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Dealing with online contracts and electronic signatures

Posted on Apr 12, 2012 by Andy Harris  | 0 Comments

Welcome to the IP and Technology Blog. In the months ahead myself and other members of our IP team will be using this blog to provide thoughts and observations within the wide world of IP and technology. We hope to avoid legalese and jargon and focus on issues which are of practical interest and assistance to businesses. 

This first blog was suggested by a recent English case (Golden Ocean Group Limited v Salgaocar Mining Industries PVT Ltd) regarding a shipping contract in which the court held that an exchange of emails could create an enforceable guarantee. The fact that the guarantee was created by a series of emails did not prevent it from being an enforceable contract.

The facts of the case are probably of interest only to those with a passion for shipping law, but what struck me about the case was that it involved interpretation of legislation dating back to 1677 and so is an excellent example of old law being applied to newer methods of communication. 

It is also a helpful reminder of the ‘function over form’ approach which the legal systems of both England and Scotland have traditionally taken when considering matters of creating and signing a contract.   A legal requirement that a contract must be in physical form and signed by handwritten signature is much rarer than often realised. While this is a benefit in terms of the ease and informality of doing business, it does mean that care has to taken to make sure a careless email doesn’t lead to unintended consequences.

The following is a short and non-exhaustive list of some key points to bear in mind when negotiating a contract, particularly if doing so by email.  These are points which in my experience are often misunderstood or not appreciated properly, but can be extremely important. 

1.Contracts don’t always need to be in writing.   

The law requires comparatively few contracts to be in writing. However it is always better to have some form of written record of what has been agreed between the parties.   And as Golden Ocean Group case demonstrates, an online contract does not necessarily need to be set out in a single, stand-alone document; it can quite easily be made up of a series of emails.

2.Writing includes electronic writing

In most cases where there is a requirement for something to be in writing, this will allow electronic writing. Online contracts are of course commonplace (otherwise we might never have heard of Amazon or eBay) but there is often a perception that having a written contract means a single physical document. Usually that is not the case and electronic or online contracts are perfectly acceptable.   The exceptions are where relevant legislation contains a definition of writing which precludes electronic writing.  However, as one of the key components of the Electronic Communications Act 2000 was the power to amend existing legislation which prevented e-commerce, these exceptions should be few.

3.Contracts don’t always need to be signed

This is a point to bear in mind with online contracts just as much as offline ones. Contracts are formed on the basis of offer and acceptance and although signing is the most common way to demonstrate acceptance, it isn’t the only method.  For example, you can demonstrate acceptance of a contract by proceeding to perform your obligations under it.   So thinking a written contract is not binding and can be safely disregarded on the basis you didn’t actually sign it can be a very risky strategy.

4.Signing doesn’t always mean a handwritten signature

There is often a perception that signing a document must mean a handwritten signature.  In limited cases there will be legislation which will prescribe how a document is to be signed, but in most cases what will be considered a signature is much wider than you might expect. 

Legislation now expressly provides for electronic signatures to be acceptable, although the courts in the UK were already well used to accepting non-handwritten forms of signature given their focus on function rather than form.  

The function of a signature is to confirm your identity and to acknowledge you accept the terms of the communication you are signing.  A signature is basically a mark or sign of identity. It is broader than just a handwritten signature; something most dictionaries will confirm.   

5.An electronic signature is less complicated than you might think

An electronic signature is a very wide term. The Electronic Communications Act defines it as anything in electronic form which is incorporated into or associated with an electronic communication and which is there to help establish the authenticity and/or the integrity of the communication.   

Therefore anything in electronic form which helps confirm the identity of the sender can qualify as an electronic signature. The important point is that it does not require to prove the authenticity and integrity of the communication.  Although there are clever types of  electronic signature (often called digital signatures) which will do exactly that by using encryption technology, an electronic signature can be something as simple as your name being printed at the bottom of your email, or even your name at the bottom of a text. While I don’t suggest you immediately start contracting by text, it is important to realise how simple it can be to sign or accept the terms of a contract.

These are simply a few general comments on an area of law which can get quite complicated. However they are hopefully of interest in providing some general pointers in an often misunderstood but increasingly important area. 

Andy Harris

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