Whether There Is Sufficient Clarity in Formation of Contractual Terms for Online Transactions - Coursework Example

Running Head: CONTRACT LAW Contract Law Name Course Institution Date Contract Law Introduction The power and significance of contracts cannot be overstated. Contracts form the legal basis upon which business around the globe is transacted. Conventionally, contracts are made when two contracting parties agree to the terms and conditions depicted in a contract by using their signatures. As a result of technological revolutions, new contracting trends have emerged. Market efficiency and accessibility of electronic business has contributed to the increase of businesses which prefer to conduct their transactions via the internet. As a result of these trends, it is thus essential for business owners and individuals to efficiently comprehend the terms and conditions in online agreements and know whether these online standard form contracts can be legally enforced (Orpwood, 2008). In most cases, clicking an “I agree” button is considered as a signature that binds the contracting parties to the terms and conditions stipulated in a particular contract. Nevertheless, if clicking an “I agree” button is considered as a signature, the issue of what the signature implies may be significant particularly with regards to standard terms that are visually indistinct and obscurely located. Moreover, the issue regarding the point in which “a red hand rule” requires additional notice may emerge in relation to incorporation by notice involving reference through the 'terms button’(Macdonald, 2011). This paper seeks to examine to what extent there is sufficient clarity and certainty in the formation of contractual terms for transactions completed online. The concept of incorporation of terms by signature and notice under the Australian law will be put into account. In addition, the findings of this paper will be based on close reference to relevant Commonwealth and NSW statutory provisions. Website Contracting When businesses seek to establish online contracts, normally they try to incorporate their standards terms and conditions into the provisions of the contract. In most cases, the incorporation of these terms and conditions is subject to the general principles and guidelines of contract law. There are two commonly used methods of accepting online terms and conditions. These methods include the click wrap agreement and the browse –wrap agreement. In a click-wrap online agreement, the terms and conditions of the agreement are positioned in the same side as the “I Agree” button. In this case, before proceeding further consumers are required to read through all the stipulated terms and conditions and then click “I Agree” button, if they consent to the stipulated terms (Smith, 2009). This type of agreement is considered to be legally enforceable as a contract. In a click-wrap online agreement, several factors should be considered. For instance, it is important to consider whether the merchant is making an offer that consumers should consider or the consumers are making an offer that the merchant should consider. Furthermore, it is important to consider when the contract was formed. If the contract was formed at the time of clicking “I Agree” other additional terms and conditions cannot be introduced later on. In addition to this, it is important to consider whether the terms and conditions contained in the contract are in line with the laws of the specific jurisdiction (Smith, 2009). On the other hand, in a browse-wrap agreement, the terms and conditions of the agreement are not in the same page as the “I Agree” button. This button can be accessed through a hyperlink positioned in the same page. In this case, the consumer is not often required to follow the hyperlink and view the terms and conditions of the contract. In most cases, this form of agreement is not legally enforceable (Smith, 2009; Macdonald, 2011). Following the advent of website contracting, standard contract terms have been proliferated. When purchasing goods from a shop no standard form is produced nevertheless, goods purchased from the internet come with a long list of standard terms. In as much as distance sales are characterised by more complexities that simple shop purchase, the web has over time succumb to a long set of standard terms. Mann & Siebeneicher (2008) observe that the long set of standard terms in web based contracts, implies that web owners are more concerned about encouraging purchases in their website rather than guaranteeing the incorporation of terms. A good number of retailers design their websites in order to balance the benefits of ensuring incorporation and the burden of complicating the process of purchase. It is such issues that prompt a review of whether there is sufficient clarity and certainty in the establishment of contractual terms for transactions that are completed online (Mann & Siebeneicher, 2008). In order to place this discussion in context, it is essential to foremost examine some of the implications associated with the use of the “I Agree” button as a signature. It is essential to consider the legal characterization of the “I Agree” button in cases where it is considered as an agreement signature. Evidently, the use of this button comes with considerable consequences particularly when it comes to the incorporation of terms as agreement. For instance, in L'Estrange vs. F Graucob Ltd the terms of the contract were upheld and termed as binding on grounds that there was a signature (Macdonald, 2011). The consequences in relation to this court case imply that it would be irrelevant whether or not the web user has read the terms or knows about them. Furthermore, no question of reasonable notice arises thus based on the ruling in L'Estrange vs. F Graucob Ltd the terms and conditions depicted in an online agreement would be binding if web users clicks on the “I Agree” button irrespective of whether or not they have read the terms of the agreement. Also see Parker v S E Ry Co. However, in a case whereby an “I Agree” button is not considered as an agreement by signature there is need for sufficient notice in order to incorporate the terms especially in case there are any unreasonable or unusual terms. In such as case the ‘red hand rule’ may apply thus forcing the website owner to prove his or her intention to show that a condition of that nature was brought to the attention of the other party (Macdonald, 2011). In L'Estrange vs. F Graucob Ltd the court’s ruling established that in the absence of violating factors such as misrepresentation and fraud a signature should be fully binding to all the stipulated terms and conditions. However, in Australia it is somewhat unclear as to whether modern technological advances of accepting contract terms such as the “I Agree” button count as signature that can be legally enforced like in L'Estrange vs. F Graucob Ltd(Macdonald, 2011). Despite of the widespread use of click-wrap, browsewrap and shrink-wrap online agreements, the enforceability of such agreements under the Australian Law is yet to be addressed (Adams, 2004). Australian courts are yet to consider whether online contracts particularly shrink-wrapped terms can be suitably incorporated in contracts. Nevertheless in certain jurisdictions web owners are required to position all terms and conditions on the contract so as to avoid introducing additional terms and conditions after a contract has been concluded. In Australia the Distance selling Code formed by the Australian Competition and Consumer Commission (ACCC) should be put into account. Whereas this code is not legally enforceable, it reflects the perspective that ACCC has on e-commerce. For example, this code requires that the duration during which an agreement remains valid should be specified (Clark et al 2010; Founds, 1999). In order to effectively examine to what extent there is sufficient clarity and certainty in the formation of contractual terms for transactions completed online, it is essential to look into the concept of incorporation of terms by signature and notice under the Australian law. The Electronic Transaction Act 1999(Cth) provides considerable provisions that support the enforceability of online contracts. The Act adopts principles that accentuate on the need to treat both paper based and electronic based commercial contracts equally. For instance, section 9 of the Act provides specific guidelines on the conditions that electronic contracts should meet. Basically, this Act and other corresponding state and territory legislations aim to eliminate legal impediments to electronic contracts. The Act works by not making electronic transactions invalid simply because the transactions are electronic (Electronic Transaction Act 1999). Moreover, the Australian Consumer Law (ACL) has stipulated provisions on online standard form contracts with the aim of protecting consumers from entering into fraudulent online contracts. The law provides certain terms into every online contract. For instance it is stipulated in this law that there should be a clear description of the service or product in offer. This description should as clear and accurate as possible. For instance, if there are particular uses for a certain product that may be unsuitable for consumers, the manufacturer or retailer should make it clear to the consumer. A product must also fit the purpose depicted in advertisements. For instance, if a picture the picture of a particular product is presented in an internet site, then it should be the actual representation of that product. Failure to accurately describe the product can be considered as a breach of the Trade Practices Act or the Sales of Good Act. Moreover, the Australian Consumer Law provides that any terms and condition of use of product for instance hardware or software application should be clearly disclose to the consumer. If a product purchased is subject to a license agreement, the vendor should ensure that the consumer reviews the license agreement before being allowed to buy that particular product. The consumer must also be provided with an adequate platform and opportunity to reject or terminate the terms of the agreement (Australian Consumer Law). The red hand rule is a good example of a regulation that depicts the concept of incorporation of terms by signature and notice under the Australian law. To some extent, this rule contributes to the existing ambiguity and uncertainty of contractual terms for transactions completed online. This rule can be traced back to Spurling v Bradshaw Ltd, where Lord Denning observed that; “The more unreasonable a clause is, the greater the notice which must be given of it. Some clauses would need to be printed in red ink with a red hand pointing to it before the notice could be held to be sufficient.” Similarly Macdonald (1988), notes that the ‘red hand rule’ does not applies to signed documents. This rule does not depict that one party cannot incorporate unreasonable clauses. It merely proposes that special notice will be required so as to make the clause part of the contract. Therefore, this rule cannot prevent one party having unreasonable or unusual clause in any agreement that the part makes. The party can always put the unreasonable or unusual clause in a red box (Macdonald 1988). Based on the concept of incorporation of terms by signature and notice under the Australian law, one can argue that when it comes to the formation of contractual terms for transactions completed online that there is no sufficient clarity and certainty in the terms. While there are no guarantees that there is sufficient clarity and certainty in the terms and conditions depicted in contracts and whether some of these agreements are legally enforceable, it is clearly better to have these terms than not to. However, in order to increase the chances of the enforceability of such agreements, issues of validity and clarity should be put into consideration (Clark et al 2010). Business owners can ensure sufficient clarity and certainty in their terms by clearly expressing their intention for the terms and conditions incorporated with the contract and by bolding or highlighting the unreasonable terms and conditions in order to draw the attention of consumers. One of the ways that website owners or business owners can ensure that there are sufficient clarity and certainty in the terms provided in their agreements is by providing reasonable notice before the formation of the contract thus satisfying the rule in Thornton v Shoe Lane Parking. This court case provides a good example of the rule that a clause cannot be included in a contract with reasonable notice provided before a contract has been concluded. A critical review of various court cases provides a clear picture to what extent there is sufficient clarity and certainty in the formation of contractual terms for transactions completed online. For instance in, Toll (FGCT) Pty Ltd v Alphapharm Pty Ltd, the High Court had to establish whether the indemnity and exemption of clauses in an application for credit signed by an agent of the plaintiff were enforceable. Although the ‘red hand rule’ was not specifically referred to, the court had to come into a unanimous judgement on whether the ‘red hand rule’ is relevant to signed documents (Kapnoullas & Clarke, 1993). If the ‘red hand rule’ was not applicable to signed documents, the use of unusual and unreasonable clauses that are signed in this contract will basically be based on section 52 of the Trade Act 1974(Cth) and statutory provisions that are associated with unconscionability. In MacRobertson Miller Airline Services v Commissioner of State Taxation, it was established that if an unreasonable clause is incorporated in terms that are not read and are unlikely to be read, there would not be acceptance of the stipulated conditions. Conversely, in the High Court case of Oceanic Sun Line Special Shipping Company Inc v Fay the court case of Thornton v Shoe Lane Parking was referred to by Judge Brennan who ruled that, in differing circumstances, different factors may be required to bring about an exemption clause in the passenger’s notice particularly if the clause is unusual (Kapnoullas & Clarke, 2006). Conclusion This paper has examined the extent in which there is sufficient clarity and certainty in the formation of contractual terms for transactions completed online. A critical look at the concept of incorporation of terms by signature and notice under the Australian law shows that there is no sufficient clarity and certainty in online contract terms. In support of this sentiment, Mann & Siebeneicher (2008) observe that website contracting, standard contract terms have been proliferated. When purchasing goods from a shop no standard form is produced nevertheless, goods purchased from the internet come with a long list of standard terms. From this, it is evident that web owners are more concerned about encouraging purchases in their website rather than guaranteeing the incorporation of terms (Mann & Siebeneicher 2008). Basically, in the Australia Law, it is somewhat unclear as to whether modern technological advances of accepting contract terms such as the “I Agree” button count as signature that can be legally enforced like in L'Estrange vs. F Graucob Ltd(Macdonald, 2011). Nevertheless, legislations such as The Electronic Transaction Act 1999(Cth) provides considerable provisions that support the enforceability of online contracts. Similarly, the Australian Consumer Law (ACL) has stipulated provisions on online standard form contracts with the aim of protecting consumers from entering into fraudulent online contracts. However, the red hand rule to some extent contributes to the existing ambiguity and uncertainty of contractual terms for transactions completed online. This rule supports the enforceability of unreasonable a clause should prior notice be given. Consequently, there is no sufficient clarity and certainty in online contract terms (Macdonald, 2011). References Adams, J. (2004). Digital age standard from contracts under Australian law: “Wrap” agreements exclusive jurisdiction and binding arbitration clauses. Pacific Rim Law & Policy Journal Association 13 (3), pp. 503-546. Australian Consumer Law (ACL) Retrieved on 25 March, 2011from Clark, E. Cho, G. & Hoyle, A. (2010). Cyber Law in Australia. Melbourne: Kluwer Law International. Electronic Transaction Act 1999(Cth) Retrieved on 25 March, 2011from Founds, G.(1999). Shrink-wrap and Click-wrap Agreements: 2B or Not 2B? Federal communication Law Journal 52(1), p. 100 Kapnoullas, S. & Clarke, B. (1993). Fine Print in Contract: From Invisible Ink Cases to Red Ink Rules. Melbourne University Law Review 19. p.92. Kapnoullas, S. & Clarke, B. (2006). Incorporation of unusual or unusual or unreasonable terms into contract: The red hand rule and signed documents. Deakin Law Review 11(2), pp. 95-113. McDonald, E. (1988). ‘The Duty to Give Notice of Unusual Contract Terms’ Journal of Business Law 375, 385. Macdonald, E. (2011). Incorporation of Standard Terms in Website Contracting-Clicking "I Agree" Journal of Contract Law 27(3), pp. 198-210. Macdonald, E. (2011). When is a contract formed by the browse-wrap process? International Journal of Law and Information 19(4), 285-305. Mann, R. & Siebeneicher, T. (2008). ‘Just One Click: The Reality of Internet Contracting’ Columbia Law Review 108(4) pp. 984-1012. Orpwood, R. (2008). Electronic Contracts: Where we’ve come from, where we are and where we should be going. International In-house Counsel Journal 1 (3), pp. 455.466 Smith, G. (2009). Internet law and regulation. New York: Sweet & Maxwell. Trade Act 1974(Cth) Retrieved on 25 March, 2011from Cases L'Estrange v F Graucob Ltd [1934] 2 KB 394 MacRobertson Miller Airline Services v Commissioner of State Taxation (1975) 133 CLR 125, 142 Oceanic Sun Line Special Shipping Company Inc v Fay(1988) 165 CLR 197 Parker v S E Ry Co (1877) CPD 416. Spurling v Bradshaw Ltd [1956] EWCA Civ 3 Thornton v Shoe Lane Parking Ltd [1971] 2 QB 163 Toll (FGCT) Pty Ltd v Alphapharm Pty Ltd (2004) 211 ALR 342 Read More