Whenever parties are entering into any type of contract with one another it is often assumed that they are engaging in a face to face interaction, here it is quite easy to avoid and mitigate the mistakes that arise when one is interacting over great distances and contracting through the use of internet as a medium of communication. Whenever parties engage or enter into an electronic contract, the entirety of the contract can be sufficiently concluded in a matter of seconds just at the click of a button.
Traditionally, contract law was almost exclusively based on paper. This type of contract law characteristically has rules that cover issues not limited to formation of contracts, jurisdiction, and modification of contracts. In the realm of the online platforms, all of the aforementioned issues are very much issues that perennially arise in contracts and pose a significant challenge to the conventional concepts of contract law. In general terms, whenever advertisements are posted on websites, they are considered as an invitation to treat, but not necessarily an offer.[1] The principal reason for this stance is that companies cannot sell what they actually do not have. An offer is perceived as a promise from the seller of an item to the buyer of the same item to give rise to a contract in which he has every intention to be bound by it Hammer, where as an invitation to treat is clearly distinguished from and offer simply by the fact that it does not have the intention to create a legal contract in which can be legally binding.[2] However, there exists a test that can be applied in order to verify whether there exists an additional bargain or the statement in itself is legally binding. As a rule of thumb of the Law Commission in Electronic Commerce, the instance an individual clicks on the ‘agree’ button that is meant to confirm the order, it is their sole intention to enter into a legally binding contract.[3] However, the case law is skewed in favour of the supplier. In the famous case of Gibson v MCC it was prescribed that even the act of displaying the price of an item does not in itself constitute an offer, the seller has the liberty to advertise his goods without necessarily entering them into a binding contract.[4] Lord Diplock was in favour of the traditional approach to understand if, in the underlying conception of the statement, an offer and acceptance exists. However, Lord Denning categorically rejected this stance and added that there is need for the court to view the correspondence in its entirety as well as the general conduct of the two parties to establish whether they have come to some form of agreement or not.[5] The case of Grainger v Sough demonstrated that the price which was displayed could not be construed as an offer and as such it accorded the seller the liberty to choose whom he desired to sell his goods or with whom he desired to be contracted with.[6] Ergo, advertisements can be concluded to be but mere invitations to treat up to the point where the buyer reaches the seller. This concept was acknowledged in the case of Partridge v Crittenden.[7] In a similar fashion, the case of PS v Boots demonstrated that displays in shops can only be treated as an invitation to treat and only at the moment when the buyer reaches the counter do the two parties enter into a contract and is concluded.[8]
Therefore, with reference to the common law, advertisements on websites are to be viewed as only an invitation to treat. Nonetheless, with the popular use of websites, there are some inherent risks that may occur. An example of a debacle of an electronic contract happened in 2002 where Eastman Kodak made an online advertisement on its website in which it was selling a camera for £100 rather than £329.[9] This was a horrendous mistake and even before Kodak had the chance to right the wrong, thousands of orders had already been placed. At that point, the company had two options: one, it could honour the contracts that had been made which would mean incurring losses, and two, it could face the lawsuits from its customers which would mean legal expenses nonetheless. One of the arguments that Kodak posited was that the orders were merely bids to accept the offer it placed but was in no means a cogent argument given that the company had already accepted the contract and in so doing had formed an online contract. Eventually, Kodak had no other options but to honour the contracts.
Kodak’s total cost in that endeavour was enormous and retrospectively, the company had overlooked the fact that the customers would have won the case by simply shrugging it off in the pretext that the internet is majorly a grey area.[10] The growth of e-commerce has been tremendous from its inception to date. A good example is the US market where online transactions account for a whopping $100 to $130 billion. In the United Kingdom ecommerce is still burgeoning and currently accounts for approximately £17 billion in commerce.[11]
Additionally, another perennial issue that arises in the context of electronic commerce is that of jurisdictions. This is particularly the case when there are stark differences in law in the two jurisdictions. In context, there are items that are prohibited in some jurisdictions but are legal in other regions.[12] There are many dissenting opinions on how the differences in jurisdictions in terms of online contracts should be treated. In such a case, another question that is raised is what court should assume jurisdiction over the matter and which law should be imposed. In order to resolve this matter, the European Union has endeavoured to shield the consumer by creating the E-Commerce regulation, however, this unit is not adequate to cover the expanse of the electronic network. It is also important to consider that there is need for a balance in regulating. In the event that there is too much regulation on the matter, it would create a scenario where it would be near impossible to make a single transaction on the electronic network. To this effect the UNCITRAL was created to be applied to modern technology and to provide a law that can enable contracting over the internet.
Recognition of the Validity of Electronic Contracts
Issue one: Validity
One of the major issues concerning online contract is the question as to whether they are actually legally binding. Prior to the advent of the internet and online based media, contracts were conventionally formalised either via an oral agreement or in writing. The United Nations Conventions on Contracts for the International Sale of Goods (CISG)[13] which was implemented / adopted in 1980 offers clarity with respect to the recognition of contracts in the international sale of goods. It does not, however, provide anything with respect to e-commerce nevertheless, there is an article in the CISG that is often overlook but provides a clear description of what it means by the term writing in as far as contracting is concerned. Article 13 elucidates that for the purposes of the convention, the term writing will encompass telex and telegram.[14] Farah posits an argument that this article is sufficient enough in incorporate electronic contracts.[15] It came to the realisation of the United Nations Commission on International Trade Law (UNCITRAL) that the mushrooming of electronic commerce demanded that necessary steps be taken to acknowledge that contracts can be legally and validly finalised via the internet. The procedures that were undertaken by the UNCITRAL had to make sure that for every electronic contract, the users had the ability to sign the contracts in order to make them legally binding and enforceable.
Ergo, the UNCITRAL adopted what is known as the Model Law on Electronic Commerce. This served as the authority on recognition of electronic contracts. The recognition of the enforceability and legality of an electronic contract can be found on article 16 of the aforementioned law.[16] The UNCITRAL Model Law on Electronic Commerce demands that the onus is on the States to ascertain and ensure that the contracts of this nature are legally binding and enforceable on the parties. Article 17 of the UNCITRAL Model Law on Electronic Commerce expounds more in affirming that the law recognises electronic signatures.[17]
The UNCITRAL Model Law on Electronic Commerce was adopted by the United States when it made the executive decision to adopt the Electronic Signatures in Global and National Commerce Act and Uniform Electronic Transactions Act. The European Union has also joined in this move to adopt the UNCITRAL and has done so in two distinct phases. In the first phase, the EU adopted the Directive on Electronic Signatures and in the subsequent phase it adopted the E-Commerce directive. The issue of the validity of an electronic signature will surface in the instance of the requirement of proof of the signature.
The European Commission
The European Union is a market that is quite diverse in the sense that each of the constituent members have their own legislation. In order to ensure that there is uniformity in some of the sensitive matters, it is the role of the European Commission to adopt directives that each of the individual member states should incorporate into their own domestic laws. In the event that a member state refuses to do so, it is within the mandate of the EC to act accordingly against the member state in terms of penalties and also award damages to an individual that was harmed or suffered any loss as a consequence of the disobedient member.[18]
One of the primary goals of the EC is to make sure that the European Union grows to become most dynamic and competitive knowledge based economy in globe. The E-Commerce Directive 2000/31/EC was adopted by the European Commission in order to give rise to a legal framework for electronic commerce within the market of the region. The aim of the directive was to eradicate the restrictions and barriers that were present within the cross-border services between members of the constituent member states. Additionally, it was intended to offer legal confidence to the members of the EU.
The underlying notion of the internal market is the creation of a region where no internal borders exist in order to facilitate the free flowing movement of goods, services, and the liberal establishment of business among the members. In this light it can be said that the directive is intended to ensure that the existing member states as well as the new member states implement the legal framework for electronic services as well as apply it. With reference to the European Commission, the keystone of the aforesaid Directive is the provision of certainty as to the legality as well as clarity.
The Directive sees to it that any individuals that enter into online contract with the European Union will have certainty as to the legal ramifications of the contract, moreover will give rise to an environment which is characterised by trust between the citizens of the different member states. In the absence of the certainty, then the end consumers of products will be exposed to some degree of risk which may in the long run have a detrimental effect in the economy.[19]
There exists legislation that relates to consumer protection and further asserts that documents need to be in writing. Moreover, there is a Directive that contracts of this nature are valid and legally binding if they are made through the internet. Embodiments of these are the Requirements of writing Act 1995 and the Consumer Credit Act 1974.
Issue two: Need for humans in contracting
After establishing the validity of an electronic contract that is made through the internet, a subsequent issue that arises and there is need to address it the question of whether a contract can actually be made in the absence of human intervention or knowledge. There is a likelihood that when an electronic contract is made via the internet, the communication could be made by an automated response.[20] In the context of a contract law, this response can be viewed to be void as it is merely an operating machine that has been crafted and programmed to make a response to an order in the absence of human intervention. In the past, the issue of automated messages presented a major issue to the courts as it was not clear on how to deal with it. Automated message systems can be likened to legal agents in the real world. The general rule will come into play the instance the contract has been finalised and the seller gets the acceptance. There are those that have made the argument that the general rule of the automated message system is not legal. The argument here is that even the most elaborate and complicated software is not capable of making decisions that are autonomous, however, it operates in accordance to past programming. Ergo, the responsibility resides with the principal party who made the decision to make use of such systems to enter into contract with the intention of being bound by whatever its declarations are. The isolated transaction needs to be viewed in the context of the communications systems that have been established.[21] However, there is also arguments that the electronic service cannot enter into contracts for its own purposes but on behalf of the owner. To this effect, Article 12 of the European Union Convention has made confirmations on the matter regarding the validity of automated systems.[22] It declares that an automatic message generated in response to a natural person is viewed to be valid and binding regardless of the fact that there was no intervention from the other party. Additionally, section 14 (1) of the Uniform Electronic Transaction has made adamant assurances of the validity of this contract.[23]
The receiving of an automated message does not in itself translate to an acceptance. There is always the looming issue of fraud when it comes to automated systems scheme. In a different light, automated message systems can, in fact, give rise to a contract; the difference here lies on the message being sent. Not all the responses of electronic agents can result in a contract; some may be merely established to acknowledge the receipt of a certain offer, and as such it depends on what duties the electronic agent is designed to perform.[24] In a case involving Fleetpro, the company was viewed to have been culpable for initiating the order of buying vehicles at a low price and there was an array of misrepresentations of fraud charged against Renault.[25]
In the instance that an order is registered into the system, all the processes are automated and therefore it cannot be liable because it was performed by the machine. Ergo, in terms of misrepresentation it is not possible to have a contract created on an automated system, and in light of this it cannot be perceived to be acting as an agent. A scam on the internet may be as unsophisticated as receiving money for certain goods or services then refusing to make the delivery.
Emerging Technologies
Bitcoins
Bitcoin can be described as a form of digital currency that is only held electronically. Unlike traditional currency, bitcoins are not printed but rather are produced by individuals, and in the recent past there has been an increasing trend where businesses are producing bitcoins. Bitcoins are the first of their kind in classification of currency that is referred to as cryptocurrency.[26]
One of the main distinguishers of bitcoins from traditional currency is that it is decentralised. There is no single institution that can claim to be in control of bitcoins or its network. The essence of this is that a lot of people feel at ease with the fact that one large bank does not have the power to control their money.
The brains behind the concept of bitcoins was a little known software developer by the name of Satoshi Nakamoto.[27] He proposed an electronic payment system that was founded on mathematical proof and was transferrable instantly over the internet at substantially low fees. The beauty of bitcoins is that it is not printed by anyone like the way banks print money to cover national debt. Instead, bitcoins are produced digitally by a community of individuals with the use of computing power, and of whom anyone can join. However, it is not possible to produce unlimited bitcoins, the rules dictate that only 21 million bitcoins can ever be produced by miners. That being said each bitcoin can be subdivided to a hundred millionth of a bitcoin, popularly referred to as a Satoshi. The primary basis of bitcoin is mathematics, as opposed to the traditional gold. All around the globe, people are employing the services of software programs to create bitcoins. The formula behind these is readily available in addition to the program being open source therefore anyone can check to confirm that the programme does whatever it purports to do.
Characteristics of Bitcoins
There are several features that set currencies apart from traditional government backed currencies. They are as follows:
· Bitcoins are decentralised. As earlier mentioned, bitcoins are not controlled by any one authority. Every machine that produces bitcoins, is responsible for the processing of the transaction that make up that network and the machines work in tandem. In theory, what this means is that there is no single authority in the bitcoin network that fiddle with the monetary policy and create a global meltdown.[28]
· Easy to set up. Traditionally, one would have to jump through a series of hoops in order to set up a bank account. However, with bitcoins it only takes a matter of seconds to set up an address.[29]
· Anonymity. It is possible to maintain anonymity using bitcoins as one can set up multiple addresses that are not linked to their real names.[30]
· Transparency. Despite the fact that it gives anonymity, bitcoins does store the details of all the transactions that have been performed over the network. These are saved in a bigger version that is called the blockchain. Here all can be seen. For instance, if one has a bitcoin address that is public, then everyone has access to the details concerning how many bitcoins are stored there, the only thing that they are not able to tell is who they belong to.[31]
· Low transaction fees
· Very fast
· Cannot be repudiated. The moment one sends their bitcoins, it is impossible to get them back unless the recipient sends them back.
Legal implications of Bitcoins
There have been growing concerns over the legal implications of bitcoins in the recent past. There are some factions that argue that their existence promotes illegal activities and should be banned. This is a valid argument, however, the economic policy behind bitcoins is sound and it has very many positive attributes. Moreover, the anonymity factor of bitcoins has proliferated its popularity to the point that it is now an unstoppable entity.
There are some jurisdictions that have passed laws that declare the legality of bitcoins as a form of currency. In fact, there are some corporations that are creating bitcoins and advertising their participation as well.
Conclusion
As a result, it would seem clear that the electronic contracts in parallel with emerging technologies which regarding to refer those kind of contracts will be in the spotlight in our world. In order to rally around this phenomenon, international institutions along with domestic legal systems put effort into it. The vastness of the internet is almost incomprehensible as the each and every day new methods of e-commerce are coming up.
In light of the above topic at hand, how does electronic contracting apply in the case of bitcoins? Well, because bitcoins merely form the consideration part of the contract, provided the two parties have agreed on the offer and there is acceptance, the argument against bitcoins is moot. Furthermore, the framework of bitcoins dictates that provided one has sent bitcoins, they cannot retrieve them unless they are sent back by the receiver. In this case the issue of electronic signatures applies and acceptance applies. Provided one has clicked on the ‘agree’ button, then the contract exists.
Bibliography
Journals
Bates D, ‘Mistakes in Online Transactions - the Lessons to Be Learned from Kodak’ [2002] SSRN p.3 Electronic Journal
Ben-Sasson E, ‘Zerocash: Decentralized Anonymous Payments from Bitcoin’ [2014] Security and Privacy (SP), 2014 IEEE Symposium on. IEEE p.460
Bornholdt S and Sneppen K, ‘Do Bitcoins Make the World Go Round? On the Dynamics of Competing Crypto-Currencies’ [2014] arXiv preprint arXiv:1403.6378 p.2
Farah Y, ‘Electronic Contracts and Information Society Services Under the E-Commerce Directive’ (2009) J. INTERNET L. 12 (2009): 3.
HM Government, ‘Law Commission Electronic Commerce: Formal Requirements in Commercial Transactions Advice From Law Commission’ (2001) <http://www.lawcom.gov.uk/wp-content/uploads/2015/09/electronic_commerce_advice.pdf> accessed 19 January 2016
Hammer E, ‘Internet Law in the Courts’ [2014] Journal of Internet Law 17, no. 10 (April 2014): 30-33. Business Source Complete
Hammer IJ, ‘Internet Law and Electronic Contracting Cases 2010-2011’ (2011) Business Lawyer 67, no. 1 (November 2011): 279-284
Kaplanov NM, ‘Nerdy Money: Bitcoin, the Private Digital Currency, and the Case against Its Regulation’ [2012] SSRN Electronic Journal 25 LOY. CONSUMER L. REV. 111, 115 (2012). P.115
Lazcano G and others, ‘Schuldt, A. Lazcano G. Alonso H., and C. Schuler. “The WISE Approach to Electronic Commerce.”’ Int’l J. Computer Systems Science and Eng 15.5 (2000): 343-355.
Machovec G, ‘Consortial E-Resource Licensing: Current Trends and Issues’ (2014) 55 Journal of Library Administration 69
Möser M, Böhme R and Breuker D, ‘Towards Risk Scoring of Bitcoin Transactions’ [2014] Financial Cryptography and Data Security. Springer Berlin Heidelberg. 16-32.
Ober M, Katzenbeisser S and Hamacher K, ‘Structure and Anonymity of the Bitcoin Transaction Graph’ (2013) 5 Future Internet 237
Rogers KM, ‘Snap-Happy Consumers Leave Kodak in the Dark’ (2002) Business Law Review 23.5 (2002): pp.112-114.
Rudareanu M, ‘The Law and the Informational Society: Electronic Signature and Electronic Contract’ [2011] Economics, Management & Financial Markets 6, no. 2 (June 2011): 401-409. Business Source Complete
Rustad ML and Koenig TH, ‘Wolves of the World Wide Web: Reforming Social Networks’ Contracting Practices’ [2014] Wake Forest L. Rev. 49: p.1431.
Savirimuthu J, ‘Online Contract Formation: Taking Technological Infrastructure Seriously’ (2005) UOLTJ 2 (2005): 105-109
Young EA, ‘Protecting Member State Autonomy in the European Union: Some Cautionary Tales from American Federalism’ [2002] New York University Law Review, Vol. 77, Issue 6 (December 2002), pp. 1612-1739
Regulations
Nations U, ‘United Nations Convention on Contracts for the International Sale of Goods’ (2010) <https://www.uncitral.org/pdf/english/texts/sales/cisg/V1056997-CISG-e-book.pdf> accessed 19 January 2016
Uniform Electronic Transactions Act (1999) National Conference of on Uniform State Laws and by it approved and recommended for enactment in all the at Its’ (1999) <http://euro.ecom.cmu.edu/program/law/08-732/Transactions/ueta.pdf> accessed 19 January 2016
Cases
Gibson v Manchester City Council [1979] [1979] WLR 294, [1979] UKHL 6, [1979] 1 WLR 294
Grainger & Son v Gough [1896] AC 325
Partridge v Crittenden [1968] 1 WLR 1204
Pharmaceutical Society of Great Britain v Boots Cash Chemists (Southern) Ltd [1953] EWCA Civ 6, [1953] 1 QB 401
[1] Farah, Youseph. "Electronic Contracts and Information Society Services Under the E-Commerce Directive." J. INTERNET L. 12 (2009): 3
[2] Evan Hammer, ‘Internet Law in the Courts’ [2014] Journal of Internet Law 17, no. 10(April 2014)p.31
[3] HM Government, ‘Law Commission Electronic Commerce: Formal Requirements in Commercial Transactions Advice From Law Commission’ (2001) <http://www.lawcom.gov.uk/wp-content/uploads/2015/09/electronic_commerce_advice.pdf> accessed 19 January 2016.
[4] Gibson v Manchester City Council [1979] WLR 294, [1979] UKHL 6, [1979] 1 WLR 294
[5] Ibid.
[6] Grainger & Son v Gough [1896] AC 325
[7] Partridge v Crittenden [1968] 1 WLR 1204
[8] Pharmaceutical Society of Great Britain v Boots Cash Chemists (Southern) Ltd [1953] EWCA Civ 6, [1953] 1 QB 401
[9] Daniel Bates, ‘Mistakes in Online Transactions - the Lessons to Be Learned from Kodak’ [2002] SSRN Electronic Journal p.3
[10] Kevin M Rogers, ‘Snap-Happy Consumers Leave Kodak in the Dark’ (2002) Business Law Review 23.5 (2002): pp.112-114.
[11] Rustad, Michael L., and Thomas H. Koenig. "Wolves of the World Wide Web: Reforming Social Networks' Contracting Practices." Wake Forest L. Rev. 49 (2014): p.1431.
[12] Ira J Hammer, ‘Internet Law and Electronic Contracting Cases 2010-2011’ (2011) Business Lawyer 67, no. 1 (November 2011): p.280
[13] United Nations, ‘United Nations Convention on Contracts for the International Sale of Goods’ (2010) <https://www.uncitral.org/pdf/english/texts/sales/cisg/V1056997-CISG-e-book.pdf> p.4
[14] George Machovec, ‘Consortial E-Resource Licensing: Current Trends and Issues’ (2014) 55 Journal of Library Administration 69 p.72
[15] Farah, Youseph. "Electronic Contracts and Information Society Services Under the E-Commerce Directive." J. Internet L. 12 (2009): p.4
[16] United Nations, ‘United Nations Convention on Contracts for the International Sale of Goods’ (2010) <https://www.uncitral.org/pdf/english/texts/sales/cisg/V1056997-CISG-e-book.pdf> p.5
[17] Ibid, p.6
[18] Ernest A Young, ‘Protecting Member State Autonomy in the European Union: Some Cautionary Tales from American Federalism’ [2002] New York University Law Review, Vol. 77, Issue 6 (December 2002), p.1692
[19] Joseph Savirimuthu, ‘Online Contract Formation: Taking Technological Infrastructure Seriously’ (2005) UOLTJ 2 (2005): p.113
[20] Evan Hammer, ‘Internet Law in the Courts’ [2014] Journal of Internet Law 17, no. 10(April 2014) p.32
[21] Schuldt, A. Lazcano G. Alonso H., and C. Schuler. “The WISE Approach to Electronic Commerce.”’ Int’l J. Computer Systems Science and Eng 15.5 (2000): p.353
[22] United Nations, ‘United Nations Convention on Contracts for the International Sale of Goods’ (2010) <https://www.uncitral.org/pdf/english/texts/sales/cisg/V1056997-CISG-e-book.pdf> p.4
[23] ‘Uniform Electronic Transactions Act (1999) National Conference of on Uniform State Laws and by it approved and recommended for enactment in all the at Its’ (1999) <http://euro.ecom.cmu.edu/program/law/08-732/Transactions/ueta.pdf> accessed 19 January 2016
[24] Evan Hammer, ‘Internet Law in the Courts’ [2014] Journal of Internet Law 17, no. 10(April 2014)p.34
[25] Mariana Rudareanu, ‘The Law and the Informational Society: Electronic Signature and Electronic Contract’ [2011] Economics, Management & Financial Markets 6, no. 2 (June 2011): p.403
[26] George Machovec, ‘Consortial E-Resource Licensing: Current Trends and Issues’ (2014) 55 Journal of Library Administration 69
[27] Nikolei M Kaplanov, ‘Nerdy Money: Bitcoin, the Private Digital Currency, and the Case against Its Regulation’ [2012] SSRN Electronic Journal 25 LOY. CONSUMER L. REV. 111. p.115
[28] Eli Ben-Sasson, ‘Zerocash: Decentralized Anonymous Payments from Bitcoin’ [2014] Security and Privacy (SP), 2014 IEEE Symposium on. IEEE p.460.
[29] Malte Möser, Rainer Böhme and Dominic Breuker, ‘Towards Risk Scoring of Bitcoin Transactions’ [2014] Financial Cryptography and Data Security. Springer Berlin Heidelberg. P.25
[30] Micha Ober, Stefan Katzenbeisser and Kay Hamacher, ‘Structure and Anonymity of the Bitcoin Transaction Graph’ (2013) 5 Future Internet p.240
[31] Stefan Bornholdt and Kim Sneppen, ‘Do Bitcoins Make the World Go Round? On the Dynamics of Competing Crypto-Currencies’ [2014] arXiv preprint arXiv:1403.6378 p.2