers and invitation to treat online ...10
1.3.2 Electronic Acceptance and the Postal Rule .. 11
1.3.3 Rationale for the original establishment of the Postal Rule ...11
1.3.4 Postal Rule compared with modern day electronic communications 12
1.3.5 Postal Rule compared with email acceptances .. 13
1.3.6 Reasons for extending the application of postal acceptances
To email communications . 14

Chapter Two: Form and Validity Requirements in Electronic Contracts 16

2.0 Introduction .. 16
9

2.1 Interpretation of Writing Requirement in electronic contracting ..17

2.2 Interpretation of Signature requirements in electronic contracting .. 19
2.2.1 Rationale behind the Signature requirement under the Statute of Frauds .19
2.3 Electronic Signatures .... 20
2.3.1 How can an electronic document be signed? .... 20
2.3.2 Mandatory Requirements of model Electronic Signature Legislation ...22
2.4 Electronic Agreements and Assent Online ... 22
2.5 Shrink Wrap Agreements...... 23
2.5.1 Click Wrap Agreements 25
2.5.2 Decisions where Click Wrap Agreements were not enforced .. 27
2.5.3 Browse Wrap Agreements 28
Chapter Three: Determination of Jurisdiction and Choice of
Law in Electronic Contracts .... 31

3.0 Jurisdiction ... 31

3.1 The European Union`s Approach in the Determination of Jurisdiction
Of Online contracts . 32

3.1.1 Determination of Jurisdiction under the Brussels 1 Regulation .... 33

10

3.2 The United States Approach in the Determination of Jurisdiction

Of Online Contracts .... 36
3.2.1 The Sliding Scale Test as applied in Zippo`s Case ... 38
3.3 The Determination of Choice of Law applicable to e-contracts .. 40
Chapter Four: Regulatory Solutions to the barriers encountered
When applying traditional rules of contracting to electronic contracts .. 42
4.0 Introduction .. 42
4.1 Regulatory Solutions to barriers raised by formal requirements
In specific contract agreements ... 42
4.1.1 The UNCITRAL Model Law on Electronic Commerce 1996 .. 43
4.1.2 The European Union Directive on Electronic Signatures . 44
4.1.3 The Federal E-Sign Law of the United States of America 45

4.2 Regulatory Clarification on when an electronic communication

Of acceptance is deemed to have been received . 47
4.2.1 Clarifications by the UNCITRAL Model Law 1996 .... 47
4.2.2 Clarifications by the E-Commerce Directive of the EU 48
4.2.3 Clarifications offered by some United States Legislations ... 48
4.3 Regulatory Clarifications on the Manifestation of Assent in
Non-negotiated Electronic Agreements .. 50
4.3.1 The UNCITRAL Model Law on Electronic Commerce 51
11

4.3.2 United States Laws on the manifestation of assent in electronic contracts 51

4.3.3 European Union Laws on the manifestation of
assent in electronic contracts..... 52
4.4 Online Dispute Resolution (ODR)

.... 53

4.5 Initiatives by Different Jurisdictions on (ODR).....55

4.6 Conclusions and Recommendations ..... 56
Bibliography ... 58

12

INTRODUCTION
The importance of contracts can hardly be overemphasized as they constitute the legal
foundation upon which business is transacted around the globe. 1 The general law of contract
operates in the same way on the internet as elsewhere, but in its application there are issues
and challenges that are peculiar to e-commerce.2
A great part of the existing principles of contract law is based in the physical world, while ecommerce transactions typically take place in a virtual environment, such as on the World
Wide Web. The non-presence of physical documents allows for gaps in much of the
jurisprudence that guides contracts and courts when they attempt to apply existing principles
of contract law to electronic contracts. A more complex issue is posed by the borderless
nature of cyberspace. Contract laws remain within the physical boundaries of each country.
Online, however, parties can engage in seamless transactions that cross multiple national
borders, often without the parties intending to leave the security of their own laws and courts.
Businesses and consumers can inadvertently expose themselves to significant legal risks
when they wander into the borderless shopping centre of virtual transactions. 3
Two primary approaches have emerged in response to the legal uncertainties of e-commerce.
One group of legal theorists has proposed new laws to specifically address the problems
posed by electronic commerce, overlooking the inevitable need for further change as
technology continues to advance. Constant changes such as these can lead to a complicated
and uncertain platform for doing business. The second group of theorists try to apply existing
laws to new virtual environments whenever possible, proposing new laws only when
absolutely necessary to fill the gaps.4
Aims and Objectives of this research
1 R. Orpwood, Electronic Contracts: Where we`ve come from, where we are, and where we should be going
(2008) 1 Intl In-house Counsel Journal, 455-466.

2 Todd, P., E-Commerce Law (Cavendish Publishers, Rutledge, London, 2005) p. 169
3 Rosener, J. D. Controlling Chaos: Frameworks for Governing Virtual Relationships Pepper
Hamilton Attorneys at Law Publications available at
http://www.pepperlaw.com/publications_article.aspx?Articlekey=600
4 ibid
1

This research will:

-

Identify the major legal challenges faced by both the courts and businesses while
attempting to apply the existing principles of contract law to electronic contracts

Determine to what extent the existing legal principles of contract law apply to
electronic contracts

Identify the legislative changes made in the United States of America, the European
Union and the International Community to the existing principles of contract law in
order to accommodate e-contracting, and determine if entirely new laws were created
or existing laws were modified where lacunae existed to accommodate electronic
contracting

Comprehensively analyze and evaluate electronic commerce legislations in the United

States of America, the European Union and the International Community.

To accomplish the above, it is necessary to examine the following:

-

A background of the general principles of contract law which lays a proper foundation
for further discussion.

The rationale behind the creation of some existing principles in contract law

The ephemeral nature of the internet vis-a-vis electronic contracts and how they have
created unforeseen legal problems

Relevant electronic contract legislations in the United States, the European Union and
the International Community

The effect of these legislations on the existing legal principles of contract law and
their ease of applicability and enforceability

Methodology and Approach

This research will center on the process of electronic contracting and the obstacles
encountered while applying the basic rules of contract law that govern it. A close study of the
three jurisdictions namely; the United States of America, the European Union and the
International Community will be carried out. To accomplish this, works of learned authors
and articles on this subject will be examined. Relevant legislations of different jurisdictions
will also be analyzed.
Scope and Structure
2

This research work is divided into four distinct chapters. Each chapter is further sub-divided
into sub heads for clarity.
Chapter One undertakes to explain the basics of a contract and explains the elements that
must be present before a contract is said to be concluded. Electronic contracts will also be
introduced and an analysis of the legal issues that arise while trying to apply rules of basic
contracting to electronic contracts will be conducted.
Chapter Two offers an overview on the form and validity requirements in specific types of
contracts. It also discusses the rationale behind the introduction of these rules on form and
validity. An analysis of these legal forms or requirements against electronic contracting will
be tackled in this chapter.
Chapter Three will discuss the legal issue of determining jurisdiction and choice of law to
govern electronic contracts and will look at the three jurisdictions covered in this work to see
how they have attempted to solve the problems through legislations or case law.
Chapter Four identifies all the legal issues discussed in the previous chapters apart from the
issue of jurisdiction and analyses how different laws in the United States, the European
Union and the International Community have addressed those issues. This Chapter also talks
of the new scheme still being developed which is called the Online dispute Resolution
(ODR). It will look at the challenges that are envisaged and will proffer possible solutions for
safe implementation of the scheme.
Chapter four concludes by answering the question if really traditional rules of contracting are
still applicable to electronics contracts or whether the agitation by Cyberliberterians to create
an entirely new legal environment governing electronic transactions has been achieved so far.

CHAPTER ONE
BACKGROUND AND GENERAL DEFINITION OF KEY TERMS
1.0 MEANING OF CONTRACT
On a fundamental level, a contract is an agreement between parties that a court will enforce. 5
Under the English law, a contract can be said to be an agreement giving rise to obligations,
which are enforced or recognized by law.6 Under any contract law whether English or
American legal systems, there are some basic elements that must be present before a court
will enforce a contract.7 These elements will be discussed in the next part.
1.1 BASIC PRINCIPLES OF CONTRACT LAW
Before proceeding in explaining the legal issues raised in relation with electronic contract
formation, it is important to make a brief reference to the general rules that govern contract
formation.8 Contract formation usually involves some kind of negotiation, or at least a period
before parties finally make up their minds. The meeting of minds (consensus ad idem) is very
necessary for the conclusion of a contract. 9 In the course of negotiation, there may be
invitations to make offers and counter offers, but the general rule is that contract formation
requires an offer and acceptance to be communicated between parties.10

5 E- Contracting; Society and Legal Issues. By Co-operative Research Center for Construction Innovation for
Icon.net Pty Ltd. 2008 available on http://www.constructioninnovation.info/images/pdfs/Publications/Industry_publications/eContracting.pdf accessed on the 11th of June,
2011

6 Allen & Overy, At a Glance Guide to Basic Principles of English Contract Law, available at
www.a4id.co.uk/content/english.contract-law.pdf accessed on the 11th of June 2011

7 Willmott L., S. et al, Contract Law, (2nd Ed. Oxford University Press, London, 2005)
8Papadaki, K. The formation of contracts in the electronic era; are traditional contract law rules adequate?
Available on http://www.law.edu.ac.uk/eyl/05repkyria.htm accessed on the 13th of June, 2011

9 Todd, P., Op cit pg., n2, 169

4

1.1.1 OFFER
An offer is an expression of willingness to contract, made with the intention that it shall
become binding on the offeror as soon it is accepted by the offeree. A genuine offer is
different from what is known as an invitation to treat i.e. where a party is merely inviting
offers, which he is then free to accept or reject. 11 The display of goods with a price ticket
attached to a shop window or on a supermarket shelf is not an offer to sell but an invitation
for customers to make an offer,12 however, advertisements may be construed as offers if they
are unilateral, i.e. open to the world to accept.13
1.1.2 ACCEPTANCE
This is the final and unqualified acceptance of the terms of an offer. To make a binding
contract, acceptance must exactly match the offer.14 If the offeree attempts to add new terms
when accepting, this will be called a counter-offer and not an acceptance.15
1.1.3 COMMUNICATION OF ACCEPTANCE
The general rule is that an acceptance must be communicated to the offeror, and until and
unless the acceptance is so communicated, no contract comes into existence. 16 If the method
of acceptance is instantaneous, it will then take effect when and where it is received.17
1.1.4 THE POSTAL RULE
10 D. Cameron, Arid and Berlis, Electronic Contract Formation. Available on
http://www.jurisdiction.com/ecom3.htm Accessed on the 26th of June, 2011

11 Available on http://a-level-law.com/contract/agreement /lecture.htm

12 P.S.G.B vs. Boots Chemists (1953) 1 All ER 482
13 Carlill vs. Carbolic Smoke Ball Co. (1893) 1 QB 256
14 http://a-level-law.com/contract/agreement/lecture.htm Accessed on the 5th of July
15 Hyde vs. Wrench (1840) 3 Beau 334
16 Lord Denning in Entores vs. Miles Far East Corp. (1955) All ER 493
17 The Brimmes (1975) QB 929
5

In Adams vs. Lindsell,18 it was held that where acceptance by post has been seen requested,
or where it is an appropriate and reasonable means of communication between parties, then
acceptance is complete as soon as the letter of acceptance is posted, even if the letter is
delayed, destroyed or lost in the post so that it never reaches the offeror.
Having outlined the basic principles of contract law, the next section of this work will address
issues concerning electronic contracts and decipher whether e-contracts satisfy the traditional
required elements explained above for a contract to be valid. It will also address the
application of various contractual rules to electronic contracts.19

1.2 ELECTRONIC CONTRACTS

By definition, an e- contract is a contract modeled, specified, executed and deployed by a
software system.20 Electronic contracts have unique qualities and attributes making them
sufficiently different from contracts entered by more traditional means to raise questions of
the applicability and appropriateness of existing legal principles explained earlier in this
chapter.21 Although electronic contracts exhibit more similarities to their non-electronic
counterparts than differences, the differences that do exist have been the focus of
considerable debate and will be discussed in the following part of this work.22

18 Adams vs. Lindsell (18180 1B & Ald 681

19 Kidd, D. and Daughtery, W. Adapting Contract Law to Accommodate Electronic Contracts: Overview
and Suggestions, (2000) Rutgers Computer and Technology Law Journal, 215

20 Tamrakar, V. & Pal, P. E-contracts and its legality available on

http://www.legalserviceindia.com/articles/ecta.htm

21 D. Poyton. Electronic Contracts: An analysis of the law applicable to electronic contracts in England and
Wales and its role in facilitating the growth of electronics. PhD. thesis From Aberystwyth University, 2004,
Available on http://cadair.aber.ac.uk/dsapce/handle/2160/1916 accessed on the 13th of June, 2011

22 Ibid.
6

New forms of communication have been a major distinguishing factor in electronic contracts
from other types of traditional paper contracts and these new forms of communication will be
analyzed.
The Electronic Communications Act defines electronic communication as a
communication transmitted (whether from one person to another, from one device to another
or from a person to a device or vice versa)
a) By means of telecommunication system (within the meaning of the UK
Telecommunications Act 1984); or
b) By other means, but while in an electronic form.23
The advent of Electronic Communication have made it possible for contracts to be formed
and performed over electronic media without using a single sheet of paper or a drop of ink.
Virtual products can be purchased with virtual currency before being transferred from one
computer to another.24 Platforms such as emails, websites, list serves, and chats are some of
the popular modes of electronic communication. While concluding contract agreements via
the above listed means, legal challenges such as accommodating present technology in
traditional contract principles and ensuring that the applied principles are flexible enough to
encompass future developments are envisaged. The other challenge faced is the ephemeral
and transient nature of electronic communications which tend to pose difficulties for existing
traditional legal principles of contract which are based purely on physicality.25
The internet which is the backbone of electronic communications have four major processes
by which parties may enter into agreements and they are (a) emails, (b) List-serve and chat,
(c) World wide web, and (d) Electronic Data Interchange (EDI). While each process is
similar to the other, minute differences require that each receives, separate legal attention.26
1.2.1 E-MAILS

23 S.15 (UK) Electronic Communications Act 2000

24 Kidd, D., and Daughtery, W., Op cit n.19, p.220
25 Poyton, D. Op cit, n21, pg. 27
26 Kidd, D., and Daughtery, W., Op cit, n19, pg. 223
7

This is the most basic process used to form agreements on the internet and permits
individuals to send electronic messages to another individual. Similar to letters (post), email
is usually written and distributed by a person for another specific person. They can be
digitally signed for authentication and files can be attached to email messages. The text of an
email may include information relating to negotiations, offer and acceptance and draft
contracts.27
1.2.2 LIST-SERVES AND CHATROOMS
They provide a forum for individuals to discuss topics by posting messages for others to
read. Chat rooms, on the other hand, allow individuals to have real time dialogues as each
person types messages that are immediately viewable by others in the chartroom.28
1.2.3 WORLD WIDE WEB
The web is a Graphical User Interface (GUI) for intercommunication between a webpage and
any individual that visits that page. The individual navigates the site through links and
buttons to access additional text and graphical material. Web pages combine multimedia and
the ability to intercommunicate. This characteristic not only permits a seller to provide a
product and service information, but also to communicate directly with potential buyers. The
individual need only type personal information into specified fields and click on accept
button to complete a transaction.29

1.2.4 ELECTRONIC DATA INTERCHANGE (EDI)

This is simply identified as a computer to computer transmission of data in a standardized
format.30 Here, computers act as electronic agents for agreement formation without human
intervention.31 Electronic agent is a computer program, or electronic or other automated
means, used by a person to initiate an action, or to respond to electronic messages or
27 ibid
28 ibid
29 ibid
8

performances on the person`s behalf without review or action by an individual at the time of
the action or response to a message or performance. 32 An individual completes an electronic
form requesting for goods or services he wishes to purchase, the request is sent electronically
to a computer network that forwards the request to bidders, who then return quotations for
suggested transaction. EDI not only lacks negotiation of an agreement which is a prerequisite for formation of a valid contract, it may also involve no human element during the
process.33
Having laid a proper foundation of the basic contract principles and the processes of
electronic contracting, the next part of this work will focus on the application of basic
contract principles to electronic processes of contracting, and justify if these basic principles
fit within e-contracting processes.
1.3 CAN COMPUTERS MAKE VALID OFFERS AND ACCEPTANCES?
As discussed in the previous parts of this chapter, in an electronic environment, emails may
be sent or answered by computers; interactive websites may enable users to transmit
information directly by filling in an electronic form. Where an EDI is used, contract
processes are fully automated. All these scenarios raise the question of whether such
interactions create valid contracts and can it be said they express parties intention? 34 Courts
have interpreted lack of direct intention, side by side with cases where automatic machines
were involved in contract formation. In these cases, machines react automatically to the
customer`s conduct; the machines cannot express intention and there is no real
communication between the offeror and acceptor.35 While trying to answer the above
question, Lord Denning attempted to distinguish scenarios where automatic machines handed
30 Fisher, J. Computer as Agents ; A proposed Approach to revised U.C.C Article 2, (1997) 72 Indiana Law
Journal, 545, 547,

31 Kidd, D. and Daughtery, W., Op cit, n 19, Pg. 227

32 S. 102(a) Uniform Computer Information Transactions Act (UCITA) 2000
33 Kidd, D., and Daughtery, W. op cit. n19, pg. 228
34 Rowland, D. and Macdonald, E., Information Technology Law, 2nd ed. (Cavendish Publishing Limited,
London 2000)

35 ibid
9

down railway tickets from the case of Thorton vs. Shoe Lane Parking.36 This attempt has
been criticized by many scholars. In Thorton`s case, the plaintiff made a first visit to an
automatic car park, where upon driving up to the barrier, a ticket was issued by a machine,
which the customer paid for by putting money into the slot. He took the ticket which was said
to be issued subject to conditions which were not visible to the customer, and which were
purported to exclude liability for personal injury. Lord Denning held that
... the customer pays his money and gets a ticket. He cannot refuse it. He cannot get his money back.
He may protest to the machine, even swear at it, but it will remain unmoved. He is committed beyond recall. He
was committed at the very moment when he put his money into the machine. The contract was concluded at that
time. It can be translated into offer and acceptance in this way; the offer is made when the proprietor of the
machine holds it out as being ready to receive the money. The acceptance takes place when the customer puts
money into the slot.

On whether the offer was made by the company and acceptance by the customer, Lord
Denning said
the offer was contained in the notice at the entrance giving charges for garaging and saying at owner`s
risk. The offer was accepted by Mr. Thorton when he drove up to the entrance and by movement of his car,
turned the light from red to green and the ticket was thrust at him

He said the offer and acceptance were made at an earlier point than in railway ticket cases,
because the customer had no chance to inspect the ticket before he was committed, saying the
contract was made before the customer had the opportunity to read the conditions on the
ticket.37
This decision by Lord Denning cannot be said to be an authority on the analysis in terms of
offer and acceptance. There was no clear distinguishing factor between Thorton`s case and
cases of automatic machines handling down railway tickets, as a careful study of the two
cases seem to be the same. Normally, in automatic railway tickets, the offer is made by the
trader and acceptance by the customer.38 More recent technology today have shown that the
two processes mentioned above are unsophisticated, as machines, today, (Self check out)
reserve a discretion not to go ahead with a contract.39 In the above situation where electronic
36 (1971) 2 QB, 163
37 Todd, P., op cit, n 2, pg. 173
38 ibid
39 ibid
10

or intelligent agents have been deployed to conclude transactions and have the ability to make
decisions whether to go ahead with a transaction or not, a pertinent question will be whether a
contract, that has been generated and conducted by an electronic agent without any direct
human intervention is legally binding and on whom? 40
Some reasons have been proffered by some authors justifying why legal personality should
be accorded to electronic agents. Moral, entitlement, Social capacity and legal convenience
have been said to be the reasons why electronic agents must be accorded personality. On the
first reason, it has been argued that an entity that is conscious should be treated as a legal
person. However this reasoning has been criticized since it is not all electronic agents can
achieve that self consciousness. Such devices cannot be said to be making conscious, moral
decisions of their own. The second line of reasoning confers legal personality on electronic
agents on the basis of social capacity, as it arises once those who interact with it regard it
rather than its human controllers. Lastly, in favor of the reason of legal convenience, it has
been argued that ascribing legal personality to an electronic agent would mean that such an
agent would be able to have patrimonial rights and also be subject to liability for negligent
acts or omissions, just as a natural person.41
The above controversy, as to whether computers are legal persons that can make valid offers
and acceptances in electronic transactions has been cleared by the UNCITRAL Model Law on
Electronic Commerce,42 which states that data messages that are generated automatically by
computers, without human intervention, should be regarded as originating from the legal
entity on behalf of which the computer is operated.
1.3.1 MAKING OFFERS AND INVITATION TO TREAT ONLINE
Determining whether a particular representation is an offer or an invitation to treat will
impact when a contract is formed43. Normally, under traditional contract rules, shop window

40 Weitzenboeck, E. Electronic Agents and the formation of Contracts (2001) 9, International

Journal of Law and Information Technology, 1
41 ibid
42 Article 11, 12 and 13, UNCITRAL Model Law on Electronic Commerce (1996)
43 Orpwood, R. op cit, n1, pg. 1-6
11

displays,44 and adverts45 are invitation to treat not offers. In electronic contracts, the question
may arise as to the effect of web-based advertisements and whether they are merely an
invitation to treat.46 While applying the reasoning in PSGB vs. Boots, to analyze electronic
offers, it will be fair to argue that as in the case of Boots, if the shop front constituted the offer
and not the invitation to treat, the company could not exercise control over persons whom it
did business with and it would be difficult for the company if it ran out of the product on the
shop window. Applying this argument in a web based context, just as a normal shop, the
customer should normally see an online advert, which will amount to an invitation to treat,
and he makes an offer. It is left for the company that hosted the website to accept the online
offer.47 Any contrary scenario, where it is intended by suppliers for their online adverts to
constitute offers, may invoke the application of laws from other jurisdictions, considering the
ubiquitous nature of the internet. Export and import restrictions, consumer protection
legislations, etc., may affect the suppliers of such product.48
1.3.2 ELECTRONIC ACCEPTANCE AND THE POSTAL RULE
At the national and international level, the directives, model laws and conventions governing
electronic commercial transactions do not cover when offers and acceptances become
effective for purposes of contract formation.49 One of the most critical questions concerning
internet transactions is whether a contract has been formed since it is still unclear whether the
existing rule of time of dispatch and receipt of electronic communication will be sufficient to
ascertain an offer and acceptance.50 Under the general rule, as explained earlier, an offer to a
44 Fisher Vs. Bell (1961) 1 QB, 394
45 Partridge vs Grittenden (1968) 2 All ER, 421
46 Rowland, D. and Macdonald, E., Op cit, n 34,
47 P. Todd, op cit., n 2pg 174
48 Rowland, D. and Macdonald, E., Op cit., n 34, pg 298.
49 Wang, F. E-confidence: offer and acceptance in online contracting, (2008) International Review of Law
Computers and Technology, Vol. 22, No.3, 271-278.

50 ibid
12

contract is effective when received by the offeree. The general common law rule is that
acceptance is effective when sent.51 This rule is often called the mailbox rule and originated
in England,52 at a time when there was widespread use of post.53
1.3.3 RATIONALE FOR THE ORIGINAL ESTABLISHMENT OF THE POSTAL
RULE
The King`s bench in Adams vs. Lindsell (supra) applied the mailbox rule so that the making
of a contract will have a finite date. The court based its reasoning on the theory that if a
receipt rule was used in the alternative, the offeree would have to wait until the acceptance
was received and then wait for the offeror to contact him to say that he had indeed received
the acceptance. The offeror would still not know whether the offeree received the notification
that acceptance had been received and so the offeror would then have to contact the offeree
and the notification and contact would go on indefinitely.54 To prevent this indefinite cycle,
the court reasoned, the event of dispatch of the acceptance will end the indefinite cycle to
mean communication of acceptance, creating certainty.55 Another rationale for the application
of the mailbox rule was explained by Mellish LJ, in Harris Case.56 He said:
a person, for instance, sends an order to a merchant in London, offering to pay a certain price for so
many goods. The merchant writes an answer accepting the offer, and goes that instant into the market and
purchases the goods in order to enable him fulfill the contract. But, according to the argument presented to us, if
the person who has sent the offer finds that the market is falling, and that it will be a bad bargain for him, he
may, at any time, before he has received an answer (acceptance), revoke the offer.

One can consider the economic consequences if the person who made the offer supports his
argument, applying the receipt rule.

51 Bank of Yolo vs. Sperry Flour Co. (1903) 141 Cal. 314(74, P. 855-865)
52 Adams vs Lindsell (1818) 250 K.B
53 Watnick, V. The Electronic Formation of Contracts and The Common law Mail Box Rule, (2004) 56
Baylor Law Review, Pg. 175.

54 Watnick, V. Op cit , n 53, pg. 179

55 Adams vs. Lindsell (supra)
56 Imperial Land Co. of Marseilles, In re (Harris Case) (1872) LR Ch. App, 587
13

Another argument in favor of the postal rule was analyzed by Thesiger LJ in Household Fire
and Carriage Accident Insurance Co. ltd vs. Grant,57 where it was held that communication
of acceptance to the agent of the offeror is regarded as communication to the offeror
himself.58 In his words, Thesiger LJ saw the post office as the agent of both parties and said
that:
as soon the letter of acceptance is delivered to the post office, the contract is made as complete and final and
absolutely binding as if the acceptor had put his letter into the hands of the messenger sent by the offeror
himself as his agent to deliver the offer and receive the acceptance

Since contracts, today, are formed electronically through different manners explained earlier,
and having analyzed the theoretical and historical basis for the mailbox rule, it is now
imperative to examine the various methods of contract formation today, vis- a- viz the
mailbox rule.59
1.3.4 POSTAL RULE COMPARED WITH MODERN

DAY ELECTRONIC

COMMUNICATIONS
While considering more modern forms of communication other than the snail mail, Lord
Denning, in Entores Ltd vs. Miles Far Eastern Corp,60 further analyzed.
When a contract is made by post, it is clear law throughout the common law countries that the acceptance is
complete as soon as a letter is put into the post box, and that is the place where the contract is made. But there
is no clear rule about contract made by telephone or by telex. Communications by those means are virtually
instantaneous and stand on a different footing.

Having cited different examples, Lord Denning further explained that, if a man who sends a
message of acceptance knows that, for some technical reasons, it has not been received or he
has reason to know that it has not been received, he must repeat communication of
acceptance. The other way round, if the listener does not catch the words or message of
acceptance and does not trouble himself to get a repeat of the acceptance, in both scenarios,
both parties are estopped from saying that the acceptance need not be repeated or acceptance
was not received. However, if both parties, in good faith, believe that acceptance has been
57 Household Fire and Carriage Accident Insurance Co. ltd vs. Grant (1879) 4 Ex, D 216
58 Todd, P. op cit, n2, Pg 176.
59 Watnick, V., op cit. n 53, pg 182.
60 Entores Ltd vs. Miles Far Eastern Corp (1955) 2 Q.B, 326
14

sent and has been received and yet the other party did not receive any acceptance, then there
is no contract.61 Lord Denning concluded that the rule about instantaneous communication
between the parties is different from the mailbox rule and that the contract is only complete
when the acceptance is received by the offeror, and the contract is made at the place where
acceptance is received.
1.3.5 POSTAL RULE COMPARED WITH E-MAIL ACCEPTANCES
Having concluded that acceptance in instantaneous communications is completed when it is
received by the offeror, it will then follow to ask the question, whether email communications
are instantaneous? The email`s journey as we all know may require travelling across the
world even though the person receiving the message might be in the next building. 62 The
speed of email messages depends on whether the service providers are busy with loads of
applications from different internet users. Considerable delays may occur in email
communication between when a message is transmitted and when it is received. These delays
result from the complexity of the path over which the email travels. To this end, it can be said
that email is not an instantaneous form of communication because, as explained previously,
there is a gap in time between dispatch and deemed receipt. 63 In Chwee Kin Keong vs
Digiland Mall.Com Property Ltd,64 a case decided in Singapore, Rajah JC held: unlike a fax
or a telephone call, it (emails) is not instantaneous. Emails are processed through servers,
routers, and internet service providers. Different protocols may result in messages arriving in
an incomprehensible form. Arrival can also be immaterial unless a recipient accesses the
email, but, in this respect, email does not really differ from mail that has not been opened.
From the above, it is logical to reason that the application of the postal rule in communication
of acceptance will also involve email acceptances.

61 Brinkibon Ltd vs. Stahag Stahl Und Stahlwavenhandelgeselischaft mbH (1982) 1 All ER, 293
62 Al Ibrahim, M. et al, The Postal Acceptance Rule in the Digital Age, (2007) Journal of International
Commercial Law and Technology. Vol. 2, Issue 1.

63 Ibid. pg 49.
64Chwee Kin Keong vs Digiland Mall.Com Property Ltd (2005) SGCA, 2
15

1.3.6

REASONS

FOR

EXTENDING

THE

APPLICATION

OF

POSTAL

ACCEPTANCE RULE TO EMAIL COMMUNICATIONS

Applying the postal rule to email contracts avoids business uncertainty regarding the timing
of email contracts. Applying the general rule will create uncertainty as illustrated. If A sends
his email acceptance late Friday afternoon and recipient B left his office at lunchtime not to
return until following Monday morning, at what time can we consider receipt? Is it Monday
morning, when B returns to work or at any time B opens his email account and accesses the
particular email, even if it was out of working hours? The postal rule applied in this situation
will create a definite conclusion.65
Another reason for extending the application of the postal acceptance rule to email
communications is the non-instantaneous nature of email acceptances earlier discussed.66
The last reason is the contention that applying the general rule to email acceptances will
complicate the situation as there are numerous identifiable points along the communication
network at which a communication may be considered received by the addressee, thereby
creating uncertainty.67
Having outlined some logical arguments why the postal rule should apply to email
communications, Article 10 of the UN Convention states that the time of receipt of an
electronic communication is the time when it becomes capable of being retrieved by the
addressee at an electronic address designated by the addressee.68 Article 10 has failed to
further explain the rule of electronic offers and acceptance. An explanatory note to that
Article is needed to explain if an electronic contract will be concluded when an auto- email
message says message has been sent, message has been received, message had been
delivered or message has been read. This explanation is necessary to remove the legal

65 Ibrahim, M. et al. op cit., n 62, pg. 51

66 ibid
67 ibid
68 Article 10, United Nations Convention on The Use of Electronic Communications in International Contracts
(2007)

16

uncertainty of the effectiveness of electronic contracting and boost confidence in online

contracting.69
In concluding this chapter, it is settled that there is no difference in principle, between the
process of offer and acceptance online and the process offline. However, to avoid prematurely
being bound, traders should specify acts that constitute offer and acceptance in their terms
and conditions and ensure that those terms and conditions are properly brought to the
attention of users before the contract is concluded.70 It is also settled that website adverts do
not constitute offers but mere invitation to treat. 71 It is still unclear at what time an electronic
acceptance (email messages especially) is deemed to have been communicated for a contract
to be enforceable. This uncertainty has left the courts the powers to decide, but it is
recommended that an explanatory note to Article 10 UN convention be made available so that
the controversy will be laid to rest.

69 Wang, F. op cit., n49, pg 271-278

70 Hajri, J. Offer and Acceptance Online, available at http://www.website-law.co.uk/blog/contractlaw/offer-and-acceptance-online/ accessed on the 27th of June, 2011

71 ibid
17

CHAPTER TWO
FORM AND VALIDITY REQUIREMENTS IN ELECTRONIC CONTRACTS
2.0 INTRODUCTION
Making a contract may involve formalities; for example, it may be required to be in writing.
Requirements such as a signature or writing may provide obstacles to efficient electronic
contracting.72 Prior to the internet, the Statute of Frauds73 provided trustworthy proof such
as writing and signature requirements that each party ought to be bound. The purpose of the
Statute of Fraud was the preference of the reliability of written evidence of contract rather
than the fallibility of memory in oral statements.74 Some age-long statutes (Statute of Frauds
in the United Kingdom and the Uniform Commercial Code75 in the USA), which impose
some formal requirements such as writing and signature in contracts that electronic contracts
cannot satisfy, have created some legal obstacles for electronic contracting,76 As contained in
the Guide to the Enactment of the UNCITRAL Model Law on Electronic Commerce,77
..in a number of countries, the existing legislation governing communication and storage
of information is inadequate or outdated because it does not contemplate the use of electronic
commerce. In certain cases, existing legislation imposes or implies restrictions on the use of
modern means of communication, for example, by prescribing the use of written, signed or
original documents. A number of reasons have made it mandatory for certain contract
agreements to be enforced only if they are in a certain form and the reasons may range from:
a) Evidentiary Reason: Formality establishes that a contract exists
b) Cautionary Reason: Formality makes the parties to slow down and think about what they
are doing
72 Rowland, D. and Macdonald, E., op cit, n 34, Pg. 308
73 UK Statute of Frauds (1677)
74 Braley, S. Why electronic signatures can increase electronic transactions and the need for laws governing
electronic signatures, (2001) 7 Law and Business Review of Americas 417, pg. 423. 2001

75 United States Uniform Commercial Code (1952)

76 Poggi, C. Electronic Commerce Legislation: An analysis of EU and American Approaches to Contract
Formation. (2000) 41, Virginia Journal of International Law Association 224

77 Guide to the Enactment of the UNCITRAL Model Law on Electronic Commerce, 1996, Para. 6.
18

c) The Channeling Function: Formality is a simple and cheap test of enforceability. It is a

signal to courts and laymen that the contract is good and enforceable.78
Clearly, therefore, an analysis of legal forms/requirements against electronic contracting will
be tackled in this chapter. However, before legislative attempts to settle the above dispute will
be discussed in subsequent chapters, it is necessary to examine whether, by their virtues,
electronic contracts in their form, can actually satisfy the most problematic and common law
requirement of form, i.e. (writing and signature).79 While answering the above question, the
courts have adopted two approaches to it. The first is the straightforward literal approach
where interpretation of writing or signature will be given a literal meaning. The second
approach would require a more reasonable and imaginative interpretation, where the courts
will take into consideration the purpose or rationale behind the writing or signature
requirements in contracts.80
2.1

INTERPRETATION

OF

WRITING

REQUIRMENT

IN

ELECTRONIC

CONTRACTS
Formal requirements, like writing, pose difficulties when contracting online, bearing in mind
the ephemeral and intangible nature of electronic contracts,81 hence, an opportunity to revisit
the legislations like statute of frauds and the Uniform Commercial Code to determine its
modern validity as they require a written memorial. 82 As implied, writing under the statute of
fraud includes paper and ink writings on stationery, napkins, or cardboard, and the current
concern whether electronic contracts classify as writing has raised some controversy. While
a printed copy of a contract formed electronically is identical to any other pen and paper
writing, the less certain cases involve paperless electronic contract that exist only in
computer memories or computer screens.83
78 Fuller, Consideration and Form (1941)41 Columbia Law Review, 799, 800-801.
79 Poyton, D., op cit, n21, Pg 144
80 Ibid pg 145
81 Ibid pg 143
82 Kidd, D. and Daughtery, W. Op Cit, n 19, pg. 247
83 ibid
19

Professor Reed, while giving a literary interpretation on the issue whether pages visible on
computer screens satisfy writing requirement, argued that digital information held either as
on/off states switches in a processing chip or as a magnetic or optical variations on the
surface of some recording medium, is not in fact a representation or reproduction of words in
visible form.84
Transactions such as communication between Electronic Data Interchange (EDI) are rarely
reduced to writing and will hardly fall within the definition of writing.85
The English courts, on the other hand, have given a purposive interpretation in some of their
decisions that an electronic document which is visible on the computer screen is in writing, in
line with requirements of the statute of frauds. In Anson vs. Trump,86 the court held that a
paper document, required to be served as part of the litigation process, could be served by
facsimile transmission. The court recognized that between the time the document was copied
into the fax machine and the time it was received in paper form at the recipients machine, it
underwent a conversion which constituted the transmission process, and the fact that it
remained in the facsimiles machine`s memory in digital form before being printed out or read
is irrelevant.87 The same approach was adopted in the case of Lockheed vs. Owen88, where
Mann LJ, in his consideration whether a photocopy could be classed as a writing, reiterated
the opinion that: an ongoing statute ought to be read so as to accommodate technological
change.
In the United States, courts have also been willing to interpret that an electronic document
that is visible on a computer screen meets the writing requirement of the Uniform
Commercial Code as decided in the case of Wilkens vs. IOWA Insurance Commissioner.89
The court held that a requirement to keep a written record of an insurance contract was
84 Reed, C. What is a Signature, (2000), 3 Electronic law Journals, Journal of Information, Law and
Technology , available @ http://www2.warwick.ac.uk/fac/soc/law/elj/jilt/2000_3/reed/ accessed on the 12th of
August, 2011

85 Poyton, D. op cit., n 21, pg 149

86 Anson vs. Trump (1998) 1 WLR, 1404
87 Low, R. and Christensen, S. Moving the Statute of Frauds to a Digital Age, (2003) Australian Law
Journal, 77, 416, 2003

88 Lockheed vs. Owen (1993)Q.B, 806, at Pg. 814

20

satisfied by the insurer keeping records in computer systems. Also the European Union in its
proposal on certain aspects of electronic contract in the internal market reasoned that
electronic commerce will not fully develop if concluding on-line contracts is hampered by
certain form and other requirements which are not adapted to the on-line environment.90
The purposive approach requires the courts, as seen in the above cases, to discover the
parliaments intention in introducing the writing requirement and to implement the
requirement91. This purposive approach type of interpretation will, however, be restricted if
the purposes of the mandatory writing requirement would be undermined by accommodating
the technological change.92 In as much as the purposive interpretation of writing requirement
is a good step, there still remains some level of uncertainty as to how the courts will interpret
what constitutes writing in electronic contracting and this act as deterrent for commercial
parties wishing to conclude their contracts online.93
2.2 INTERPRETATION OF SIGNATURE REQUIREMENT IN ELECTRONIC
CONTRACTS
While it has been established that an electronic record is a functional equivalent of writing, as
will be discussed in the coming chapters, the position appears to be less clear with electronic
signatures.94 As there is no definite definition of a signature, courts have accepted a range of
signatures to include; initials, printed names and rubber stamps. No reasons or general
principles were given by the courts as in each case it merely satisfied itself that the method

89 Wilkens vs. IOWA Insurance Commissioner 457 NW, 21, 1 (IOWA 1990)
90 Proposal for a European Parliament and Council Directive on Certain Legal Aspects of Electronic
Commerce in the Internal Market, COMM (1998) 586 Final, pg 4

91 Poyton, D. op cit, n21, Pg 145

92 ibid
93 ibid
94 Leng, T. Have you signed your electronic contract? (2001) 27, Computer Law and Security Review, 75
21

achieved the same purpose of a handwritten signature.95 In Goodman vs. J Eban,96 it was
held that the essential requirement of signing is the affixing, either by writing with a pen or
pencil or by otherwise, impressing on the document, one`s name or signature so as personally
to authenticate the document. Even though this decision has not made it mandatory for a
signature to mean a person`s writing with pen and paper, but, till date, the ordinary meaning
has been accepted to be personal writing of one`s name or mark on a written document.97
2.2.1 RATIONALE BEHIND THE SIGNATURE REQUIREMENT UNDER THE
STATUTE OF FRAUDS
While interpreting the statute of frauds, courts have established that the act of signing is not
critical to the validity of the document; the critical element appears to be that the person
making the mark approves of the content of the document.98 Therefore, it can be concluded
that for a mark to suffice as a signature, it must satisfy the characteristics below:
a) It is usually affixed through a physical process by the authorized signatory.
b) It can be affixed by mechanical means unless prohibited
c) It is relatively difficult to forge
d) The signature becomes affixed to the document such that the signature, document and
contents become one composite physical thing
e) It is relatively difficult to remove without trace
f) It can be reproduced by a party and it is relatively standard for all documents signed by the
same person.99
2.3 ELECTRONIC SIGNATURES
An electronic signature has been said to mean any electronic mark that indicates the identity
of some person who is being attributed as being the signatory. They do not possess an
95 In re Clarke 27 LJPM and A, 18, In re Doed Philips vs. Evans 2 LJ ex 19, 195
96 Goodman vs. J Eban (1954) 1 QB, 550
97 Christensen, S. et al, The Statute of Fraud in the Digital Age- Maintaining the Integrity of Signatures
(2003) Murdroch University Electric Law Journal, Vol. 10, No. 4

98 Ibid.
99 McCullagh, A. et al. Signature Stripping: A digital Dilemma (2001) 1 Journal of Information, Law and
Technology (ELJ) Available at http://www2.warwick.ac.uk/fac/soc/law/elj/jilt/2001_1/mccullagh/ accessed on
the 2nd of September, 2011

22

adequately secure mechanism of authentication as will be explained, as the authentication not

only relates to the document but also relates to the authentication of the person to be charged
with being bound by the contents of the document.100
2.3.1 HOW CAN AN ELECTRONIC DOCUMENT BE SIGNED?
There are various types of electronic signatures, all of which can demonstrate the intent of the
signing party to sign. The different types are:
a) Typing a name into a document, such as an e-mail. This was accepted in the
Industrial Tribunal case of Hall v Cognos Ltd.101 a series of e-mails between Mr.
Hall and his line manager and personnel were held to be signed when printed, and
varied the terms of the written contract of employment.
b) Clicking the 'I accept' icon to confirm that you wish to enter a contract when buying
goods or services electronically.
c) A Personal Identification Number (PIN), used to obtain money from cash machines or
to 'sign' a credit card with a PIN.
d) A biodynamic version of a manuscript signature, a special pen and pad measure and
record the actions of the person as they sign. This creates a digital version of the
manuscript signature. The file can then be attached to electronic documents.
e) A scanned manuscript signature; a manuscript signature is scanned and transformed
into digital format, which can then be attached to an electronic document.
f) The digital signature, which uses cryptography. The signing party uses a key pair
(private and public key). The sender affixes the signature using their private key, and
the recipient checks the signature with the public key.102
Having outlined the above, the different processes through which an electronic signature can
be signed, it is now necessary to ask if an electronic document meets the functional
requirements of a hand written signature? In answer to this question, a recurring issue is the
debate whether the law should concern itself with the form or function or purpose of a
100 Ibid.
101 Hull Industrial Tribunal 1803325/97
102 http://www.fetchitnow.co.uk/articles/electronic_signatures_legality.php accessed on the 7th of September
2011

23

signature. If the courts concern themselves only with the form of the signature, then clearly
an electronic signature cannot be considered equivalent to its physical counterpart.
Conversely, if all that matters is that it performs the same function or purpose as its physical
counterpart, then a purposive interpretation will have to be given by the courts, where the
form of the electronic signature is jettisoned and the function is taken into consideration. 103
The English courts have followed this line of argument in interpreting what amounts to an
electronic signature. In a recent case between Golden Ocean Group (GOG) Ltd vs.
Salgaocar Mining Industries (SMI) PVT ltd. and another,104 GOG offered SMI the
opportunity to charter one of their vessels. SMI agreed to enter negotiations with GOG to
charter the vessel on a ten year contract through the SMI`s chartering arm, Trust worth
Property Ltd (TPL). Negotiations proceeded between GOG and Mr. Salgaocar acting for SMI
and TPL. The negotiations were concluded in 2008 and in late 2009 the delivery date
approached and neither parties (TPI and SMI) would accept delivery of the vessel as they
denied the existence of a charter party and guarantee which was also included or referred to
in one of their email correspondences.
GOG brought a claim for Fifty four million Dollars under the guarantee, stating that by
refusing to accept delivery of the vessel, TPI failed to honor its obligations. GOG claimed
that the chain of emails sent between the parties were sufficient to constitute a guarantee,
despite the statutory defense under Section 4 of the Statute of Frauds, 1677, which states that
a guarantee must be in writing and must be signed by either the guarantor or a person legally
authorized to sign on the guarantor`s behalf.
SMI and Mr. Salgaocar denied the existence of a guarantee on the basis that emails were
disjointed and insufficient to establish a guarantee and there had been no recap at the end of
the chain of emails, hence there was no complete agreement incorporating key terms.
The High Court held that despite the fact that there was no manually signed agreement, the
sequence of emails, negotiations, and related documents could be pieced together in such a
way that it was arguable that a guarantee existed, defeating section 4 of the Statute of Frauds
Act.

103 Todd, P. op cit, n 2, Pg. 118

104 Golden Ocean Group (GOG) Ltd vs. Salgaocar Mining Industries (SMI) PVT ltd. (2011) EWHC 56
24

This case demonstrates the growing judicial recognition of emails as a means of forming
binding agreements, including those such as guarantees that must be in writing and be
signed.105
2.3.2 MANDATORY REQUIREMENTS OF A MODEL ELECTRONIC SIGNATURE
LEGISLATION
Even though law makers cannot give electronic signatures the qualities and attributes of a
written signature, they can make laws that place the two on the same pedestal legally. 106
Lawmakers, while making laws on electronic signatures, should be careful to ensure that
electronic signatures are not denied their evidentiary value. Electronic Signature legislation
should also avoid favoring one form of contracting over the other (i.e. favoring electronic
signatures over handwritten signatures, parties must be allowed to decide which form to use
in their contract). Finally, any Electronic signature legislation must be technology-neutral and
must be internationally compatible.107
It can be seen, so far, that electronic signatures and email messages have satisfied statutory
formal requirements. This, of course, has been made possible by the judicial activism of the
courts by adopting a purposive and functional approach while interpreting the requirements
of the statute of fraud. However, there are some instant cases where the courts will interpret
the formal requirements strictly, so that a clear intention to be bound will be established (e.g.
making of Wills). In such cases, the formal requirements (writing and signature) are arguably
more important than function or purpose.108
2.4 ELECTRONIC AGREEMENTS AND ASSENT ONLINE
At common law, a contract is formed when a party assents or accepts another party`s offer 109.
Over the years, contract law has evolved to accommodate modern business practices as
105 http://documents.jdsupra.com/1c3ad2da-844c-4e5c-8dce-3b31dc6becc5.pdf accessed on the 11th of
September 2011

106 Braely, S. op. cit, n 74, Pg. 434

107 Ibid.
108 Todd, P., op cit, n 2, Pg 125
25

Article 2 of the Uniform Commercial Code (UCC) loosens the requirements of traditional
contract formation such that a contract may be formed in any manner sufficient to show
agreement or assent.110 It can be deduced from the argument that when a party signs an
agreement, that party is deemed to have assented to its terms. An integral component of the
objective theory of contracts is the duty to read, which simply means an understanding of
the terms agreed to, but according to the objective theory of contracts , a person can be bound
to contract terms whether he reads them or not. 111 This duty to read is what the offeree owes
to himself, because if an offeree signs a contract agreement, he is bound by the terms whether
he has read them or not. On the other hand, while an offeror has no duty to verbally explain
the terms to the offeree, the courts have imposed a duty to explain terms, or at least explain
the fact that contract terms exist.112 Today, courts have applied the objective theory of
contracts to terms delivered electronically without considering the differences between paper
and electronic contracts.113 However, in electronic contracting, it is not entirely clear as to
what conduct is sufficient to adequately manifest a user`s assent to the terms and conditions
posted on a website.114 Courts are faced with the challenge of interpreting what conduct is
required by the parties to manifest their assent to online contracts, How do procedural and
substantive unconscionability affect the enforceability of terms and conditions contained in
online contracts, and how does the enforceability of standardized form contracts and the
common law duty to read apply to online contracts (browse wrap agreements). 115 In
109 Robertson, M. Is assent still a prerequisite for contract formation in today`s e-conomy Available at
http://digital.law.washington.edu/dspace-law/bitstream/handle/1773.1/62/volume78.pdf?sequence=1 accessed
on the 18th of September 2011

110 Article 2, Uniform Commercial Code of the United States, 1952

111 Moringiello, J. Signals, Assent and Internet Contracting, (2005) Widener University School of Law,
Available at http://works.bepress.com/cgi/viewcontent.cgi?article=1008&context=juliet_moringiello&seiredir=1#search=%22allan%20e%20fansworth%20assent%20electronic%20contracts%22 accessed on the 4th of
September 2011

112 Ibid, pg 11
113 Ibid, pg. 10
114 Robertson, M., op cit, n 109, pg 291
115 Ibid pg. 292
26

answering the above queries, this part of this work will analyze types of online agreements
and see how the courts have interpreted the objective theory when applied to online
agreements.
2.5 SHRINK WRAP AGREEMENTS
Online agreements are an adaptation of the shrink wrap agreements which have been in use
since the early 1980`s in the sale of packaged software. They were introduced specifically for
the mass-market-sale of packaged software. Prior to this, software vendors used traditional
common law contract methods (e.g. duty to read). With the mass market of the PC,
companies such as Apple and IBM found it was virtually impossible to still maintain the
traditional type of contracting. In the early cases of shrink wrap agreements, they were held
invalid and unenforceable on the ground that at the time of the purchase, terms and conditions
were not known and the courts considered the terms and conditions added at the time of the
purchase, rendering the contract void116. This decision was, however, upturned in ProCD vs
Ziedenberg,117 where it was held that shrink wrap licenses are enforceable, unless their terms
are objectionable on grounds applicable to contracts in general. Because no one agrees that
the terms of the license at issue are troublesome, we remand with instructions to enter
judgment in favor of the plaintiff.
Although the Seventh Circuit recognized that shrink-wrap agreements have a substantial
effect on the efficiency of the computer software industry, the judgment has been heavily
criticized.118 Much of the criticism has been directed at the following issues:
a) Classification of the transaction as a sale of goods,
b) Money now, terms later transactions and the Uniform Commercial Code,
c) Vendor`s method of acceptance as master of the offer and
d) Prominence of notice of terms.119
116 Gatt, A. Electronic Commerce- Click Wrap Agreements, The Enforceability of Click Wrap
Agreements, (2002) Computer Law and Security Report, Vol. 18, No. 6, Pg, 404.

117 ProCD vs. Ziedenberg 86 F.3d, 1447, (7th Circuit 1996)

118 Batya, G. Honey, I Shrink Wrapped the Consumer: The Shrink wrap agreement as an adhesion
Contract, (2000) 21 Cardozo Law Review, Pg. 353.

119 Ibid pg. 353, footnote 220.

27

While proffering solutions to the above criticisms, Goodman Batya, suggested that to avoid
the inequitable and unfair results created by the decision in ProCD, challenges to the
enforceability of shrink wrap agreements covering consumer products should be analyzed
under the law of adhesion contracts.120 An adhesion contract is a type of contract between two
parties to do a certain thing, in which one side has all the bargaining power and uses it to
write the contract primarily to his advantage. Many adhesion contracts are unconscionable,
they are so unfair to the weaker party that a court will refuse to enforce them. 121 I align my
reasoning with Goodman`s view that shrink wrap agreements between software publishers
and consumers will only be enforced, based on the rules of adhesion contracts. The Courts
must always look out for unconscionable terms introduced by the side that has all the
bargaining power.
2.5.1 CLICK WRAP AGREEMENTS
A click warp agreement allows the consumer to manifest its assent to the terms of a contract
by clicking on an acceptance button on the website. If the consumer does not agree to the
contract terms, the website will not accept the consumer`s order.122 In a click wrap agreement
the consumer is supposed to read the agreement that appears on the screen of the computer
and either accepts or rejects it, and his decision affects his ability to purchase goods. A click
wrap agreement, therefore, is a contract of adhesion.123 Contracts of adhesion, however, are
not inherently bad or immoral. Parties often agree to terms, even though they could not
bargain for them.124

120 Ibid. pg 358-359

121 Dawn, D. Click and Commit: What terms are users bound to when they enter website comment , (2000)
William Mitchell Law Review, Vol. 26: 4, Pg 1196.

122 Condon, W. Electronic Assent to online Contracts: Do courts consistently enforce click wrap
agreements (2004) 16, Regent University Law Review Pg. 435.

123 Ibid pg 436

124 ibid
28

The United States Supreme Court, in the case of Bremen vs. Zapata Offshore co,125 held that
contracts that are freely negotiated, unaffected by fraud, undue influence, or overwhelming
bargaining power, should be given full effect. As noted earlier, click wrap agreements being
contracts of adhesion not freely negotiated, will cause a question to arise, whether terms in
click wrap agreements are enforceable?126 This question has been answered earlier in this
chapter while analyzing the Judgment in ProCD Inc. vs. Ziendenberg (supra) where it was
held that such terms contained in non- negotiated contracts are enforceable, unless there is
fraud or duress. Does this answer now make all Click wrap agreements enforceable? A
further analysis of court decisions will answer this begging question.
In Forest vs. Verizon Communications,127 Mr. Forrest signed up for DSL service in August
2000 and was promised activation would occur on August 14, 2000. Mr. Forrest brought
suit against Verizon Communication Inc. (VCI) alleging that, once the DSL service was
activated, customers . . . experienced frequent and lengthy disruptions in service, and the
service has operated at speeds much lower than promised. However, Mr. Forrest claimed he
never received DSL service and subsequently canceled with VCI in December 2000, after
prolonged delays and unsatisfactory customer support.
Mr. Forrest and four others filed an uncertified class action suit in District of Columbia
Superior Court for breach of contract, negligent misrepresentation, and violation of Virginia's
consumer protection laws. Forrest argued that the scroll box agreement was inadequate to
provide notice of the terms of the contract and further, that the forum selection clause was
improper because it did not notify customers of Virginias lack of a class action remedy.
Forrest also claimed that enforcement of the forum selection clause would be unreasonable
under the circumstances, since Virginia law precludes class action suits and would thus
deprive him of his day in court.
VCI filed a motion to dismiss the above claims relying on the forum selection clause
contained in the click wrap agreement. The trial court granted the motion.

125 Bremen vs. Zapata Offshore co. 407 U.S. 1, 12-13 (1972)
126 Condon, W. op cit, n 122, pg. 437
127 Forest vs. Verizon Communications 805 A 2d 1007 (DC Court of Appeals, 29 August 2002)
29

On appeal, the Court of Appeals noted that the absence of fraud, duress or misrepresentation,
a binding forum selection clause is not inherently unfair if reasonably communicated to the
plaintiff. Likewise, the use of an electronic service agreement contained in a scroll box does
not amount to inadequate notice. The Appellate court reasoned that many contracts contain
forum selection clauses and do not specify every nuance of the specified forums law.
Therefore, the forum clause was reasonably communicated and is thus enforceable.
As to appellant's claim that enforcement would be unreasonable in the present case, the court
noted that appellant would need to prove that (i) the clause was induced by fraud or
overreaching, (ii) the contractually selected forum is so unfair and inconvenient as, for all
practical purposes, to deprive the plaintiff of a remedy or of its day in court, or (iii)
enforcement would contravene a strong public policy of the forum where the action is filed.
Appellant could neither point to any fraud, nor claim that the forum was inconvenient (the
court noted that Forrest need only cross the Potomac River), and likewise, public policy
dictates a strong need to uphold forum selection clauses wherever possible.
Thus, the Court affirmed the trial courts granting of VCIs motion to dismiss the claims
stating that a contract is no less a contract simply because it is entered into via a
computer.
Several other decisions have followed the decision in Mr. Forest`s case. In Hughes vs.
McMenamon,128 it was held that forum selection clauses in click wrap agreements are
enforceable. Also in i.LAN Systems Inc. vs. NetScout Service Level Corp.129, click wrap
agreements were held to be enforceable.
It can be seen from the above cases that click wrap agreements were enforced because
consumers have manifested assent to the terms of the agreement by clicking the I AGREE
button. The prospective consumer does not need to be given reasonable notice of contract
terms, but as long as the vendor does not hide the terms, courts are likely to find that
reasonable notice was given. Any violation of the terms may be treated as breach of
contract.130
128 Hughes vs. McMenamon 204 F. Supp. 2d 178, 181 (D. Mass. 2002)
129 i.LAN Systems Inc. vs. NetScout Service Level Corp. 183 F. Supp. 2d 328, 338-39 (D. Mass. 2002)
130 W. Condon. op cit, n 122, Pg. 447
30

2.5.2 DECISIONS WHERE CLICK WRAP AGREEMENTS WERE NOT ENFORCED

Although courts have enforced all the click wrap agreements analyzed above, on the other
hand, they have also shown willingness to consider other doctrines that can mitigate the
harshness of unfair terms and compensate, at least to some degree, for the fact that many
users may not truly wish to agree.131 These doctrines include unconscionability, violations of
public policy, analysis of forum selection clauses, and federal copyright preemption. These
doctrines have provided a workable framework for determining the enforceability of click
wrap agreements as will be further analyzed with the aid of some decided cases.132
It has been recognized by the courts that the Laws of the State of Virginia, in the United
States of America, have been chosen to govern most click wrap agreements should any
dispute arise between the parties. The question will now arise; why choose the laws of
Virginia State? An investigation has shown that Virginia Laws shortened their statute of
limitations, limited damages if the violation was found to be unintentional and failed to
provide for class action law suits. Therefore, being a safe-haven for most of the defendants in
the cases that will be analyzed below133.
In Williams vs. America Online Inc.,134 the court refused to enforce a click wrap agreement
on the ground that it violated public policy for the defendants to travel from Massachusetts to
Virginia to pursue small claims. Also the court in Scarcella vs. American Online Inc.135
refused to enforce a forum selection clause in a click wrap agreement on public policy
grounds.

131 Davis, N. Presumed Assent, the Judicial Acceptance of Click Wrap, (2007), 22 Berkeley Technology
Law Journals.

132 ibid
133 ibid
134 Williams vs. America Online Inc. 2001 WL 135825 (Mass. Super., February 8, 2001)
135 Scarcella vs. American Online Inc. 4 Misc. 3d 1024(A), 798 N.Y.S.2d 348 (2004
31

In Comb vs. Pay Pal Inc.,136 the federal district court did not enforce a click wrap agreement
because the agreements one- sidedness was unconscionable. The court held that the click
wrap agreement between Pay Pal and comb was substantially unconscionable. The Pay Pal
agreement was unconscionable for such reasons as:
a) Giving all powers regarding dispute resolution to Pay Pal without demonstrating a
legitimate business reason.
b) The prohibition against consolidating claims meant that customers with small claims
were left without an effective method of redress
c) High cost of individual arbitration discouraged customers with small claims
d) The designation of Santa Clara County as the jurisdiction where the arbitration will be
conducted.137
2.5.3 BROWSE WRAP AGREEMENTS
Browse wrap agreements are proved by the simple fact that one party browsed the other`s
site.138 These agreements are usually displayed on a website`s homepage or are accessible
through a link.139 The usual scenario is that the site owner puts up a prominent notice saying
browsing this site will be taken as agreement to terms and conditions as follows......, hence
the argument that continuing to browse in the face of the notice amounts to consent and a
valid agreement.140 The lack of mutual assent in browse-wrap agreements is evident in the
fact that the user is not required to actually view the terms of the agreement before
proceeding beyond the homepage, at which point the agreement is said to become valid. 141

136 Comb vs. Pay Pal Inc. 218 F.Supp.2d 1165 (N.D. Cal. 2002)
137 Condon, W. op cit., n 122, Pg 447-448
138 Hedley, S. The Law of Electronic Commerce and the Internet in the UK and Ireland (2006, Cavendish
Publishers), Pg. 249

139 Femminella, J. Online Terms and Conditions Agreements: Bound by the web, (2003) 17 St. John`s
Journal of Legal Commentary, pg 97.

140 Hedley, S. op cit, n 138, Pg. 249

141 Block, D. Caveat Surfer: Recent developments in the law surrounding browse wrap agreements, and the
future of consumer interaction websites, (2001) 14 Loyola Consumer Law Review. pg. 229

32

This was the issue in Pollstar vs. Gigmania.142 Here, the plaintiff complained of
appropriation of information on their site, contrary to the terms posted to it. However, while a
link to those terms would have appeared on the defendant`s screen, it was obscure small grey
type on a grey background. It might not have been apparent to the defendant that it was a
link; nonetheless the District Court thought it arguable that these terms could be taken to have
been agreed.143 The court in Pollstars case attempted to compare browse wrap agreements
with shrink wrap agreements that had previously been held to be enforceable in ProCD`s
case. The court distinguished between browse wrap and shrink wrap agreements, but noted
that no court had ruled on the enforceability of browse wrap agreements. The court, however,
did agree with Gigmania that many visitors to the Pollstar website may not be aware of the
agreement because the notice of the agreement was provided by small grey text on a grey
background. Therefore, the court determined that a lack of mutual assent which is a
traditional principle of a valid contract was a valid issue in light of the problems with notice.
However the court chose not to decide the mutual assent issue and was not willing to declare
on the validity and enforceability of browse wrap agreements 144. This judicial passivism by
the courts raised some level of confusion till the decision in Specht vs. Netscape
Communications Corporation,145 settled the dust. In this case, software known as Smart
Download (SD) was available from Netscape website, free of charge. While the use of
Netscape navigator requires assent through click wrap agreement, the smart download was
governed by a browse wrap agreement. Following a discussion of the case law surrounding
shrink wrap and click wrap license agreements; the court concluded that the smart download
agreement was a browse wrap agreement. The court rejected the notion that simply
downloading the software indicated assent because downloading was for obtaining a product,
not to assent to an agreement. The user downloading the software neither viewed any
agreement nor gave notice that such agreement existed. The court concluded that mutual
assent is the bedrock of any agreement to which the law will give force.146

142 Pollstar vs. Gigmania 107 F Supp 2d 974 (ED Ca, 17 October, 2000)
143 Hedley, S. op cit, n 138, Pg 249.
144 Block, D. op cit, n 141,Pg. 241
145 Specht vs. Netscape Communications Corporation 306 F 3d 17 (2nd Ct, 1 October, 2002)
33

In conclusion, it has been seen that of the three types of agreements discussed, browse wrap
agreements demand the least consumer interaction because they need not even be viewed.
Both click wrap and shrink wrap agreements purport to demand notice of terms, whether or
not the consumer in fact reads them, and thus they are more likely to be held enforceable.
Browse wrap agreements have become the most difficult type of agreement to be enforced by
the courts because of the problem of lack of mutual assent, an important element to prove a
valid traditional contract. Therefore, the next logical progression in the jurisprudence
concerning browse wrap agreements is that they will increasingly be held to be invalid. 147
Professor Nimmer,148 however, holds a contrary opinion, and makes a case for the
enforceability of browse wrap agreements. He reasoned that trying to distinguish between
browse wrap and other types of licensing agreements is illogical, unnecessary and potentially
detrimental to the future development of internet commerce. He argued that browse wrap
agreements is not unlike other types of contracts and should not be limited without first
finding some fundamental reason for doing so. He said that limitations on browse wrap
agreements are also misguided because consumers can be protected from unfair licensing
terms in many ways, ways that do not chill the possibilities of contracting on the internet. An
example of a consumer protection measure is the consumer reliance on unconscionability of
contract terms and market forces. I will align my reasoning with Nimmer`s argument, as
making browse wrap contracts invalid will affect the general growth of electronic commerce.

146 Block, D. op cit, n 141, pg 243.

147 Ibid para. 1.
148 Nimmer, R. International Information Transactions: An essay on Law in an Information Society, (2006)
26 Brooklyn Journal of International Law.

34

CAHPTER THREE
DETERMINATION OF JURISDICTION AND CHOICE OF LAW IN ELECTRONIC
CONTRACTS
3.0 JURISDICTION
As a general rule, physical presence or location, either actual or constructive determines
jurisdiction. This means that the plaintiff in any case may sue its counterparty in the place of
its domicile.149 From the above it can be said that the body of the individual action may be
located in the jurisdiction, an action may be performed in within a jurisdiction, or individual
boundaries of the jurisdiction itself can be determined by geographical means.150
Applying the above rule while trying to determine jurisdiction in electronic contracts will
face some difficulties as it is agreed that the dematerialized nature of online commercial
activities renders the location of the parties and the place where those activities take place
difficult to determine.151 As a general rule, in order to determine the jurisdiction of a dispute
between parties in different jurisdictions, Private International Law have used geography or
location of the parties or the place where their commercial activities take place as fixed
factors connecting parties.152 It becomes difficult when a business is concluded online, as the
above rules will become difficult to apply.
Having identified all the issues in the determination of jurisdiction in online transactions, this
Chapter unlike other Chapters will straightaway delve into the solutions proffered by

149 Teresa Rodriguez, Applicable law and Jurisdiction in Electronic Contracts, available at
http://www.emarketservices.com/clubs/ems/prod/E-Business%20Issue%20-Applicable%20law%20(1).pdf
accessed on the 16th of September 2011

150 Byassee, W. Jurisdiction of Cyberspace: Applying Real World Precedent to the Virtual Community,
(1995) 30 Wake Forrest Law Review.

151 Gillies, L. Addressing the Cyberspace Fallacy: Targeting the Jurisdiction of an Electronic Consumer
Contract (2008) Int`l Journal of Law and Information Technology, 16. Pgs 242-269.

152 Ibid.
35

different jurisdictions on the determination of jurisdiction and the choice of law that govern
electronic contracts.

3.1 THE EUROPEAN UNION`S APPROACH IN THE DETERMINATION OF

JURISDCISTION OF ONLINE CONTRACTS
In the European Union, the Brussels Convention (1968)153 was a double convention that
provided rules for both jurisdictions and automatic recognition and enforcement of foreign
judgments. This convention created new Private International Law rules for member states
that ratified the convention. In matters between member states, the convention replaced rules
of jurisdiction including those contained in any bilateral agreements that member states
entered with each other. Matters involving states outside the European Community were
however still to be determined by private international law.154 Article 2 of the Brussels
convention enables a person domiciled in a member state to be sued in that state.155
Over the years, on-line trading in the European Union, between businesses and consumers
(B2C) has grown enormously.156 Regardless of this growth in Business to Consumer (B2C) ecommerce, clear rules on jurisdiction (and indeed choice of law) are required for protection
of consumers and for assistance to businesses that are contracted in an online environment.
The Brussels convention provided little or no answers for the issues raised above.157

153 Brussels Convention on Jurisdiction and the Enforcement of Judgments in Civil and Commercial Matters
1968

154 Gillies, L. A review of the New Jurisdiction Rules for Electronic Consumer Contracts within the
European Union (2001) Electronic Law Journal, Journal of Information Law and Technology , Vol. 1

155 Article 2, Brussels Convention of (1968)

156 Goldring, J. Netting the Cyber-shark: Consumer Protection, Cyberspace, the Nation-State, and
Democracy, (1997) Cyberspace Information Policy and Global Information Infrastructure, (Massachusetts:
MIT Press)

157 Gillies, L. Op cit, n 154

36

A new regulation called the Brussels 1 Regulation158 is a new European Community

instrument that is set to replace the Brussels convention on Jurisdiction and recognition of
foreign judgments. This regulation has afforded to the consumers some form of protection
and attempts to address some of the inequalities that may have arisen as a result of consumers
and professionals being geographically located in different jurisdictions under the
Conventions regime.159 Since 2002, the new rules have become law throughout Europe.160

3.1.1 DETERMINATION

OF JURISDICTION

UNDER THE BRUSSELS

REGULATION
Articles 5, 15-17, makes new provisions for consumer contracts.161 Article 5 states that in
matters relating to a contract, a person domiciled in a member state can be sued in the courts
of the place of performance of the obligation.162 A further explanation of what amounts to
place of performance is made on Article 5(1) (b) and (c) of the Brussels 1 Regulation. While
it is commendable that the regulation goes a step further to clarify what amounts to a place of
performance, the pertinent question will be what definition will be given to the place of
performance of digital goods or services purchased online.163
Article 16 of the regulation, maintains the rule that consumers are entitled to sue businesses
either in the business` or consumer`s jurisdiction. For online contracts, this section may also
apply as Article 15(3) makes the section not applicable only to contracts of transport other
than a contract which for an inclusive price, provides for a combination of travel and
accommodation.164 Article 15(1) (c) provides that jurisdiction which includes that of online
contracts, can be established if by any means, businesses direct their professional or
158 Regulation (EC) No. 44/2001, of 22nd December 2000 (Brussels 1 Regulation)
159 Rowe, H., E-Commerce: Jurisdiction over On-Line Contracts and Non-Contractual Cross-Border
Disputes, Part 1, [February 2004] JIBFL Vol. 19, Issue 2, Pages 51-55, at 51.

160 Gillies, L. op cit, n 154, pg. 1

161 Article 5, 15, 16, and 17 of Brussels 1 Regulation, 2001
162 Art 5, Brussels 1 Regulation, 2001.
163 Gillies, L. op cit. n 154, pg. 7
37

commercial activities to the consumer`s domicile or other states including individual member
states.165 From the provisions of Article 15(1) (C) it can now be deduced that any business
that uses the World Wide Web to promote and provide their goods and services to consumers
in the European Union will have to consider the implications of the new Brussels 1
Regulation.166 The addition of the phrase "by any means" to Article 15 (1) (c) was specifically
intended to cover e-commerce transactions and websites and to give consumers the ability to
bring a lawsuit relating to any contracts executed through the Internet in their own country of
domicile.167
In a recent reference by the Supreme Court of Austria concerning two separate cases, the
European Court of Justice (ECJ) has considered the circumstances which a trader directs its
activities to another member state within the meaning of Article 15(1) (c) of the Brussels 1
Regulation, when trading online such that the rule in contract cases that disputes may be
determined in the place of performance of the contractual obligation is displaced. The ECJ
has ruled that this extra protection for consumers contracting cross-border is not triggered by
the mere use of a website by a trader but by evidence of an intention to establish commercial
relations with consumers from other member states. The ECJ has also provided a nonexhaustive list of matters which are capable of constituting evidence from which it may be
concluded that a trader`s activity is directed to the Member State of the consumer`s
domicile168. The above legal issues were the facts of two Austrian cases Peter Pammer vs.
Reederei Karl Schluter GmbH &Co. KG169 and Hotel Alpenhof GesmbH vs. Oliver

164 Article 15(3) of Brussels 1 Regulation, 2001

165 Article 15(1) (c) Brussels 1 Regulation, 2001
166 Gillies, L. op. cit, n 154, pg. 8

167 Rowe, H., op cit, n 159

168 Fields, D. Jurisdiction: European Court of Justice provides guidance on circumstances in which an
online trader direct its activities to another Member State, (2001) Computer and Telecommunications Law
Review 99.

169 Peter Pammer vs. Reederei Karl Schluter GmbH &Co. KG Case C-585/08 Unreported December 7, 2010.
38

Heller.170 For greater understanding of this present topic and this work as a whole the facts of
the two cases will be stated.
In the first case, Mr. Pammer, an Austrian resident, wished to travel by a freighter from
Trieste in Italy to the Far East. He booked a voyage with the German company Reedei Karl
Schulter through a German Travel agency specializing in the sale on the internet, of voyages
by freighter. Mr Pammer, however refused to embark on the ground that the conditions on the
vessel did not, in his view, correspond to the description which he had received from the
agency. He duly sought reimbursement of the sum that he had paid for the voyage and when
the defendant reimbursed only half, Mr. Pammer issued proceedings in the Austrian Courts.
The defendants contended that the Austrian Courts lacked jurisdiction on the ground that it
did not pursue any personal or professional activity in that country according to Article 15(1)
(c) of Brussels 1 regulation.
In the second case, Oliver Heller, a German resident, reserved a number of rooms in Hotel
Alpenhof in Austria. The reservation was made by email which Mr. Heller obtained from the
Hotel`s website. His reservation and confirmation were effected by email. Mr. Heller found
fault with the Hotel`s services and left without paying his bills. The hotel issued proceedings
in Austria and Mr. Heller raised a plead of lack of jurisdiction on the basis that as a consumer
resident in Germany, he could only be sued in his Country according to according to Article
16(2) of the Brussels 1 Regulation.
The ECJ ruled that the mere accessibility of a website in Member States of the EU, other than
that in which the trader concerned is established does not in itself mean that its activity is
directed to other member states for purposes of Article 15(1) (c). The trader must have
manifested its intention to establish commercial relations with such consumers. As to what
evidence could demonstrate that a trader was envisaging doing business with consumers
domiciled in other Member States, the court stated that this would include clear expressions
of the trader's intention to solicit the custom of those consumers, for example where it offered
its goods or services in several Member States designated by name or when it paid a search
engine operator for an internet referencing service in order to facilitate access to its site by
consumers domiciled in those Member States.

170 Hotel Alpenhof GesmbH vs. Oliver Heller C-144/09

39

The ECJ stressed, however, that other items of evidence, possibly in combination with one
another, were also capable of demonstrating the existence of an activity directed to a
Member State of the consumer's domicile. These would include: the international nature of
the activity at issue, such as certain tourist activities; mention of telephone numbers with the
international code; use of a top level domain name other than the ccTLD for the state in
which the trader is established or use of a generic top level domain name such as .com or .eu;
the description of itineraries from one or more other Member States to the place where the
service is provided; and mention of an international clientele composed of customers
domiciled in various Member States, in particular by presentation of accounts written by such
customers. Likewise, if a website permits consumers to use a language or currency other than
that generally used in the trader's Member State, this could also constitute evidence
demonstrating cross-border activity.
On the other hand, the ECJ stressed that the mention on a website of a trader's email address
or geographical address, or of its telephone number without an international code, would not
constitute such evidence and that information would not indicate whether the trader was
directing its activity to one or more Member States. In conclusion, having regard to such
evidence, it was for the Austrian court in the current cases to determine whether it was
apparent from the traders' websites and overall activity that they were envisaging doing
business with Austrian consumers in the first case, or German consumers in the second case,
in the sense that they were minded to conclude contracts with them. However, in the second
case the ECJ rejected Hotel Alpenhof's comment that the contract for accommodation was
concluded in Austria because that was where the hotel room keys were handed over and
payment was to be made as Mr. Heller became contractually bound when the reservation was
made and confirmed online.171
Despite the lovely nature and purpose of assuming jurisdiction under the Bruseels 1
Regulation, it can be argued that there still remains a problem of determining the jurisdiction
with regards to contracts conducted and concluded electronically. Desiree fields argued that
the increase in global distribution of goods and services via the internet gives rise to
significant uncertainty with respect to matters concerning the choice of jurisdiction in online
consumer contract disputes because internet communication makes it more difficult to
171 Fields, D. op cit, n 168
40

determine the place where the steps necessary for the conclusion of a contract have taken
place.172
3.2 UNITED STATE`S APPROACH IN THE DETERMINATION OF JURISDICTION
OF ONLINE CONTRACTS.
The United States is far more advanced in dealing with e-commerce disputes than Europe as
a result of a number of important judicial decisions. In the United States, e-consumer contract
jurisdiction has been developed by the courts.173 Jurisdiction is divided into general and
specific jurisdiction, governed by the due process principle set forth in the fourteenth
amendment of the American Constitution.174
In the United States, as a guiding principle, a court in one state will take or exercise
jurisdiction over a willing or unwilling defendant from another jurisdiction if the plaintiff is
able to prove that the defendant has had required minimum contact with the plaintiff`s
chosen jurisdiction in such a way that justice and fair play cannot be seen to be offended. 175
Minimum contact in this context means when the defendant has purposefully availed
himself or herself of the privileges of doing business in the plaintiff`s State in such a way that
the defendant should reasonably expect in the event of dispute, to be brought before the
plaintiff`s State courts to resolve the dispute. While it is easy to use words such as required
minimum contact and purposeful availment, it is much more difficult to determine in any
given situation whether the tests have been satisfied.176 As Lockerby put it:
Just how much of a nexus is required between the electronic transaction and
forum seeking to exercise jurisdiction.177

172 Ibid.
173 Hutchings, A. Determining Jurisdiction in e-consumer contracts: Are Consumers being abandoned in
cyberspace? available on http://www.nuigalway.ie/law/GSLR/2010/vol4GSLR%20-%20hutchings.pdf
accessed on the 12th September 2011

174 The Fourteenth Amendment (Amendment XIV) of the United States Constitution adopted on July 9, 1868.
175 Stoney, M. and Stoney, S. The Problems of Jurisdiction to e-commerce. Some Suggested Strategies,
(2001) Journal of Enterprise and Information Management, Vol. 16, Number 1, pg 76.

176 Ibid.
41

In the early days of the internet, a case was decided by the United States courts that have
been widely criticized. In Inset System Inc. vs. Institution Set,178 the defendant based in State
A, was sued for trademark infringement in State B. The defendant had no offices or
employees in state B, nor did it regularly carry on business in State B. The defendant had
internet adverts and a toll free phone number which could be accessed by all internet users.
Residents of State B had accessed the advertising and used the toll free line. The court of
State B decided that it had jurisdiction and the case proceeded against the defendants. A
justifiable criticism of the above decision was that the courts applied strictly the rules of
personal jurisdiction to cases involving websites and this demonstrated the inconsistency and
lack of understanding at that time regarding the effect and accessibility of a website. Here the
court equated the creation of a website with the placement of adverts in the print media
circulated in state B. It did not address the fact that, unlike print publications, defendant`s
website only appeared on B`s citizens computer screens if accessed by a B state resident. This
question was however addressed squarely in the case of Martiz Inc. vs. CyberGold Inc.179,
where a Missouri corporation, sued Californian based Cyber-Gold for trademark
infringement. Cyber-Gold moved to dismiss the suit for lack of personal jurisdiction because
it claimed its only contact with Missouri was the accessibility of its website there. The
purpose of Cyber Gold`s site was to solicit e-mail addresses from internet users, including
those in Missouri in order to forward them to advertisements in their selected areas of
interests. The court noted that apart from its website being accessed 311 times by Missouri
users, Cyber-Gold had no other contacts with the state of Missouri. The big question was
whether the above facts constituted the necessary minimum contact to exercise personal
jurisdiction?
The court focused on Cyber-Gold`s intent and content. If a Missouri resident requested
information from Cyber-Gold`s website, it was automatically and indiscriminately sent.
CyberGold sought to gain customers wherever they might reside. The fact that Cyber-Gold
transmitted information to Missouri users approximately 311 times was viewed by the court
as evidence that Cyber-Gold purposefully availed itself of the privilege of conducting
177 Lockerby, M. Non-Contractual Legal Problems, (1999), IBL, 244
178 Inset System Inc. vs. Institution Set (1996) 937, F. Supp. 161
179 Martiz Inc. Vs. CyberGold (1996) 947, F. Supp, 1328
42

business in Missouri. Therefore the court concluded it was not unreasonable for a Missouri to
assume jurisdiction.
In the above two cases, states have either assumed or refused jurisdiction based on the level,
extent and purpose of website accessibility and activity directed to persons in those states in
accordance with existing specific personal jurisdiction tests, derived from the fourteenth
amendment of the United States Constitution. The active-passive website distinction (well
known as the sliding scale approach) while useful is now the only factor used to determine
jurisdiction over businesses situated in another state or out of the United States.
3.2.1 THE SLIDING SCALE TEST AS APPLIED IN ZIPPO`S CASE
In Zippo Manufacturing Co. Vs. Zippo Dotcom Inc.,180 the courts have sought to
differentiate the different levels of web activity. At one end of the spectrum are situations
where a defendant clearly does business over the Internet. If the defendant enters into
contracts with residents of a foreign jurisdiction that involve the knowing and repeated
transmission of computer files over the Internet, personal jurisdiction is proper. At the
opposite end are situations where a defendant has simply posted information on an Internet
web site which is accessible to users in foreign jurisdictions. A passive web site that does
little more than make information available to those who are interested in it is not grounds for
the exercise personal jurisdiction. The middle ground is occupied by interactive Web sites
where a user can exchange information with the host computer. In these cases, the exercise of
jurisdiction is determined by examining the level of interactivity and commercial nature of
the exchange of information that occurs on the website.
The American Bar Association has cautioned that reliance alone on the nature of the website
to determine jurisdiction is misplaced,181 however, the introduction of the sliding scale test
to incorporate the threshold requirement that businesses intended to target consumers in

180 Zippo Manufacturing Co. Vs. Zippo Dotcom Inc. 1997, 42 US PQ, 2d, 1062
181 Agne Lindbers, ABA Section on Business Law. Committee on Cyber Space law. Jurisdiction on the
internet: The European Perspective, An analysis of conventions, Statutes and case laws. 20th July (1997)
Available at http://www.kentlaw.edu/cyberlaw/docs/drafts/draft.rtf accessed on the 14th of August 2011

43

another jurisdiction will provide the much needed degree of forseeability for both parties as
well as evidence of commercial activity and greater certainty for consumers.182
In recent times a number of cases have looked to either modify or replace the sliding scale
test as a factor in determining purposeful availment and minimum contacts for personal
jurisdiction.183 Surprisingly after what seemed to be a stable approach in determination
jurisdiction in online contracts in the United States , a radical judgment delivered four months
ago by the Florida Fourth District Court of Appeal appears to have been the most pointed
abandonment of Zippo`s sliding scale test till date. 184 In Caiazzo vs. American Royal Arts
Corporation,185 the appellate court stated that:
Minimum contact for general jurisdictions is a much more demanding and
necessarily different analysis than that required for specific jurisdiction.
In conducting such analysis, the appellate court emphasized that a continuous and
systematic business contacts determination requires a holistic analysis of the defendant`s
relationship with Florida which was the jurisdiction in question. The court pointed out that
the law in this area is severely underdeveloped and contradictory in the area of internet
jurisdiction and stressed that the analysis of general personal jurisdiction must always be
intensely fact specific, unlike Zippo`s case which has based determination of jurisdiction on
the type of website used.
This decision in my humble view has flawed the assertion that the United States Courts have
advanced in the development of rules on the determination of e-contract jurisdictions. Some
scholars even recommended that the rule in Zippo`s case should be adopted as a model law
by other Countries.186 The importance of the internet based jurisdiction and the difficulty
inherent in resolving such cases are manifest in the Caiazzo`s court`s decision which has
182 L. Gillies, op cit. , n 154, pg 9.
183 ibid
184 Lambert, K. Is Zippo Getting Zapped? Litigation news available at
http://apps.americanbar.org/litigation/litigationnews/top_stories/081211-internet-jurisdiction-florida-zippo.html
accessed on the 4th of September 2011

185 Caiazzo vs. American Royal Arts Corporation (2011) FLA.4th DCA (2011 WL 135585)
186 M. Stoney and S. Stoney, op. cit. n 175, pg. 75
44

deviated totally from the rule in Zippo`s case. 187 Both the European Union and the United
states should strive to develop a uniform electronic contract law on Jurisdiction that will be
applicable worldwide considering the ephemeral nature of online transactions. This move will
promote electronic commerce and will boost consumer confidence in online transactions.

3.3 DETERMINATION OF THE CHOICE OF LAW APPLICABLE TO ECONTRACTS

The recognition of the autonomy of the parties to choose the preferred applicable law is
found in the majority of legal documents regarding international trade and the current rules
regarding conflict of statutes or laws. Thus when the rules of such instruments/ laws are not
directly applicable to the transaction of parties, International conventions give autonomy to
the parties to exclude, modify or apply. Regarding B2B e-commerce, the following
instruments are particularly relevant, allowing the parties to choose an International
convention as the applicable law.188 The laws are mentioned below:
a) United Nations Convention of April 11, 1980 on Contracts for International Sale
of Goods which is applicable to e-contracts for the international sale of goods.189
b) United Nation`s Convention of 23rd November 2005 on the Use of Electronic
Communications in International Contracts.190
c) The European Union Regulation No. 539/2008 of 17 th June 2008, of the European
Parliament and council on the law applicable to contractual obligations (Rome 1),
which replaces the well known Rome Convention of 1980.
When parties have failed to agree, it is necessary to resort to a series of rules and points of
contact that will determine applicable law.191

187 K. Lambert, op cit., n 184

188 T. Rodriguez, op cit., n 149, Part II, Pg. 2.
189 Article 1-5 and Article 6, CISG, 1980
190 Article 3.
191 T. Rodriguez, part II, op cit., n 149, pg 2
45

The first rule applicability will be that of the country of customary residence of the party that
is to provide the consideration that characterizes the contract. Consideration may be
characterized by (in case of a sale, delivery and in case of a service agreement, the
performance of service). However in the context of electronic commerce, the element
presenting the greatest interpretative difficulty is the determination of the place of
establishment or residence of the contracting party responsible for that particular
performance.
The second rule will be the closest tie rule, which is that the contract will be governed by the
law of the country that has the closest tie. These rules have at least created some form of
direction and will boost electronic transactions online.

46

CHAPTER FOUR
REGULATORY SOLUTIONS TO THE BARRIERS ENCOUNTERED WHEN
APPLYING TRADITIONAL RULES OF CONTRACTING TO ELECTRONIC
CONTRACTS

4.0 INTRODUCTION
Whether or not the existing legal definitions could encompass electronic communications,
governments have recognized that the uncertainty created has the potential to undermine
commercial confidence.192 While the lawmakers are quick to take credit for the benefits of
electronic commerce, they have, generally, been slow to consider the problems it presents for
the traditional categories of contract formation and to amend the law accordingly.193 As
discussed in previous chapters, contracts negotiated online present difficult and, sometimes,
novel questions of contract law that many states and national governments are only beginning
to address. Existing Statutes and case laws as analyzed in earlier chapters often do not resolve
basic contract formation issues raised in the electronic context, such as whether a contract can
be formed by interaction of automated computer programs without direct involvement of
parties (absence of consensus ad idem) or by a party just browsing a website, or clicking I
agree.194
After a careful analysis in the previous chapters of various legal issues that will arise while
trying to apply traditional contract rules to electronic contracts, it is now ideal to discuss the
legislative and regulatory solutions to these challenges. Issues such as formal requirements in
contracts, time of acceptance in electronic communications, the manifestation of assent, and
jurisdictional issues will be discussed. Relevant laws in the European Union, United States,
and International Laws will be cited to further analyze this chapter.

192 Poyton, D, op. cit, n 21, pg. 152.

193 Poggi, C., op cit, n 76
194 Ibid pg 230
47

4.1

REGULATORY

SOLUTIONS

TO

BARRIRES

RAISED

BY

FORMAL

REQUIREMENTS IN SPECIFIC CONTRACT AGREEMENTS.

It has been settled earlier that formal requirements such as writing and signature will pose a
dangerous hurdle when contracting online, hence a recommendation, in the earlier chapters,
that any legislation that appears to discriminate against any electronic form of contracting
should be removed.195 A mandatory requirement for model electronic signature legislation
was also proposed in chapter two. An analysis of several legislations is now necessary to
ascertain if the attributes of the model law on formal requirements were taken into
consideration while enacting those laws.
4.1.1 THE UNITED NATIONS COMMISSION ON INTERNATIONAL TRADE LAW
(UNCITRAL) MODEL LAW ON ELECTRONIC COMMERCE196
The UNCITRAL, a body of the United Nations, is one such body that has been developing
legislation for a number of years. This body has been promoting a model law on electronic
commerce and draft uniform rules on electronic signatures.197 A number of efforts, by the
UNCITRAL, have attempted to remove writing and signature requirements to provide greater
certainty to on-line contracts.198 The model law reduces writing.
The UNCITRAL Model Law adopted a broad position on the validity of electronic
signatures.199 Article 7 provides that a data message satisfies a signature requirement as long
as some reliable method is used to identify the signer and indicate assent. 200 This approach
should provide the flexibility needed to allow new electronic signature technologies to
develop. States, however, have not uniformly followed the UNCITRAL model, leading to
195 Poyton, D, op cit, n 21, pg 152
196 United Nations Commission on International Trade Law (UNCITRAL) Model Law on Electronic
Commerce (1996)

197 Braley, S. op cit, n 74, pg. 437

198 Kelman, A. and Chissick, M. Electronic Commerce Law and Practice( 3rd Edition) Sweet and Maxwell
2002

199 C. Poggi, op cit , n76,Pg 251

200 Article 7, UNCITRAL Model Law on Electronic Commerce (1996)
48

several inconsistent approaches.201 The model law in Article 9 does not have a presumption in
favor or against electronic signatures.202 Article 9 further stated: in any legal proceeding,
nothing in the application of the rules of evidence shall apply so as to deny the admissibility
of a data message in evidence:
a) On the sole grounds that it is a data message, or
b) If it is the best evidence that the person adducing it could reasonably be expected to
obtain, on the grounds that it is not in its original form. 203 Article 9 is very important
as parties to a contract will no longer have the fear that their electronic data
transactions will not be able to be offered as proof of transaction in the court of law.204
Article 6 also states that any legal requirement that information must be in writing will be
met by data message if the information contained there is accessible so as to be usable for
subsequent reference.205
The UNCITRAL model law is the type of law on electronic signatures that will place
electronic contracts and transactions at par with traditional paper-based contracts as it may
hold some influence with the court should a dispute over online contracts arise. However, the
UNCITRAL has failed to address the international aspects of electronic signatures.206

4.1.2 THE EUROPEAN UNION DIRECTIVE ON ELECTRONIC SIGNATURES

Most of the individual EU member states have enacted laws which provide for the legal
recognition of electronic signatures that meet certain specified criteria. However, some other
201 Poggi, C. op cit, n76, pg. 251
202 Braley, S. op. cit , n 74, pg. 438, para 2
203 Article 9, UNCITRAL Model Law on E- Commerce
204Braley, S. op. cit, n 74, pg 438 para 4
205 Article 6 UNCITRAL Model Law on e-commerce
206 Braley, S. op cit n 74, pg 439, para 3
49

member states recognize only digital signatures or those created using specified
technologies.207 Because different standards required by member states will affect the growth
of electronics contracts in general, the European parliament and Council adopted directive
1999/93, on a community framework for electronic signatures. 208 The scope of the directive is
to facilitate the use of electronic signatures and to contribute to their legal recognition. It
also establishes a legal framework for electronic signatures and certain certification services
in order to ensure the proper functioning of the internal market.209
Under this directive, Article 5(2) requires member states to enact national legislation to
ensure that electronic signatures are not denied legal effect, validity or enforceability on the
grounds that the signature is in electronic form, or based upon an uncertified certificate. 210
Article 7(1), also states that member states shall ensure that certificates which are issued as
qualified certificates to the public by a certification service provider established in a third
country are recognized as legally equivalent to the certificates issued by a certification
service provider within the community, if certain requirements are met.

211

It can be seen that

unlike the UNCITRAL, the directive addressed aspects of international comparability. 212 This
directive, however, in Articles 2(2) (a-d), has added another definition of electronic signature,
calling it an advanced electronic or digital signature.213 This has created some form of
controversy because in jurisdictions that have enacted digital-signature laws, it is not clear
whether an electronic signature signed by any other method other than advanced electronic
or digital signature is valid.214 Laws favoring digital signatures have sparked much criticism.
Critics argue that it is premature and over-regulatory. More recent electronic signature laws
207 Poggi, C. op. cit, n 76, pg. 256-7
208 Council Directive 1999/93/EC on a Community Framework for Electronic Signatures
209 Braley, S. op cit, n 74, S pg 439
210 Article 5(2) Electronic Signatures Directive of the EU, 1999
211 Article 7(1) Electronic Signatures Directive of the European Union, 1999.
212 Braley, S. op cit., n 74, pg 441
213 Article 2(2), Electronic Signatures Directive of the European Union, 1999
50

are in favor of more technology neutral or minimalist legal frameworks. The reason for
this is to remove barriers to electronic commerce, treat electronic communication at par with
paper communications and not favor one technology over another. These types, of laws,
however, have been criticized for failing to establish a reliable security infrastructure. 215 The
blended two tier approach of the European Union Signature Directive attempts to take
advantage of both the minimalist and perspective approaches by outlining the standards for
certificate authorities and cryptographic digital signatures on the one hand and establishes a
wide basis for acceptance of electronic signatures for legal purposes on the other hand.216
4.1.3 THE FEDERAL E-SIGN LAW OF THE UNITED STATES
The Electronic Signatures in Global and National Commerce Act (E-SIGN) 217 became
effective in the United States in October, 2000.
Section 101 (a) (1-2), states that
1. A signature may not be denied legal effect, validity, or enforceability solely because it
is in electronic form or
2. A contract relating to such transaction may not be denied legal effect, validity, or
enforceability solely because an electronic signature or record was used in its
formation.218
Section 101 (b), preserves the rights of individuals to NOT USE electronic signatures. Here,
the law provides that individuals reserve the right to use a paper signature. Sub-section (c) is
in direct support of (b) by requiring a Consumer Disclosure that the signatory has
consented to use an electronic format.219
214 Barofsky, A. The European Commission`s Directive on Electronic Signatures: Technological Favouritism
towards digital signatures, (2000), Boston College International Comparative Law Review, Article 5, Vol. 24,
Issue 1.

215 Ibid. pgs 12-14

216 https://signnow.com/resources/international-digital-and-electronic-signature-law accessed on the 11th of
September 2011

217 The Electronic Signatures in Global and National Commerce Act 2000
218 Section 101(a) (1-2) E-SIGN Act of the USA, 2000
51

Section 101(c) (1) (C) states that the consumer also "consent electronically, in a manner that
reasonably demonstrates that the consumer can access information in the electronic form that
will be used to provide the information that is the subject of the consent"220
A major proof of the neutrality of the Act can be found in the E-SIGN`s definition of
electronic signature which includes, an electronic sound, symbol, or process, attached to or
logically associated with a contract or other record and executed or adopted by a person with
the intent to sign the record.221 Finally, the E-SIGN Act successfully addresses international
compatibility of electronic signatures.222
Other Uniform laws in the United States, like the Uniform Computer Information
Transactions Act (UCITA)223 recognizes the validity of electronic contracts in S. 107 and
202(a) and it states that a contract may be formed in any manner sufficient to show
agreement.224 It incorporates the term records instead of the word writing in recognition
of the inclusion of electronic records.225 Similarly, like the revised Uniform Commercial
Code226, Article 9, the UCITA uses the word authenticate in place of the word signature
in S.102(6) to include electronic processes and symbols used to indicate intent to sign a
record.227
219 Section 101(b) of the E-SIGN Act of the USA, 2000
220 Section 101(c) E-SIGN act of the USA, 2000
221 Section 106(5) E-SIGN Act of the USA, 2000
222 Braley, S. op.cit, n 72, pg 443.
223 The Uniform Computer Information Transactions Act (UCITA) is a proposed United States law to create a
clear and uniform set of rules to govern such areas as software licensing, online access, and other transactions in
computer information

224 S. 202(a) UCITA

225 S. 102, UCITA
226 Revised edition of the Uniform Commercial Codes of the United States first published in 1952.
227 H. Classen, A practical Guide to Software licensing for licensees and licensors. (2nd Edition, American Bar
Association 2005)

52

4.2

REGULATORY

CLARIFICATION

ON

WHEN

AN

ELECTRONIC

COMMUNICATION OF ACCEPTANCE IS DEEMED TO HAVE BEEN RECEIVED

The receipt of electronic communications has been addressed in the UNCITRAL model law,
the Electronic Commerce Directive,228 and the Uniform Electronic Transactions Act
(UETA)229 While the question of whether that communication is an acceptance and whether
acceptance is effective on dispatch or receipt will remain to be decided by the courts on the
basis of common law principles, the above mentioned legislations or instruments, may
influence the court`s assessment of when communication is received.230
4.2.1 CLARIFICATIONS BY THE UNCITRAL MODEL LAW ON ELECTRONIC
COMMERCE
The UNCITRAL Model Law in Article 15(1), provides that dispatch of a data message occurs
when it enters an information system which is outside the sender`s control. 231 To create a
scenario of when an information is outside the control of the sender, it can be said that if an
email is sent from an individual`s PC, the moment that the message leaves the sender`s
outbox, it enters the internet service provider`s system from where it will proceed to the
sender`s mail host. From the moment of clicking send, the data message moves to a system
beyond the sender`s control.232
Article 15(2) states that the time of receipt of a data message is determined as follows:
a. If the addressee has designated an information system for the purpose of receiving
data messages, receipt occurs
b. When the data message enters the designated information system or
228 Directive on Electronic Commerce (2000/31/EC)
229 The Uniform Electronic Transactions Act (UETA), 1999 was developed by the National Conference of
Commissioners on Uniform State Laws in the United States of America, to provide a legal framework for the
use of electronic signatures and records in government or business transactions. It does not have the force of
Law like the UNCITRAL model law, but can be adopted by the States in the United States for it to be enforced.

230 Poyton, D. op. cit, n 21, Pg. 197.

231 Article 15(1), UNCITRAL Model Law on Electronic Commerce, 1996
232 Poyton, D. op cit, n 21, Pg. 199
53

c. If the data message is sent to an information system of the addressee that is not the
designated information system, at the time when the data message is retrieved by the
addressee
d. If the addressee has not designated an information system, receipt occurs when the
data message enters an information system of the addressee.233
The time of receipt is defined with reference to whether the receipt has entered the designated
information system of the recipient. A designated information system includes an email
address specified for the receipt of data messages. A situation where an email address is
simply included in a website or other documentation without any specific indication that it
should be used for receiving data messages, the time of receipt will be when the information
has been retrieved by the addressee, which is, in my own interpretation, (when the mail has
been viewed as inbox).234 However, the model law does not explicitly deal with the issue of
whether the message is intelligible or usable by the addressee or take into account, system
downtime or faults, which was the case in the Singaporean case of Chwee Kin Keong vs.
Digilandmall.com Property Limited (Supra), earlier discussed.
4.2.2 CLARIFICATIONS BY THE ELECTRONIC COMMERCE DIRECTIVE 2000
OF THE EUROPEAN UNION235
Article 11(1) of the E-Commerce Directive 2000, provides that member states shall ensure,
except when otherwise agreed by parties who are not consumers, that in cases where the
recipient of the service places his order through technological means, the following principles
apply:
-

The service provider has to acknowledge the receipt of the recipient`s order without
undue delay and by electronic means;

The order and acknowledgement of a receipt are deemed to be received when parties
to whom they are addressed are able to access them.236

233 Article 15(2) (a &b), UNCITRAL Model Law on Electronic Commerce, 1996.
234 Poyton, D. op. cit, n 21, pg 149
235 Electronic Commerce Directive of The European Union, 2000/31/EC
236 Article 11(1) E-Commerce Directive 2000/31/EC
54

Once there is a delay by the service provider in acknowledging the receipt of the order, the
contract may not be enforced. It can be seen that Article 11 prescribes the delivery rule for all
methods of electronic communication, which will go some way towards providing a degree
of harmonization, but falls short of prescribing exactly when a contract will be concluded. 237
Article 11(2) deals with technical means to identify and correct input errors. Prior to placing
an order, a means of correcting errors should be made available by the service provider. If by
a simple click on an OK button, an order is placed, it is hard to correct errors before the
placing of an order. Ordinarily it would be reasonable if within a short period, input errors
can be corrected in order to change or annul the contract. A website or an electronic
transaction presenting an overview of what has been ordered before the order is actually
placed, seems to be the most appropriate, effective and accessible way of electronic
contracting.238
4.2.3 CLARIFICATIONS OFFERED BY SOME UNITED STATES LEGISLATIONS.
The Uniform Electronic Transactions Act of the United States239 in its Section 15 rejects
the mailbox rule for electronics transactions, which is similar to the provisions of the
UNCITRAL discussed earlier.240 Under the UETA, an electronic record is deemed to have
been sent when it is directed properly to the receiving party`s designated information
processing system in a form capable of being processed by that system, and enters an
information processing system outside the sender`s control.241

237 Murray, A., Contracting Electronically in the Shadow of e-commerce Directive, available at
www.100megsfree4.com/adrewmurray/Econtracting.pdf accessed on the 4th of September 2011

238 Lodder, A. European Union E-commerce Directive- Article by Article comments, Guide to European
Union Law on E-commerce, available at http://ssrn.com/abstract=1009945 accessed on the 4th of September
2011

239 The Uniform Electronic Transactions Act (UETA), 1999.

240 Poggi, C., op cit, n76, pg. 267
241 Section 15(a) UETA
55

On when an electronic message is deemed to have been received, the Act states that an
electronic record is received when it enters the computer system designated by the recipient
in a form capable of being processed by that system, and the recipient is able to retrieve it
even if the recipient is not aware of its receipt.242 The UETA and the UNCITRAL model law
on E-commerce define the concept of receipt in a similar way. The main difference between
the two provisions is that the UNCITRAL appears to give different rules for situations where
recipient has designated an electronic address (in which case the retrievability rule applies)
and those where the message is sent to an address that was not so designated ( in which case
the receipt occurs when addressee is aware that the electronic communication has been sent
to the address and is capable of retrieving it. By contrast, the UETA provides that the normal
rule (focusing on whether the message is retrievable) will apply whether the address was
designated by the addressee or or used for the purpose of receiving electronic records or
information of the type sent. 243
The Uniform Computer Information Transactions Act (UCITA) and The Uniform
Commercial Code (revised)244.
The UCITA in S.203(4) reverses the mailbox rule for electronic messages by making
acceptance effective upon receipt, in contrast to the traditional rule that makes acceptance
effective upon deposit of the means of acceptance in the mailbox. 245 Also the revised Article 2
of the Uniform Commercial Code

246

is similar to the provisions of the UCITA.247 It provides

242 S. 15 (b), 15(e) UETA

243 Boss, A. And Kilian, W. The United Nations Convention on the use of Electronic Communications in
International Contracts, an in-depth Guide and Sourcebook. (2008), Kulwer Law International

244 The Uniform Commercial Code (UCC or the Code), first published in 1952, is one of a number of uniform
acts that have been promulgated in conjunction with efforts to harmonize the law of sales and other commercial
transactions in all 50 states within the United States of America.

245 Classen, H. A practical Guide to Software licensing for licensees and licensors, 2nd Edition, ( American
Bar Association 2005)

246 Article 2 of the Uniform Commercial Codes of the United States (1952) Revised.
247 Poggi, C. op cit, n 76, pg. 268.
56

that an electronic record is effective when received, even if no individual is aware of its
receipt.248
However, neither the UCITA, nor the revised Article 2, addresses the time when an electronic
message is deemed to have been sent.249
4.3 REGULATORY CLARIFICATIONS ON THE MANIFESTATION OF ASSENT IN
NON-NEGOTIATED ELECTRONIC AGREEMENTS
While the email and similar means of electronic communication comfortably resemble
traditional written forms, Electronic Data Interchange (EDI) and internet transactions do not
readily allow parties to negotiate terms and it is also unclear what amounts to assent.250
Having analyzed the problem in the previous chapters, the type of online agreements that
exists and how courts have interpreted the enforceability of such agreements which are
mostly non-negotiated and may not require assent to be bound, it is now ideal to look at some
relevant provisions of some electronic contract regulations, and how they have interpreted
such agreements.
4.3.1 THE UNCITRAL MODEL LAW ON ELECTRONIC COMMERCE 1996
While the UNCITRAL model law in its Article 11(2) gives electronic messages the same
effect as traditional forms of communication, it fails to address the question of what
constitutes an act signifying assent, leaving that determination to the contract laws of
different states.251 Another major problem envisaged by the courts while interpreting assent in
electronic communications is whether electronic agents and automated computer programmes
that accept contractual obligations without the knowledge of their operators, can create a
binding contract.252 The UNCITRAL Model law gives a vague explanation as to the validity
248 Revised Article 2, S.213
249 Poggi, C. op cit., n 76, Pg. 268
250 Poggi, C, op. cit, n 76, pg. 260
251 Poggi, C, op. cit, n 76, 261.
252 ibid
57

of electronic agents to either initiate or accept contractual obligations. The model law states
that a message will be attributed to the sender if it is sent by an information system
programmed to operate automatically.253 Further clarification on State legislations wishing to
enable automated electronic contracting was not made.254
4.3.2 UNITED STATE LAWS ON MANIFESTATION OF ASSENT IN ELECTRONIC
CONTRACTS
The Uniform Electronic Transactions Act (UETA) and the Federal Electronic Signatures Act
were drafted to conform closely to the UNCITRAL model law. They gave electronic
messages the same legal effect as other forms of communication, without reaching the
underlying issues about what sort of online conduct will amount to assent.255
The Uniform Computer Information Transactions Act (UCITA) is the most innovative of the
uniform law proposals in the USA as regards the manifestation of assent. 256 UCITA requires
that a party must have had the opportunity to review the contract terms in order to validly
assent.257 The opportunity to review under the UCITA requires the record to be available in a
manner that ought to call it to attention of an ordinary reasonable person. It can be said that
browse wrap agreements have failed the required standard of assent under the UCITA.258
On the second issue whether acts of electronic agents can create a binding contract, the
UCITA, the revised UCC, and the UETA affirm that a contract may be formed between an
individual and an electronic agent.259

253 Article 13(2) (b) of the UNCITRAL Model Law 1996

254 Poggi, C. op. cit, n 76, pg. 261
255 S. 7 UETA and S.101 (a) Electronic Signatures Act of the USA. See also C. Poggi, op. cit. pg. 262
256 ibid
257 S. 112, UCITA
258 Poggi, C, op cit, n 76, pg 262,` footnote 146.
259 S. 107(d) UCITA and S.14 UETA.
58

4.3.3 EUROPEAN UNION LAWS ON THE MANIFESTATION OF ASSENT IN

ELECTRONIC CONTRACTS
Also, like the UNCITRAL, the European Union laws do not answer the question about what
conduct will suffice to demonstrate assent, nor did they address whether a contract may be
created by the interaction of electronic agents.260 However, the E-commerce directive requires
member states to ensure that the legal requirements applicable to the contractual process
neither create obstacles for the use of electronic contracts nor result in such contracts being
deprived of legal effectiveness and validity on account of their having been made by
electronic means.

261

In carrying out this directive, member states have adopted different

rules to ensure the implementation of Article 9(1), hence creating a problem of uniformity in
regulation.
After a careful analysis of different laws that try to regulate the knotty issues raised while
applying traditional contract rules to electronic contracts, there still seem to exist some
unsolved problems, like the need for international co-ordination in electronic commerce
regulation, as proposed by the United States government and the European Union. 262
Although the UNCITRAL model law has been influential, many countries have enacted laws
and regulations affecting electronic commerce, which violate the principles, set forth in the
UNCITRAL model law.263
The long awaited development of a coordinated electronic commerce regulation came on the
23rd of November 2005, when the United Nations General Assembly adopted a new
Convention on the Use of Electronic Communications in International Contracts.264 The
new convention aims to enhance the legal certainty and commercial predictability of
international contracts where electronic forms of communication are used. It also recognizes
260 Poggi, C. op cit, n 76, pg 265
261 Article 9(1) E-Commerce Directive 2000. 2000/31/EC
262 Malawer, S. Global Governance of E-commerce and Internet Trade: Recent Developments available
at http://www.worldtradelaw.net/articles/malawerecommerce.pdf accessed on the 5th of september 2011

263 Poggi, C. op.cit, n 76, pg. 272

264 United Nations Convention on the Use of Electronic Communications in International Contracts, 2005
59

the value of electronic communications and modernizes the terminology of older conventions
to embrace the impact of digital technologies. Another advantage of the convention is its
broad scope of application as it goes beyond sale of goods and covers trade in services and
information. It also confirms widely recognized principles such as that of functional
equivalency or irrelevancy of the geographical location of information systems, which lays to
rest the problem of jurisdiction.265
The major shortcoming of the convention is that it does not deal with important areas of
electronic commerce such as the B2C (business to consumer) e-commerce or online financial
transactions. Such matters were left for the consumer protection laws of different states.266
A way that governments consciously attempt to avoid problems of diversity of jurisdiction is
to harmonize the law applicable across jurisdictions, so that it will not matter whose law
applies or what forum will apply it. Adopting unified legislative arrangement is an important
means by which governments can increase legal certainty and commercial predictability for
parties contracting in an electronic environment.267
4.4 ONLINE DISPUTE RESOLUTION
Online dispute resolution is a means of dispute settlement whether through conciliation or
arbitration, which implies the use of online technologies to facilitate the resolution of disputes
between parties. Online dispute resolution has similarities with offline conciliation and
arbitration but the information management and communication tools which are used during
the proceedings, and may apply to all or part of the proceedings, also have an impact on the
methods by which the disputes are being solved.268
Currently there have been moves by some jurisdictions to introduce On-line Dispute
Resolution (ODR) which in my opinion is a welcomed development. Internet users must have
a high degree of confidence that an effective avenue of resolution of complaints or issues
265 Polanski, P. Convention on E-Contracting: The rise of International Law of Electronic Commerce? A
paper delivered on the 19th Bled Conference Values, Bled Slovania, June 5-7, 2006

266 Ibid.
267 Orpwood, R. op cit, n1, pg 8
268 Minutes of the 43rd Session of the United nations General Assembly, held on 9th July 2010,
available at http://daccess-dds-ny.un.org/doc/UNDOC/GEN/V10/531/00/PDF/V1053100.pdf?
OpenElement accessed on the 9th of September 2011
60

exists should a dispute arise during the course of an electronic transaction. The usual practice
of resorting to courts to seek redress for online disputes is not an ideal option. This is because
no international court exists which has jurisdiction over such disputes, and the use of national
courts subjects parties to high levels of uncertainty due to differences in jurisdictions.
Moreover, the expense of litigation for online disputes is typically disproportionate to what
are often low-value transactions.269 This new scheme in as much as it sounds so attractive;
have been argued to be prone to some legal challenges of which consideration must be made
to ensure that they workable and applicable to electronic commerce or contracts.
Organisations that intend to offer ODR services may invest huge amounts of time and money
in order to develop new processes for resolving disputes online. It is possible that an
organisation may even apply for a patent to protect a novel ODR process they have created
from being abused and exploited by other organisations. Granting of a patent to a particular
organisation in such circumstances may restrict the ability of ODR to become a more
widespread means of resolving disputes emanating from e-commerce transactions. Thus, if a
new model for resolving disputes online is created, the speed of application of intellectual
property laws to protect that model needs to be carefully reviewed against the possibility that
any new ways for resolving disputes may be able to increase the global popularity of ODR.270
It is logical to argue that ODR (unlike other forms of offline dispute resolution) does not
amount to an alternative method of resolving disputes arising between parties. The nature of
online transactions and resulting difficulties associated with pursuing an action through the
traditional court systems for disputes arising online means that ODR is likely to assume a role
as a major method of resolving such disputes. The publication of ODR resolutions will be
necessary in order to ensure some degree of legal certainty and create precedence in
cyberspace that traditional courts are incapable of creating. These publications will allow a
body of principles to develop which will assist online traders have a clear understanding of
their rights and obligations when engaging in e-commerce. Regrettably these publications

269 Raghu, A., The Legal Challenges Facing Online Dispute Resolution: An Overview available at
http://www.galexia.com/public/research/articles/research_articles-art42.html accessed on the 19th of September
2011.

270 Ibid
61

will also deprive ODR parties of a feature that has made offline dispute resolution
increasingly popular: secrecy and confidentiality.271

4.5 INITIATIVES BY DIFFERENT JURISDICTIONS ON ODR

Some initiatives are being formulated by the European Union and the Organization of
American States (OAS), for the development of consumer and contract laws, including online
dispute resolution for both the European Union and the American Jurisdictions. One of the
optional instruments for resolution of business-to-consumer transactions is known as the
Blue Button dispute resolution system. The proposed blue button online dispute resolution
system would not be applicable automatically.
For instance, a seller could display on the shop website an icon indicating that the client
could agree by clicking on the Blue Button to make the substantive and procedural legal
principles contained in the Online Dispute Resolution Model applicable to the transaction
concluded between the parties. 272
The Organization of American States has also adopted several initiatives to develop the
scheme of Online Dispute Resolution (ODR). These initiatives include a proposal for an
Inter-American legal system applicable to certain contracts and consumer relations and also a
proposal for the creation of model law on jurisdiction and conflict of laws rules in consumer
contracts. Both proposals stipulate that e-commerce disputes should be litigated in the forum
of the consumer. A third proposal has been submitted for a State-sponsored initiative to
resolve cross-border electronic commerce consumer contract disputes for the sale of goods
and services. This third initiative would create a multi-state electronic system to provide for
negotiation, mediation and arbitration on certain cross-border consumer contract claims.
Under this initiative, a consumer/buyer would be able to file a cross-border complaint online
271 ibid
272 Minutes of the 43rd Session of the United nations General Assembly, held on 9th July 2010, available at
http://daccess-dds-ny.un.org/doc/UNDOC/GEN/V10/531/00/PDF/V1053100.pdf?OpenElement accessed on the
9th of September 2011

62

against a registered vendor in another State. During the negotiation phase, the buyer and
vendor are allowed to exchange information and proposals, and agree on a binding
settlement, through electronic means. If an amicable settlement is not reached by this means,
the case could then be brought to the arbitration phase and a qualified online arbitrator would
then be appointed by a government-approved authority where the vendor is located to
evaluate the case and decide either to conduct a facilitated settlement or issue a binding
award. The decision would be rendered by the online arbitrator based on the parties
submissions and the decision is final and binding273

4.6 CONCLUSIONS AND RECOMMENDATIONS

When we consider how the law of contracts has evolved over time to keep pace with modern
economic realities, it is important that we dont take previous legal developments, such as the
rationale behind the creation of form and validity requirements in specific contracts, for
granted. Previously sound principles may need to be re-evaluated and adapted to ensure that
we are upholding the fundamental goals of contract law. While the Cyberliberterians are
clamouring for an entirely new law to govern electronic contracts, the rationale behind some
traditionalist principles of contract law should not be entirely discarded.274
An international approach should also be adapted to ensure a wide application of these laws
so that the ephemeral nature of the internet would not be a stumbling block to the application
of these laws in different jurisdictions. Without doubt, international organizations are working
to develop broad-based responses to the legal challenges posed by transnational commerce,
and electronic commerce in particular. The framework created international law creates a
reliable source of compromise and understanding between parties on which they can base
transactions. Despite these benefits, the current system is not comprehensive, and its
evolution is not without some risk. The majority of initiatives, for example, are aimed at
business-to-business transactions, generally leaving business-to-consumer transactions to the
laws of consumers individual states. Any efforts to develop Private International Laws on
consumer protection needs to overcome well-entrenched existing consumer protection laws
273 ibid
274 ibid
63

of different states. At the same time, business-to-business relationships are less dependent on
Private International Law, since these relationships are often well structured through
sophisticated, individually negotiated contracts. To be truly successful, Private International
Law will have to bring together national representatives from different states that have the
power to create binding, uniform laws in their respective states, for the governance of all
types of contracts.275
There also seems to be an increasing number of organizations (The European Commission,
the National Conference of Commissioners on Uniform State laws in America etc.) working
to develop new initiatives on electronic contracting. While the increased attention to
developing uniform solutions to transnational electronic commercial transactions may appear
beneficial, it ignores the larger unforeseen problem. As more independent organizations
introduce proposals for uniform laws, and attempt to implement them in their different
states, the risk of confusion, no uniformity and conflict of laws increases on a global level.
True uniformity needs the cooperation of many organizations on a world stage. Centralized
discussions are needed to prevent the business legislations from being littered with separate
initiatives, and different organizations seeking to lead the way.276

275 http://www.pepperlaw.com/publications_article.aspx?Articlekey=600 accessed on the 7th of

September 2011.
276 ibid
64

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