Although contracts transacted over the Internet are no different from traditional ones, you should take precautions to avoid potential disputes over when and where an e-contract was formed.

The use of e-mails and web sites to conduct business is growing, but the ease of

this sort of communication is not without legal risks – for example, a legally binding contract could unwittingly be formed on undesirable terms. An understanding of the legal issues that arise is therefore important.

E-contracts are no different in effect from traditional ones. As with written or verbal contracts, where the requisite elements of offer, consideration and acceptance are present, a legally binding relationship will have been created, and obligations and liabilities will arise. If disputes also arise, questions such as when and where the e-contract was formed will also be relevant.

With contracts formed by correspondence, the rule is that the contract is completed the moment the letter accepting the offer is posted – even if it never reaches its destination.

However, with instantaneous methods of communication, such as telephone or telex, the rule is that the contract is completed once acceptance of an offer has been communicated to the offeror.

The requirement of communication to the offeror may in certain circumstances be satisfied even though the acceptance has not come to the offeror’s notice, such as being transcribed on to the offeror’s telex machine.

If the same principle is applied to e-mails, it could mean that the acceptance is effective when the e-mail is received by the server that transmits messages to the offeror. This could be a long time before the recipient is actually aware of it.

Where the contract is formed can also be important, because this can determine which country’s laws apply and which courts have jurisdiction in any dispute. Where all the parties to an e-contract are within England, this will present no problems, but transnational contracts formed over the Internet are much more likely to raise complications.

Where the contract is silent as to which law applies, the question will be answered by inferring from the circumstances what the parties’ intentions were. If the position is still not clear, the courts will look at the system of law with which the transaction has the closest connection. The country in which the contract was formed is one factor to be considered.

Where all the parties to a contract are within England, this will present no problems, but transnational contracts formed over the Internet are more likely to raise complications

The European Union directive on electronic commerce seeks to harmonise matters between member states. This has to be implemented by 17 January 2002, but may be implemented by legislation enacted in the UK or in other member states before that date. The directive specifies that on-line contracting must be facilitated in member states, although member states can retain requirements for certain contracts to be in writing – for example, contracts relating to land.

Offerors will need to provide certain information before any contract can be concluded. This will include information as to the different steps to be taken to conclude the contract and the way in which input errors can be corrected prior to an order being placed.

The directive also seeks to clarify the law as to when an e-contract is formed. However, the current language is unsatisfactory and, in addition to offer and acceptance, introduces a new term, “acknowledgement of receipt”, which may or may not be the same as acceptance under English law.

Until the necessary legislation is passed here and its details known, a few simple precautions can be taken to minimise disputes over when and where an e-contract was formed:

  • Consider making the first communication an “invitation to treat”. An invitation to treat is not capable of direct acceptance. It is an invitation to another to make an offer. You then have control over whether to contract with, for example, that particular supplier or client.

  • When discussing a potential transaction, mark the e-mail “subject to contract”.

  • Check that the contractual terms state when the contract will be formed and define what constitutes acceptance of an offer – for example, that acceptance is not effective until the document arrives on the recipient’s computer. Or, if it is important to know that an offer has been accepted, stipulate physical delivery.

  • Check all the other terms and conditions that will apply. They should be displayed so that they can be read before the contract is entered into, otherwise they may not be incorporated into the contract. These terms should state which country’s laws are to apply to the contract and to any dispute; if this is not stated or if the terms are unacceptable, they should be altered before the contract is concluded.

  • Be careful of web sites that allow you to “click to accept” because you could be contracting with, for instance, a supplier that you have been unable to check or under undesirable laws.