Thailand August - September 2004
Module 3: Electronic Contracts2004 Alan Davidson
Operation of E-Contracts
This module provide a basis for understanding the nature and role of Electronic Contracts and the law and regulations applicable. The information disseminated will be provided on the assumption that we are familiar with the traditional aspects and elements of the law of contracts.
There are several aspects to be considered that are peculiar to electronic contracts.
Specific Learning Objectives
At the end of these modules, you should be able to:
Describe the nature of the information needed to support the different types of decisions that managers must make in the formulation of a contract.
Describe the various considerations to be taken into account in formulating contracts using the internet.
Describe the jurisdictional considerations special to electronic contracts.
Understand the application of the United national Convention on the International sale of Goods.
Read Quirk 57-80
Browse Akindemowo 36-63
Formation of Electronic Contracts (Overview of Issues)
Read M. Sax article on International
Electronic Trade: Carrying Out Consumer and Commercial Transactions on
the Internet, pages 11-18 at
Browse article on E-commerce:
On-line Contract issues (with a US perspective) at
Browse publications of Gilbert Tobin
(Click publications - then Communication and Technology)
Read: sections 13 and 14 Electronic Transactions Act (Cth) 1999 http://scaleplus.law.gov.au/html/pasteact/3/3328/top.htm
Read articles 13 and 14
Model Law on Electronic Commerce
Read the portion on property
rights and contracts in R.Merges article at
Consider the application of the common law principles and legislation of capacity to internet contracts made on an anonymous basis.
See Section 5, Sale of Goods Act 1896 (Qld) at http://www.austlii.edu.au/au/legis/qld/consol_act/soga1896128/s5.html
Browse an article on models’
egg auctions at
Browse articles on internet
sale of children
Reference - sections 3-7 of the Surrogacy Contracts Act 1993 (Tas) at http://www.austlii.edu.au/au/legis/tas/consol_act/sca1993243/index.html
Shrinkwrap, Clickwrap and Browsewrap Contracts
It is common to purchase books and download software from the Internet. Indeed more than a trillion dollars in trade take place online annually. How are the terms and conditions of such contracts determined? What are the best ways to ensure such terms and conditions are enforceable?
Dilbert to Dogbert: "I didn't read all of the shrinkwrap license on my new software until after I opened it. Apparently I agreed to spend the rest of my life as a towel boy in Bill Gates' new mansion."
Dogbert: "Call your lawyer."
Dilbert: "Too late. He opened software yesterday. Now he's Bill's laundry boy."
Scott Adams, Dilbert, United Feature Syndicate Inc - 14 January 1997.
Shrinkwrap contracts derive their name from the clear plastic wrapping that enclosed many software packages. The package included a notice that by opening the shrinkwrap the purchaser agreed to the terms and conditions enclosed. Such contracts typically included provisions such as an arbitration clause, a choice of law and forum clause, disclaimers and limitations of warranties and limitation of remedies.
In Step-Saver Data Sys Inc v Wyse Tech 939 F 2d 91 (3d Cir 1991) t he court held that the terms of the shrinkwrap license were not enforceable because Step-Saver had not assented to them. However later in ProCD Inc v Zeidenberg 86 F 3d 1447 (7th Cir 1996) the appeal court noted that it would be impossible to print the entire contract on the exterior of the box. The court found "notice on the outside, terms on the inside, and a right to return the software for refund if the terms are unacceptable . . . may be a means of doing business valuable to buyers and sellers alike". The implications extend to mass marketing, the distribution of software and are similar to the purchase of tickets of concert, air travel and sporting events where the purchaser pays in advance and receives the tickets with the terms included.
In a copyright decision the High Court of Australia has impliedly accepted that the shrinkwrap contracts can be are binding. If the terms and conditions are oppressive, the contract is more likely to be struck down as being Unconscionable. However, generally, enforcement depends upon whether suitable notice of the terms and conditions have been given to the purchaser or whether the purchaser has the right of rejection, a term referred to as adhesion.
A clickwrap contact is formed on the Internet. The name is derived from Shrinkwrap. However, with a clickwrap contact, the user, for example, assents by clicking a button marked "I Agree" or "I Accept".
The clickwrap contract has the advantage that the user can be given the opportunity to read the terms and conditions before assenting. The vendor can dictate the number of steps for the user to pass through before reaching the assent stage.
In the typical situation the vendor uses an interactive web page, which may ultimately require personal and credit card details. The contract need no paper nor a signature. Assent is given in one of two principal methods. First, is "type and click" where the user must type, for example "I agree" and the click a send button. Second, is to click a single button. The former demonstrate a clear intention. The latter could invite excuses such as a slip of the finger, or my cat attacked the mouse!
The first decision on the enforceability of clickwrap contracts was Hotmail Corp v Van$ Money Pie Inc 47 USPQ 2d 1020 (1998). Hotmail provides free email services to more than 10 million customers. To obtain an account the user must "agree" to Hotmail's terms and conditions. These include the prohibition on transmitting unsolicited commercial email, that is, spam. Assent occurs by clicking the appropriate button. The defendant sent spam mail with pornographic materials, and altered the return address to make it appear that it came from a different source. Hotmail applied for an injunction to restrain both the spamming and the false source. The court held that the defendant was bound by the terms and conditions by clicking the button "I Agree". In so holding, the court held there was an enforceable agreement.
In Steven J Caspi v Microsoft Network 323 NJ Super 118 (1999) the terms of the agreement appeared in a scrollable window next to two blocks containing the words "I Agree" and "I Disagree". The user could not use Microsoft Network without selecting the affirmative choice. The Appellate Court held that this created an enforceable contract. See also I.Lan Systems Inc v Netscout Service Level Corp (D Mass 2002).
The term browsewrap refers the position where a user may, for example, proceed to download software, without giving unambiguous consent to the terms and conditions. In other words, the vendor has given the user an opportunity to browse the terms without requiring clear assent. For example, the vendor may merely place a link on the download page with the words "terms of download". It is optional to view.
In Specht v. Netscape Communications Corp (SDNY 2001) Specht downloaded Netscape's SmartDownload software. Specht claimed that as a result private information was wrongfully and surreptitiously transmitted to Netscape. Netscape sought to compel arbitration arguing the applicability of the online agreement. To download the software, users simply click the button marked "Download". The only reference to the terms and conditions appeared if the user scrolled down the page. The user would then see the words "please review and agree to the terms of the Netscape SmartDownload license agreement before downloading and using the software". Next to this was a link which, if clicked, opened a web page containing the terms, including the arbitration clause. The court held that Specht was not bound by the terms. The fact that users were not required to give a positive assent before proceeding was critical to the court's reasoning. The court doubted whether such browsewrap agreement were enforceable.
The reasoning in Ticketmaster Corp v Tickets.com Inc (WD Wash 1999) was consistent with Specht's case however the court left open the possibility that prior use of a web site together with knowledge of the terms and conditions, could create a subsequent binding contract.
In Net2Phone Inc v Los Angeles Superior Court (Cal. Ct. App. 2002) the court stated that knowledge or even presumptive knowledge of the existence of the terms may be a sufficient to form a contract. The court preferred a firm assent by a "clickthrough" process, however, the court noted that cases involving cruise tickets and parking tickets have established that such assent is not necessary for formation.
See also Comb v PayPal Inc (ND Cal August 2002)
The approach in Australia is yet be firmly determined. One is reminded of Lord Denning's "red hand" passage in Thorton v Shoe Lane Parking Station Ltd  where the clause did not exempt the defendants from liability since they had not taken reasonable steps to bring it to the attention of Thorton.
In summary, here are a few suggestions. The web site should expressly indicate that terms and conditions will apply. The user should not be able to proceed without reading or being given the clear opportunity to read the terms and conditions. Include a mechanism which requires the user to actually scroll through the agreement before the user can assent. Program the buttons so that the "I Disagree" button is the default choice. Records should be kept, using such processes as cookies to record the assent step.
Ultimately the enforceability of clickwrap and browsewrap contracts will depend on the facts of each case.
Cth, 1st stage - 24 March 2000 – 2nd stage 1 July 2001;
NSW - 7 December 2001;
Vic - 1 September 2000;
Qld - 1 November 2002;
SA - 7 December 2002;
Tas - 1 June 2001;
WA - 2 May 2003
ACT - 1 July 2001;
NT - 13 June 2001;
Operation of E-Contracts
On Authentication of Contract: Signature
Read: McCullagh, Little and
Caelli, "Electronic Signatures:Understand the Past to develop the Future"
Reference*: Sneddon, "Legislating
to Facilitate Electronic Signatures and Records: Exceptions, Standards
and the Impact on the Statute Book"
Browse: Froomkin, "The Role
of Third Parties (Certification Authorities) as Cyber Notaries of Contracts
Statute of Frauds and the Requirement of Writing
Read pertinent portion on
Statute of Frauds and Digital signatures
UNCITRAL Model Law
Article 9. Admissibility and evidential weight of data messages
(1) In any legal proceedings, 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 ground that it is a data message; or,(2) Information in the form of a data message shall be given due evidential weight. In assessing the evidential weight of a data message, regard shall be had to the reliability of the manner in which the data message was generated, stored or communicated, to the reliability of the manner in which the integrity of the information was maintained, to the manner in which its originator was identified, and to any other relevant factor.
See section 48 Evidence Act 1995 (Cth)
Proof of contents of documents
(b) tendering a document that:
(i) is or purports to be a copy of the document in question; and
(ii) has been produced, or purports to have been produced, by a device
that reproduces the contents of documents;
(d) if the document in question is an article or thing on or in which information is stored in such a way that it cannot be used by the court unless a device is used to retrieve, produce or collate it - tendering a document that wasor purports to have been produced by use of the device;
(2) Subsection (1) applies
to a document in question whether the document in question is available
to the party or not.
(4) A party may adduce evidence of the contents of a document in question that is not available to the party, or the existence and contents of which are not in issue in the proceeding, by:
(a) tendering a document that is a copy of, or an extract from or summary of, the document in question; or
(b) adducing oral evidence of the contents of the document in question."
Some Commercial Contracts that are required by Australian law to be in writing in order to be valid and effective:
Bill of exchange, see section 8, Bills of Exchange Act 1909 (Cth) at http://www.austlii.edu.au/au/legis/cth/consol_act/boea1909148/s8.html
Promissory note, see section
89, Bills of Exchange Act 1909 (Cth) at:
Cheque, see section 10, Cheques
Act 1986 (Cth) at
Assignment of Copyright, section 196(3), Copyright Act (Cth) 1968 at http://www.austlii.edu.au/au/legis/cth/consol_act/ca1968133/s196.html
Marine Insurance Contract,
sectiosn 27-28, Marine Insurance Act 1909 (Cth) at
Some Commercial Contracts that need to be in writing in order to be enforceable in Australian courts:
Contracts for Sale of Goods at a certain amount.
Contract for Sale of Land
and section 54A, Conveyancing Act 1919 (NSW)
Electronic Transactions Act 1999 (Cth)
Browse the Explanatory memoranda
Read "Davidson", overview
the Electronic Transaction Acts
International Legal Framework for Electronic Commerce
UNCITRAL Model Law for Electronic Commerce
6 (Requirement of Writing)
8 (Original Copy)
9 (Admissibility and evidential weight of data messages)
10 (Retention of data messages)
11(Formation and validity of contracts)
12 (Recognition by parties of data messages)
13( Attribution of data messages)
14(Acknowledgement of receipt)
15 (Time and place of dispatch and receipt of data messages)
Read Commentary on the Draft
UNCITRAL Model for Electronic Commerce
UNIDROIT Principles of International Commercial Contracts
Browse: the principles with
On Contractual Terms and Clauses
Reference - article on Ascendancy
of freedom to Contract
On Jurisdiction (An Introduction)
Browse: Gilbert & Tobin’s
article on cyberjurisdiction, particularly the portion
on "Contracts" (Click publications
and then Communications and Technology)
Browse B. Slutsky’s article
on Jurisdiction over Internet Commerce (note go to firm profile then articles)
Sample of Electronic
Contract Sample Internet Commercial Contract (Web site creation)
with useful Commentary
Some Pertinent Statutes
On a Contract of Sale of Goods UN Convention on Contracts for the International
Sale of Goods, particularly Articles 14-24 (Formation
of Contracts) (Vienna Convention)
Sections 6 (Distinctions between an Agreement to Sell and a Contract of Sale), 7 (legal capacity), 8 (Modes of Contract of Sale), 16 (When condition is treated as warranty), 17 (Implied undertaking as to title), 18 (Sale by description), 19 (Implied condition as to quality or fitness), 20 (Sale by sample), 21(Ascertainment of Goods), 22 & 23 (Rules for ascertaining when title to property passes to the buyer), 37 (Buyer’s right to examine the goods), 38 (Buyer’s acceptance of goods), 39-40 (Rules when buyer rejects the goods), 52 (Damages for wrongful non-acceptance), 42 (Unpaid seller’s rights), 43 (Seller’s lien), 45 (Loss of seller’s lien), 46 (Right of stoppage in transitu), 50 (Effect of exercise of lien or good’s stoppage in transitu), 53 (Damages for non-delivery), 54 (Remedies for breach of warranty), 57 (Exclusion of implied terms and conditions), 62 & 64 (Rules on Consumer Sales) of the NSW Sale of Goods Act at