Rules of Agreement in Online Communication

Introduction:

The law, as illustrated through history, is constantly developing to suit the evolving demands of the society. In this age of technology where online contracts are evidently increasing, the traditional rules of contract (specifically the agreement process) seems to be outdated and does not fit in easily. Despite countless debates and articles written in hopes of a permanent solution, the law in this area is still uncertain with no definitive answer. On analysing the law, the crux of it that makes application so problematic possibly lies in the exact identification of offer and acceptance during communication by electronical means.

For that matter, this essay will first analyse the long-standing rules of an agreement before evaluating the problems faced when applying them to modern day communications in light of online transactions, specifically email and internet sales. After analysing the problems faced, this essay will also explore the need for possible reforms available by focusing on the feasibility of popular arguments raised. The analysis will be done independently focusing on 1) should the postal rule be applicable for emails and 2) pricing mistakes in browse-wrap agreements for internet sales.

Rules of Agreement

Lord Wilberforce in The Eurymedon held that the four requirements, namely intention to create legal relationship, agreement, consideration and no presence of vitiating factors that could set the contract aside, has to be proven to establish the existence of a valid contract[1]. Targeting the focus of this essay, only the agreement process would be explored.

An agreement consists of an offer followed by an acceptance. They are a promise/sets of promises that are binding in law and gives rise to consensus ad idem (meeting of the minds).

An offer as defined by Professor Treitel is “an expression of willingness to be bound on certain terms, made with the intention that it shall become binding as soon as it is accepted by the person to whom it is addressed to.”[2] Bearing in mind that an offer should be distinguished from an invitation to treat which is only an “expression of willingness to enter into negotiations which, it is hoped, will lead to the conclusion of a contract at a later date.”[3]

Once an offer has been identified, an acceptance must be established to form a valid agreement. An acceptance as held in Hyde v Wrench is a final and unqualified assent to all the terms of the offer[4]. In order for the acceptance to be valid, it must be made while the offer is still in force. It has to mirror the exact terms of the offer, bearing in mind that an acceptance is generally only effective upon communicated.

Postal Rule

Regardless of whether the contract is created by electrical communications (emails), the basic principles of offer and acceptance will always apply. The main issue as mentioned above, lies in whether the postal rule (PR) should apply to the general rule of communication of acceptance. For a better understanding, it is worth while discussing what the postal rule is and why was it originally created.

The postal rule (PR) is, as held in Adams v Lindsell[5] and Household Fire Insurance Co v Grant[6] that acceptance is effective upon posting even when the letter is lost or delayed. It is a rule of convenience that was created for agreements that are not done face-to-face. This is because when agreements are done face-to-face, communication is actual, immediate and certain, making the application of the rules easy to apply. However, when dealing with a less direct and immediate form of communication such as post, it is difficult and uncertain to determine the exact time of acceptance since the acceptance may not be communicated due to delays or various other circumstances.

The reason for enunciating the postal rule can be said to be twofold. Firstly, to gives finality and certainty to the agreement process, else no contract would ever come into existence due to the never-ending loop between the offeror and offeree if the receipt rule is applied. Secondly, from an evidential perspective, it is all about control. There is nothing much the offeree can do after posting since it is beyond the offeree’s control whether the post reaches the offeror and it is also easier to prove sending than receiving as the receiving end can possibly deny the receiving after realising a bad deal. Although the PR is unfair to a certain extent as it imposes upon the offeror to accept the risk, it is the lesser evil as compared to not applying the postal rule.

In short, although the postal rule was arguably created to curb the issue of distance for non-face-to-face communication which causes delay of acceptance, the same could not be said in terms of email communications.

Should PR apply to email? (Instantaneous Argument)

When considering whether the PR should be extended to emails, one has to look at the circumstances which allows it to do so. The PR can only apply when the mode of communication is non-instantaneous as enunciated by Lord Denning in Entores v Miles Far East[7]. This has firstly created a plethora of debate as to whether email communications are instantaneous as emails have often been argued to be instantaneous since the interval between sending it and receiving it is almost minimal. If the email is instantaneous as Chitty[8] argues, the postal rule would not apply by virtue of Entores. However, when discussing ‘instantaneous’, one should note that though exceptionally quick, there are real-life circumstances where emails do not reach the recipient fast (i.e. when there is a connection issue or if the offeree is using a dial-up connection). Additionally, one should note that an email is not transmitted immediately upon clicking the “send” button as it has to go through several transmissions before actually being transmitted to the receiver.

Transmission and similarities to post

In a nutshell, the first transmission goes from the sender’s outbox to an outgoing mail server via Simple Mail Transfer Protocol (SMTP) which is akin to putting a letter in a mailbox. The SMTP then sends it out (through the internet) to the recipient’s domain exchange server which is then finally, pulled out from the server into the recipient’s mailbox similar to when a postman delivers the letter into the recipient’s mail box[9]. With transmissions, similar to post and the fact that it may not be as instantaneous as it seems, it is likely at this point that it is favourable for the PR to be extended to email communications.

Should PR apply to email: Control Argument

Before we readily extend PR to emails, one should also discuss and explore the other aspect for which the PR is enunciated. The other aspect control as explained in Firehouse Insurance where Thesiger LJ stated that “the acceptor, in posting the letter has… put it out of control and done an extraneous act which clenches the matter”[10]. His Lordship’s statement can be said to favour the person who trust the post. As such, can the same principles be applied to email where the acceptor loses control upon sending the email? Arguably not. Although the sender may prima facie lose control of the email once sent, there are functions in the email application whereby the sender can check if the email is delivered or read.

Furthermore, with modern advancement, emails which are sent out may be recalled. This seems to suggest that the sender still has some form of control. As such, the control arguments may be in favour of not extending PR to emails, bearing in mind the motive for the PR is to give certainty for a method of communication (post) where the sender will inevitably lose control of the letter once he/she posts them. Should there be a method of retaining some form of control in the 1818, it is arguable that the postal rule would not even be created.

When an email is sent, and received.

Another issue to consider with email communications lies with determining the exact point of time when it is deemed sent and received. Although this would not affect establishment of an offer or acceptance in the traditional sense, it should be taken into account when considering whether the PR should apply to emails. As mentioned above, although the use of broadband is increasing, certain countries are still using the less-stable dial-up connections.

The sending of an email does not automatically occur when the email is drafted and the “send” button is clicked as this could be done without having connecting to the internet. It is more likely for the email to be deemed sent once the user logs-in to the internet and the mail leaves the outbox to the recipient. This view would also correlate well with the control argument as mentioned above by Thesiger LJ in Household Fire Insurance where the communication leaves the control of the sender[11].

Other Jurisdictions

The above view was also the position by the United Nations Convention on the Use of Electronic Communications in International Contracts (UNCUECIC) where it adopted the position in the Model Law on Electronic Commerce[12]. Article 10 states that

“the time of dispatch of an electronic communication is the time when it leaves an information system…or, if the electronic communication has not left an information system under the control of the originator or of the party who sent it on behalf of the originator”.[13]

Article 10 also suggests a position as to when an email is deemed received which could be summarised as when the mail is “capable of being retrieved by the addressee”[14]. Although the PR was not mentioned in the convention, the definition of when would sending and receiving be deemed, does seem to suggest that there is still place for PR in electronic communications. As the position on dispatch is akin to a person writing a letter, posting it and the receiver is deemed to have received the letter when it is in his inbox even though he/she may not read it.

A similar but clearer illustration of the above where the PR applies can be seen in other jurisdictions such as the United States where s203(4) Uniform Computer Information Transaction Act 2000 (UCITA) states that “if an offer in an electronic message evokes an electronic message accepting the offer, a contract is formed… when an electronic acceptance is received”[15]. Further, S102 UCITA defines as being delivered into a system “capable of being processed by or perceived from a system of that type by a recipient”[16].

The above positions however, was not adopted by the UK when it enacted the Electronic Commerce (EC Directive) Regulations 2002. On the contrary, Regulation 11(2)(b) states that an email is only “deemed to be received when the parties to whom they are addressed are able to access them”[17]. This seems to favour the argument on the receipt rule instead of postal rule.

Although a different interpretation may be seen when read in light of Regulation 11(1)(a) where it states that a seller is required to “acknowledge receipt of the order…without undue delay and by electronic means”[18]. A seller whom puts up an automatic reply may in turn find him/herself contractually bound if the reply is not properly worded. As Deveral Capps argue, the courts would more likely be convinced that an acknowledging email reply such as “thank you for your order, your goods should arrive within 4-7 working days” would indicate a wish from the seller to fulfil the contract and therefore, the reply does seem to suggest that acceptance is deemed communicated when it is delivered rather than read.[19] This however, concerns more on the wordings of the reply rather than the application of the PR itself.

Is there a need for reform?

Although there exist arguments both in favour and against the extension of postal rule to emails as mentioned above, in considering whether to extend it to email, one should bear in mind that “No universal rule could cover all such cases; they must be resolved by reference to the intention of the parties, by sound business practice and in some cases: by a judgement of where the risk should lie.” (Lord Wilberforce in Brikibon Ltd v Stahag Stahl[20] ).

As such, it is of my opinion that the postal rule ought not be readily extended to email communications. Firstly, the motive of the PR was to resolve the uncertainties present where there is an inevitable delay through non-instantaneous communications. The email, although may be delayed or lost occasionally, is in general still near instantaneous and is less problematic in the current era where there is little direct case law on it. Secondly as compared to post where the sender loses all control of the letter, the email sender still retains some form of control and may check its delivery status. Lastly, unlike the past where there is scarcity of non-face-to-face communications and in some cases, only the usage of post is available, parties now can easily state their position as to whether the email would amount to an acceptance upon receipt or not.

In light of the above arguments, rather than deciding on a rigid yes/no solution in deciding on a reform, the agreement formation with respect to emails should be governed on a piece meal method as seen in a more recent case in Thomas v BPE Solicitors[21] where Blair J considered the principle by Lord Wilberforce in Brikibon[22] in delivering his judgement since the email, does not resemble face-to-face communications and at the same time, it is unlikely to be deemed the same as post.

Types of Internet Contracts

Moving on to internet based contracts, the same rules on offer and acceptance offline would apply. Prior to the analysis for online contracts, it is worthwhile to state the types of agreements available. Online agreements can generally be identified into three types namely click-wrap, browse-wrap and shrink-wrap. A click-wrap agreement happens where “there is a positive act of clicking ‘I agree’ necessary in a window containing terms. Probably binding by analogy with signature”[23]. This goes in line with the principles stated in L’Estrange v Gracoub where it was held that a person who signed a contract is bound to all terms even if he/she did not read it.[24] A browse-wrap in contrast, does not require the user to agree and click on it. Terms of the website are usually present and “agreement is presumed by the act of using the Website”[25]. Lastly, a Shrink-wrap agreement is deemed when a person breaks a seal on a product. As mentioned in the introduction, only the browse-wrap agreements will be discussed as it appears to be the most problematic.

Browse-Wrap (difficulties)

As Macdonald Elizabeth mentions, “the courts of England and Wales have not yet looked at the issue of contract formation in the browse-wrap context.”[26]. This leaves much room for discussion as the uncertainty is still present. Website visitors may be in danger of being bound to a contract which they may not even have knowledge about since there is no click box and the agreement as mentioned above, is a presumed one based on conduct of the visitor. The question one should therefore consider lies in determining whether a link present at the website is binding on its visitor.

The first hurdle arises at the offer stage. An offer must be communicated for it to be valid. As most browse-wrap agreements are, the terms are usually in the form of a hyperlink which is located at the bottom of the website and the visitor may or may not be aware of it.

The second hurdle arises at the acceptance stage. The browse-wrap can be said to be analogous to a unilateral contract (defined as an exchange of an act for a promise) as it requires the conduct of the offeree to conclude the contract and that no communication is required for acceptance bearing in mind that the method of acceptance does not need to correspond with the method of offer such as seen in these agreements[27].

Although there are little to no authorities for it, one could look at the application of reward situations where the offeree accepts in ignorance of an offer when considering the direction browse-wrap agreements could move in. As seen in the case of R v Clarke[28], it was held that “unless condition performed on faith or in reliance upon offer, there was no acceptance and no contract between parties”. This view also goes in line with the underlying principle behind an agreement which is consensus ad idem. Without knowledge of the offer, there would be no meeting of the minds and it is arguable that no contract ought be formed.

In light of the above arguments, one has to note that the validity of an offer or acceptance in this type of agreement would depend on various circumstances. i.e. the courts would be unlikely to find a valid offer in the first place if the offer was designed in a way to slip the eyes of a visitors. To help resolve this situation, a possible solution would be to provide a directive to guide website owners, possibly stating requirements of how the agreement should be drafted and placed.

Internet: Pricing mistakes

Next, in considering whether one can enforce a pricing mistake for online agreements, one would first need to determine the validity of the contract (i.e. is there an offer and acceptance). An offline advertisement and display of goods is generally an invitation to treat as held in Partridge v Crittenden [29]and Fisher v Bells[30]. It is therefore arguable that these principles are also applicable to websites which has a similar structure of advertising. This would also support the notion of the limited stock argument by Professor Jill Poole where he is of the view that a prudent seller, would wish to retain his rights to contract and he would also not want to find himself contracting for more than what he can sell[31].

Furthermore, although not conclusive, Regulation 12 of the Electronic Commerce (EC Directive) Regulations 2002 also seems to suggests that a website shall be treated as an invitation to treat as it defines a customer’s order as one which “may be an offer”[32]. This position is also consistent with Article 11 of the UNCUECIC where it states that “a proposal to conclude a contract made through one or more electronic communications which is not addressed to one or more specific parties…is to be considered as an invitation to make offers.”[33]

Therefore, if a website is an invitation to treat, the contract in general would not be enforceable as the offer would come from the buyer which must be accepted by the seller. This should be read in light with Regulation 11(1)(a) of the EC Directive where it imposes a duty on sellers to “acknowledge receipt”[34]. And as argued above for emails, a seller may similarly find himself bound to fulfil the contract if he/she had carelessly worded the acknowledgement reply.

Professor Jill Poole argues that even when an offer is confirmed and payment is made, buyers may face legal hurdles if they had known that the seller “made a very clear mistake.”[35] He cited Hartog v Colin and Shields[36] and a Singaporean case of Chwee Kin Keong v Digilandmall.com Pte Ltd[37] where the High Courts in Singapore held that there was no binding contract if such a situation arises. Further, Professor Jill Poole suggests that “this leaves open the possibility that it is not ‘snapping up’ where the goods are priced incorrectly, but not noticeably so.”[38] His argument however, should be noted, lies in another area of contract law (mistake) where separate rules apply.

Although the traditional rules of an agreement apply to online transactions, it’s status is highly dependent on the terms written in it. As Professor Jill Poole highlights, a website may be deemed as an offer if the scenario is akin to the facts in Leftkowitz v Great Minneapolis Surplus store[39] where a TV was priced at £3 for the first ten customers. Similarly, if the website states a unilateral offer such as the above, one would likely find himself bound to fulfil the contract[40].

Is there a need for reform?

Seeing how the rules of offer and acceptance fits in rather well in terms mistaken pricing, it would seem that there is no urgent need for reform in this area. If at all, Regulation 11(1)(a) of the EC Directive[41] should be given a clearer direction so that sellers would not find themselves bound to contracts over carelessly drafted acknowledgement replies as they may not be legally trained nor have access to solicitors unlike bigger firms.

Conclusion

Although there exist other issues such as incorporation of terms, as this essay is focused on the formation process it was not discussed. Based on the above analysis, a reform is not urgently needed for emails and mistaken prices as the traditional rules are still capable of being applied. The only area which would require clarification would be the browse-wrap agreements where due to its novelty, exists uncertainties.

Biblography

Primary Sources:

New Zealand Shipping Co. Ltd. v. A. M. Satterthwaite & Co. Ltd. [1974] UKPC 1 [1974] 2 W.L.R. 865

Hyde v Wrench [1840] EWHC Ch J90

Adams v Lindsell EWHC KB J59

The Household Fire and Carriage Accident Insurance Company (Limited) v Grant (1879), 4 Ex D 216

Entores Ltd v Miles Far East Corporation [1955] EWCA Civ 3 (Denning MR)

Brinkibon Ltd v Stahag Stahl GmbH [1983] 2 AC 34 (Lord Wilberforce)

Thomas & anr v BPE Solicitors [2010] EWHC 306 (Ch) (Blair J)

L’Estrange v Graucob [1934] 2 KB 394 (CA)

Brogden v Metropolitan Railway Company L.R. 2 App. Cas. 666 (HL)

R v Clarke 40 CLR 227 (HC)

Partridge v Crittenden (1968) 2 All ER 421

Fisher v Bell [1961] 1 QB 394

Chwee Kin Keong and others v Digilandmall.com Pte Ltd [2005] 1 SLR(R) 502

Lefkowitz v. Great Minneapolis Surplus Store, Inc 86 NW 2d 689 (Minn, 1957

Hartog v Colin & Shields [1939] 3 All ER 566 (HC)

UNCITRAL Model Law on Electronic Commerce [1996]

Electronic Commerce (EC Directive) Regulations [2002] (SI 2002/2013), Reg 12(2)(b)

United Nations Convention on the Use of Electronic Communications in International Contracts [2005], Art 10

Secondary Sources:

Guenter Treitel, The Law on Contract (14^th edn, Sweet and Maxwell 2015)

Ewan Mckendrick Contract Law (9^th edn, Palgrave Macmillan 2011)

Joseph Chitty, Chitty on Contracts (32^nd edn, Sweet and Maxwell, 2015)

Yatri Trivedi, ‘How Does Email Work?’ (How to Geek, 15^th March 2011) < https://www.howtogeek.com/56002/htg-explains-how-does-email-work/> accessed 16 March 2017

Uniform Computer Information Transaction Act 2000, s 203(4)

Deveral Capps, ‘International Company and Commercial Law Review’, Electronic mail and the postal rule [2004]

Jill Poole, Textbook on contract law (13^th edn, Oxford University Press 2016), pg 43

Catherine Mitchell, ‘Contract Law in Action Projects’ 13January 2017

George H.Pike ‘Legal Issues: Shrink-Wrap, Click-Wrap, now Browse-Wrap (2004) <http://ssrn.com/abstract=1657093>

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[1] New Zealand Shipping Co. Ltd. v. A. M. Satterthwaite & Co. Ltd. [1974] UKPC 1 [1974] 2 W.L.R. 865

[2] Guenter Treitel, The Law on Contract (14^th edn, Sweet and Maxwell 2015)

[3] Ewan Mckendrick Contract Law (9^th edn, Palgrave Macmillan 2011)

[4] Hyde v Wrench [1840] EWHC Ch J90

[5] Adams v Lindsell EWHC KB J59

[6] The Household Fire and Carriage Accident Insurance Company (Limited) v Grant (1879), 4 Ex D 216

[7] Entores Ltd v Miles Far East Corporation [1955] EWCA Civ 3 (Denning MR)

[8] Joseph Chitty, Chitty on Contracts (32^nd edn, Sweet and Maxwell, 2015)

[9] Yatri Trivedi, ‘How Does Email Work?’ (How to Geek, 15^th March 2011) < https://www.howtogeek.com/56002/htg-explains-how-does-email-work/> accessed 16 March 2017

[10](See n7) (Thesiger LJ)

[11] ibid

[12] UNCITRAL Model Law on Electronic Commerce [1996]

[13] United Nations Convention on the Use of Electronic Communications in International Contracts [2005], Art 10

[14] ibid

[15] Uniform Computer Information Transaction Act 2000, s 203(4)

[16] ibid, s 102

[17]Electronic Commerce (EC Directive) Regulations [2002] (SI 2002/2013), Reg 12(2)(b)

[18] ibid, Reg 11(1)(a)

[19] Deveral Capps, ‘International Company and Commercial Law Review’, Electronic mail and the postal rule [2004]

[20] Brinkibon Ltd v Stahag Stahl GmbH [1983] 2 AC 34 (Lord Wilberforce)

[21] Thomas & anr v BPE Solicitors [2010] EWHC 306 (Ch) (Blair J)

[22] (see n20)

[23] Catherine Mitchell, ‘Contract Law in Action Projects’ 13January 2017

[24] L’Estrange v Graucob [1934] 2 KB 394 (CA)

[25] George H.Pike ‘Legal Issues: Shrink-Wrap, Click-Wrap, now Browse-Wrap (2004) <http://ssrn.com/abstract=1657093>

[26] E MacDonald, ‘When is a Contract Formed by the Browsewrap Process?’ (2011) 19 International Journal of Law and Information Technology 285-305.

[27] Brogden v Metropolitan Railway Company L.R. 2 App. Cas. 666 (HL)

[28] R v Clarke 40 CLR 227 (HC)

[29] Partridge v Crittenden (1968) 2 All ER 421

[30] Fisher v Bell [1961] 1 QB 394

[31] Jill Poole, Textbook on contract law (13^th edn, Oxford University Press 2016), pg 43

[32] (See n17)

[33] (See n13), Art 11

[34] (See n17), Reg 11(1)(a)

[35] (See n28), pg44

[36] Hartog v Colin & Shields [1939] 3 All ER 566 (HC)

[37] Chwee Kin Keong and others v Digilandmall.com Pte Ltd [2005] 1 SLR(R) 502

[38] (See n28), pg 44

[39] Lefkowitz v. Great Minneapolis Surplus Store, Inc 86 NW 2d 689 (Minn, 1957

[40] (See n28), pg44

[41] (See n17), Reg 11(1)(a)