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Article by - Shriyans Bansal, Institute of Law, Nirma University
The advent of e-contracts has revolutionized conventional contract practices, marking the beginning of a new era of digital activities while introducing specific challenges for legal systems worldwide. As businesses and individuals continue to migrate away from traditional forms and towards online platforms, the importance of considering the unique issues arising from digital contracts is paramount. E-contracts offer efficiency, convenience, and international reach, but also bring new legal issues of enforceability, validity, and jurisdiction.
The Development of E-Contracts
E-contracts, or electronic contracts, are agreements that can be legally enforced and that are created and fulfilled over the Internet without having to demonstrate physical presence or produce a paper document in the contracting process. With the emergence of the increased use of electronic networks and digital communication technology, e-contracts can be performed remotely or instantaneous remote transactions on a global basis. E-contracts may take various forms including click-wrap contracts (in which the user clicks “I agree” to terms and conditions), browse-wrap contracts (in which the contract terms are published on the website, and users are funnelled to hyperlinks), or shrink-wrap contracts (in which the contract terms are inserted in the packaging of a product).
The contract principles and theories known and understood in traditional contract law are the basis of legality of e-contracts; namely, offer, acceptance, consideration, and intent to be bound. However, similar contract principles have to be interpreted differently in a digital environment; for example, was the offer made and accepted in the email confirmation or where the button to a service was clicked? Most commonly, the acceptance of a contract in the digital environment occurs upon clicking a button, not by exchanging documents.
Present
Applications of E-Contracts
In the current digital age, e-contracts exist virtually everywhere. They are commonly used in e-commerce, online services, software licensing, and even employment contracts. Click-wrap agreements are the most common type of e-contract. In click-wrap agreements, the customer must click “I agree” to a set of terms before accessing a service or purchasing a product. Such contracts are widely used in software, telecommunications, and e-commerce industries.
Even in India, e-contracts received legal recognition in the Information Technology Act of 2000 (IT Act), which established a legal framework for digital contracts. Section 10-A of the IT Act supports the validity of contracts executed electronically, stating that contracts cannot be denied legal effect because they are executed electronically. Similarly, English law recognizes electronic contracts under the Electronic Communications Act of 2000 and the E-Commerce Regulations of 2002. These laws also recognized electronic contracts and signatures and are consistent with the EU E-Commerce Directive.
Legal Challenges
Despite their widespread use, e-contracts pose several legal challenges that necessitate careful consideration by courts and legislators. These challenges primarily arise from issues related to consent, enforceability, and jurisdiction.
1. Consent and Acceptance
A significant legal concern in electronic contracts is establishing rolled out consent. In traditional contract law, we have a clear transfer offer and acceptance. In digital contracts, especially in click-wrap agreements and browse-wrap agreements, users often consent without successfully engrossing the entire length of the terms before clicking through agreements. Courts have wrestled with whether the users' action in clicking "I agree," is indeed an informed consent to the terms of the agreement. In Specht v. Netscape Communications Corp. (2002), a U.S. Court of Appeals for the Second Circuit case, simply making the terms available and hyperlinking them where users could find them was not consent that could be enforced via browse-wrap agreements unless the user knew that the terms or linked text were there at all.
The same idea has been adopted in India by the courts. In Trimex International FZE Ltd. v. Vedanta Aluminium Ltd (2010), the court emphasized that electronic communications led to legally binding contracts if there was a provided clear offer and acceptance element to the contract. Courts have been cautious in general in enforcing contracts where consent is not unambiguous or informed.
2. Enforceability of E-Signatures
E-signatures, or electronic signatures, are an essential feature of e-contracts because they permit parties to sign agreements without meeting in person. E-signatures are valid under Indian and English law but whether enforceability exists depends on whether statutory requirements are satisfied. In India, the IT Act requires that e-signatures be "reliable" and be capable of being verified through a certification authority. Similarly, the enforceability of e-signatures in England is established through the Electronic Communications Act, 2000, and the E-Signatures Regulations Act, 2002, which protects the identity of signers if when executing the document electronically.
However, disputes have been raised regarding the authenticity and security of e-signatures when used in cross-border transactions. In the case of J Pereira Fernandes SA v. Mehta (2006), English law raised the issue of whether an automatically generated email footer would satisfy the necessary signature contextualize required as an electronic signature. The court concluded that while it would represent proof of an email with the footer, the automatically generated footer clearly met the definition by having no intent to authenticate the document.
3. Jurisdictional Issues
The use of e-contracts frequently involves parties located in different jurisdictions, raising questions as to applicable law and jurisdictional issues. Deciding under what country and whose law a contract is governed, as well as where disputes should be resolved, is often a difficult dilemma. Jurisdiction becomes even more complicated when contracting parties exist in separate countries, as e-contracts tend to be entered into without any clear territorial nexus.
In Bhadbade Anant R. v. Nitesh Estates Ltd. (2019), the Bombay High Court was presented with the issue of jurisdiction in relation to e-contracts. The court ultimately decided that, irrespective of the fact the contract had been completed electronically, it could still only be heard in the jurisdictional court where the cause of action arose. In England, the courts generally adopt a more flexible approach reflective in Consumers' Association v. Dyson Ltd. (2014), where the English High Court held an online transaction with a UK consumer was subject to English territorial jurisdiction even when the business was not located in the EU, as it had targeted English consumers.
While e-contracts have achieved prominent face advantages, they have also led to critical issues regarding fairness, transparency and consumer protection. One of the major cons associated with e-contracts is the presentation of terms to users is often not capable of being negotiated; users are bound to accept the terms expressed in a standard-form contract, where the terms are totally drafted by the service provider, resulting in significant imbalances of power between parties, especially in the context of consumer transactions.
One of the main critiques of e-contracts, even without significant impositions on fairness, is with the absence of transparency with the terms of a e-contract. Courts have asserted multiple times that in order for a contract to be enforceable the terms need to be clear and understandable to the user. However, often terms of e-contracts are expressed in complex vernacular, legal phraseology or formats a secondary user may not have capacity to understand, as evidenced in Kapur v. Snapdeal.com (2019) where the Delhi High Court expressed criticisms to lack of transparency in online terms and conditions.
Furthermore, e-contracts continue to be critiqued for influence on greater privacy. We live in times where data is a valuable commodity and e-contracts typically articulate some kind of clause that will permit service providers to collect store and use user data without the users explicit understanding or transaction knowledge. This creates significant issues regarding data protection and potential privacy rights specifically regarding laws of data protection such as General Data Protection Regulation (GDPR) within Europe and Personal Data Protection Bill in India.
Conclusion
E-contracts constitute a noteworthy departure from traditional contracts in the formation and execution of contracts in a digital world. Although e-contracts provided efficiency and convenience, they also raise complex legal issues in respect of consent, enforceability, and jurisdiction. With the increasing prevalence of e-contracts, ensuring fairness, transparency, and consumer protection in digital transactions will require jurisdictions globally to confront these issues.
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