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(specifically the agreement process) seems to be outdated and does not fit in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>

[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)